Innovative initiatives in local development: local currencies

As we have seen previously, the concept of local development entails local governments’ policies aimed at reactivating and boosting the economy of specific territories, fostering economic growth, employment and quality of life. Would the so-called social or local currencies be an example of this?

The concept of social currency

A social currency is a tool created and used by a small or medium community in order to facilitate exchanges of products, services and knowledge. As defined by Bernard Liater, it is based on an agreement among a community to use something determined as a medium of exchange. That is why they are also known as local currencies.

They are also known as complementary currencies since they pretend to cover the gaps in legal money with some particular advantages as catalysts of proximity trade, self-employment and optimization of local resources. It is improtant to take into account that, in legal terms, they are not strictu sensum comparable to traditional currencies.

As UOC professor of economics and business studies August Corrons argues, the difference with the traditional currency lies in its functions. Classic money has three functions: medium of exchange, unit of account and store of value. Social currencies, in contrast, only fulfill the two first options. Unlike conventional money, they are created through real activity of already realized work -whether production of a good or a service- and not through by credit, that is, debat. It does not generate any interest. Therefore, it does not make any sense to save. Its objective, then, is that money comes with production, not with speculation.

Despite their recent popularity, first social currencies were made up during the Great Depression of the 1930s. The first case was the WIR, created by an SME cooperative in Zurich (1934). Eighty-two years later, the initiative has more than 60.000 participating companies. But maybe the best-known case, however, is the British city of Bristol, which launched the Bristol Pound in 2012 that has become a real alternative to official currency. Users can pay taxes, wages and even electricity bills.

Social currencies are often linked to other initiatives in social economy. An example would be is WASTED, in Amsterdam (the Netherlands), along with the circular economy. The aim of this project is to foster the recycling of waste by neighbors, which is rewarded in a virtual currency from which discounts can be obtained in neighborhood shops. On the other hand, objects are created with the waste for the community.

Social and local currencies in Catalonia

If we analyze the experiences in Catalonia, they were firstly promoted by the civil society and later by local governments as an inititative of local development. Catalonia currently holds 26 experiences in this sense. In fact, Barcelona recently held in May 2017 the “IV International Conference on Social and Complementary Currencies: Money, Consciousness and Values for Social Change”, organized by UOC.

In the first case, we have the Ecoxarxa, an initiative promoted in 2009 as a social economy initiative. Another case is the Turuta, a local currency created for similar means in Vilanova i la Geltrú in 2010. In fact, the Wall Street Journal published an article in 2012 to analyze the scope of this kind of initiatives in Spain.

Building on these initiatives, some local authorities have boosted local currencies in their municipalities. The pioneering case in Catalonia, and the only one for the moment, is Santa Coloma de Gramenet, where the City Council launched its own currency, the Grama, at the beginning of 2017. The aim is to increase the impact of public spending (subsidies, salaries, purchase to suppliers) on local businesses and to increase the circulation of money among the businesses of Santa Coloma.

This initiative is being funded by the European Union through the programme Digipay4Growth, with a 3 milion euros budget. Other similar similar projects are also scheduled in the region of Berguedà and in the city of Barcelona.

All these initiatives work through virtual units. That is, payment systems through mobile Apps. The exchange rate is the same as euros (1€ = 1 turuta, 1 grama…), and users can freely make the echange throught the App. In cases where the system is managed by local authorities, i.e. Santa Coloma de Gramenet, public servants can choose to get part of their salary in local currency.

Are local currencies really useful?

There is no agreement among the economists on the usefulness of local or social currencies. In any case, we collect arguments for and against:

For:

– They boost the local economies. The case of Grama, in Santa Coloma, could be a good example of that. One of the aims of this local currency is to encourage local commerce and to prevent that money generated in Santa Coloma from being spent in big commercial centers outside the city. According to this scheme, if people from Santa Coloma spend more money in their city, it will create more jobs in the city.
– Special advantages and discounts can be offered to locals to spend money in the city. It is a way to segment the market.
– Allowing online payment is a way to combat fraud.

Against:

– Some economists discard any kind of potential beyond being something anecdotal.
– In a globalizing world, when it comes to building monetary unions, to create new payment systems is going against the current.
– The concern it can generate among public servants to get part of their salary in a “currency” that could only be spend within the city, even though at the moment it had always been a totally optional measure.

Anyways, it is true that this kind of initiatives allow to promote local economic development, if they are accompanied by other benefits and incentives for citizens from a particular area to get more account to buy nearby home. In this sense, they are a way to promote public-private collaboration to boost local economies, especially if the city council adopts a proactive role.