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Cities making their own money

BUSINESS

Fans of “complementary currency” are hoping this Depression-era idea for keeping towns alive by printing local money can prove its worth as lockdown relief. 


In a backroom of the Tenino Depot Museum, a modest sandstone building in Tenino (pop. under 2,000) in Washington, USA, there’s a rickety old machine City Hall believes could help save the community from looming economic collapse. With it, money is literally being made from trees.

Printed on postcard-sized sheets of planed maple veneer by the town’s only resident expert using an 1890 Chandler & Price letterpress, these “wooden dollars” are being handed out to locals in financial hardship. The currency is pegged at the rate of real US dollars and can be spent anywhere from grocery stores to service stations to childcare centres, whose owners can later exchange them. 


“We want this to be a symbol of hope,” Tenino’s mayor, Wayne Fournier told Bloomberg City Lab. “We preach localism and investing in our local community, and the idea with this scheme is that we’ll stand together as a community and provide relief to individuals who need it.”


Indeed, the wooden currency is a reboot of a local program that dates back to 1931, the darkest days of the Great Depression; it was the first of its kind in the US. Tenino’s only bank then had closed, and local businesses decided to establish a wood-based scrip to allow commerce to continue. 


“It worked perfectly,” says Fournier, whose new scheme offers Tenino residents who can show they are experiencing economic difficulties caused by the pandemic a stipend of up to US$300 a month in wooden dollars. 


Since the launch in May, cities in Arizona, Montana and California have been in touch with Tenino for advice about starting their own local currencies. “We have no idea what is going to happen next in 2020,” adds Fournier. “But cities like ours need to come up with niche ways to be sustainable without relying on the larger world.”


Complementary currencies, as they are termed, have been around for centuries.

As many as 4,500 such systems have been recorded in more than 50 countries. Typically, they are localised currency that can only be exchanged among those within a region, town, or even a single neighbourhood. Many are membership programs limited to those who’ve signed up for the scheme, and work in conjunction with rather than replace the official currency.

They take many forms. Few are based on paper money; many are now entirely digital or are exchanged via smart cards. Their goals can span economic, social and environmental objectives. Some aim to protect local independent businesses; some promote more equal and sustainable visions of society; others have been founded in response to economic crises when traditional financial systems have ground to a halt. As the covid lockdown brings on a wave of social and economic turmoil, all three challenges appear to be in play at once. 


“In times of crisis like the one we are jumping into, the main issue is lack of liquidity, even when there is work to be done, people to do it, and demand for it,” says Paolo Dini, an associate professorial research fellow at the London School of Economics and one of the world’s foremost experts on complementary currencies. “It’s often a cash flow problem. Therefore, any device or instrument that saves liquidity helps.”

Stephen DeMeulenaere, technology lead of the Netherlands-based Qoin Foundation, a not-for-profit that advocates for community currencies, argues the fallout from the lockdown is a golden opportunity for a resurgence. “The era of the regular economy being prosperous is coming to an end,” he says. “There’s a structural failing in the way money is being introduced, through policies like quantitative easing. Simply printing more money does not mean it will circulate. If someone is having a heart attack, do you give them a blood transfusion or CPR?”

Like Tenino’s wooden dollars, Switzerland’s WIR was rolled out in reaction to the scarcity of money. Created in 1934, it’s now the world’s longest-running complementary currency. WIR offers loans to small and mid-sized businesses for transactions with other businesses that accept WIR francs, which are pegged to the value of the Swiss franc. It currently boasts more than 60,000 members — including one in five of all Swiss businesses.


Complementary currencies often emerge when economies contract, as happened in Argentina in the early 2000s and Greece last decade, and this mutual exchange has evolved into another kind of currency, known as a mutual credit network. Advocates say, when combined with government funding, they can also be an effective way of keeping money flowing within a community, and, by eliminating capital flight, create a powerful multiplier effect.


As in Tenino, the Brazilian city of Maricá combines a local currency with a basic income program. Around 80,000 residents, nearly half the population, receive 130 reais ($US35) a month without conditions on how they can spend the money. It was launched in 2014, and is distributed in Mumbuca, the city’s local currency, which isn’t accepted in the rest of Brazil. 


“This can become a model for how a city can efficiently disburse social benefits during the pandemic, supporting poor families while they stay at home and also small business during the crisis,” says Eduardo Diniz, professor of banking and technology at the São Paulo School of Business Administration, who has been researching community currencies since 2014. 

In May, Maricá residents spent 30 million reais worth of Mumbuca, according to Diniz. The key to the currency's success has been the strong participation of local government. “Historically, it was a very poor city,” says Diniz. “The decision to invest this money through the currency means they have been able to build schools and hospitals with it. The same money is passed through the economy again and again.”


Other research has demonstrated the value of keeping cash flowing close to home: One Canadian study showed that independent retailers recirculate 2.6 times more money into their communities than chains. As well as encouraging people to shop locally, complementary currencies can encourage positive or philanthropic patterns of behaviour. 


Inspired by blockchain technology, England’s northern city of Hull created the world’s first digital-only local currency in 2018, providing discounts of up to 50% on goods and services for those who did voluntary work with local organisations. A similar Dutch project, Samen Doen, rewards those who carry out socially beneficial activities such as caring for the elderly.


It hasn’t all been smooth sailing. One problem that has troubled some complementary currencies is covering operating costs. The WIR has a transaction fee — 0.06% for members and double for non-members — paid in Swiss francs, plus interest on loans taken out in WIR. Canada’s Calgary Dollar funds itself by paying its employees partly in Calgary Dollars, as well as receiving fees from government and businesses. Some US community-based currencies have struggled to overcome this challenge. For example, Philadelphia’s Equal Dollar, which pays locals in exchange for goods, services and labour, closed in 2014 after 19 years.


Limited uptake among businesses has also proved to be a stumbling block for other defunct programs. The local value exchange system LOVES, based in Yamato, Japan, paid residents in local currency for volunteering and bringing their own shopping bags. Though many residents signed up, not enough shops participated, and the five-year-old program ceased in 2007.

The slow decline in the use of physical cash as e-commerce and digital payments have taken over can also affect alternative currencies. The Bristol Pound, founded in 2012, is considered one of the most influential complementary currencies. Residents of the British city can use it to pay for a bus ride, a cup of coffee or even their taxes. Managing Director, Diana Finch, says even before coronavirus, the circulation of paper money in the area had dropped by about 60%. “The purpose of the Bristol Pound was to encourage independent businesses to create a vibrant economy based on a diversity of smaller human-scale businesses,” she says. “But we were limiting ourselves and couldn’t achieve high enough scale.”


To say afloat, the Bristol Pound is now going digital and will launch Bristol Pay later this year. Its goal will be to capture 50–80% of the city's transactions, a small fee charged for each, with earnings then invested in social and environmental projects.


Finch sees complementary currencies as a tool to make cities more resilient in the face of the current economic strife, as well as help them become more equitable. “I’m not even sure that growth is necessarily what we want,” she says. “This is a different experiment. It’s not about helping local businesses who are having liquidity problems to do business. This is much more about trying to change the nature of the culture and to create more resilient, self-sustaining communities.”

ABOVE Mayor Wayne Fournier of Tenino, Washington, displays US$25 in wooden money 

PHOTO Jason Redmons/AFP via Getty Images

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