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Weathering Climate Change: The Role of Local Currencies

Local currency systems could strengthen metro economies and provide funds to address climate change and other urban problems.

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Storm over Atlanta, Georgia. (Photo by Eric Shoemaker)

Interest in local currencies is exploding around the globe, in part due to poor economic conditions. Initiatives in Greece, Germany, the United States and the United Kingdom recently made the news. But the promise of local currencies extends beyond boosting local businesses—they could help urban areas address difficult socioeconomic and environmental problems, such as underemployment, decaying infrastructure, inequities in income and wealth, and climate change.

How? By acting as local monetary/financial systems. New currency can be minted at the city or county level by a community benefit association, and channeled into local projects and businesses that produce the greatest public benefits.

Local currency models

Not all local currencies act as local monetary/financial systems. Some resemble "buy local" programs, where individuals purchase local currency with national currency and use it to buy goods at participating stores. Such programs could strengthen a local economy and create jobs. They could also produce indirect benefits, such as building a more diverse and resilient economy through support for small businesses.

Others systems are based on the local exchange trading system (LETS) or barter exchange models, which allow individuals or businesses to issue currency backed by their own goods and services. Additional models are available, and new ones, like the Token Exchange System (TES) are under development.

Unlike others models, TES issues currency (called tokens) through a community benefit association that is governed by its members via online direct democracy. Its crowdfunding-based financial system provides interest-free loans to local businesses and generates donations for local schools, nonprofits and public services. It also supports a new community-centric corporate model.

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Tokens and climate change

The profit-neutral crowdfunding operations of the token exchange model help to ensure that funding decisions are based on community concerns. Wealth is still generated and median incomes should rise, but the main increase in wealth occurs as greater public well-being.

Through its loans and donations, TES could help fund climate change-related projects. Globally, impacts from severe weather and carbon-intensive economies already cost more than $1 trillion annually, a figure that could double by 2030. The cost to prevent climate change is also measured in trillions of dollars.

In the coming decades, communities will need to reduce greenhouse gas emissions, capture greenhouse gases already in the environment, prevent damage from local climate events, and repair and rebuild when necessary.

Furthermore, in this era of global trade, urban economies will need to become more resilient to the consequences of distant climate events. And with more billion-dollar storms and droughts expected, they must be able to respond even when state and federal government budgets are strained.

While tokens can't buy helicopters, fire trucks, or products imported into a metro region, they could be used to purchase local goods and services, and especially to pay for local labor.

For example, funding could be directed toward green energy, conservation, and recycling businesses. Donations could be spent to help counties, cities, and nonprofit organizations expand bicycle paths, increase mixed-use zoning, conduct tree-planting and watershed repair operations, and insulate homes. And by funding a diverse set of small businesses and nonprofits, a token system could expand local supply chains, thereby increasing the resiliency of a local economy.

Scaling up

So far, the large majority of U.S. local currency implementations are small, typically less than a few hundred participants. Notable exceptions include Ithaca Hours, in Ithaca, New York, and Berkshares, in the Berkshire region of Massachusetts. These have more than 400 businesses listed in their directories.

Local systems could grow much larger, although scaling issues must be addressed separately for each model. With TES, the next step would be to simulate the flow of dollars and tokens in a virtual local economy using computer models. Awaiting these results, the projection is that if participation rates are high, enough currency could be injected into a local economy over a period of years to reach full employment, without causing inflation.

The Token Exchange System and other local currency models cannot offer a quick fix for climate change, infrastructure decay, or other pressing issues. In the case of TES, several years of development are still needed. And prior to massive scale-up, all models could benefit from additional studies and pilot trials that better define potential benefits and examine strengths and weaknesses. To this end, greater funding by government agencies, philanthropists, and foundations is critical.

As studies and pilot trials or other live implementations progress, and as more data are collected and analyzed, I believe that local currency systems will prove themselves important tools for addressing the urgent and long-term needs of cities. Solutions to problems that once seemed beyond a local community’s grasp might finally become within reach.

Read an excerpt from Creating Sustainable Societies: The Rebirth of Democracy and Local Economies.

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