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Issue 2: Community Scale Economics

Community Currencies at a Crossroads: New Ways Forward

by Tim Cohen-Mitchell

From time immemorial to the Middle Ages, from the Great Depression to the inflationriddled 1970's, communities across the globe have put their ingenuity to work in designing their own monetary systems when existing ones falter or no longer serve their needs or values.

Today, community currencies are again on the move. With the marked shift toward economic globalization and the decline in community cohesion has come a new generation of monetary systems created not by central bankers but by communities.

The new generation began in 1982. In an effort to retool the widely used commercial barter association model for grassroots economic development, Michael Linton rolled out his Local Employment and Trading System (LETS) in British Columbia, Canada. Although LETS has not caught on in the United States, it inspired Paul Glover and his colleagues to develop ITHACA HOURS, a time-based paper currency system, which is now the most widely replicated model for community currencies in North America.

HOURS also looked to the hundreds of barter and scrip systems that flourished in the United States and Europe during the depression years and in the utopian monetary experiments of the 19th century. Along with LETS and HOURS emerged the service-credit exchange system, Time Dollars, introduced by Edgar Cahn in the 1980s.


These three main systems have been copied with varying degrees of success by communities throughout the world.

As their largely volunteer organizers grow in experience, confidence and skill, they have begun to develop a host of hybrid systems designed to better meet local needs. An early example is Womanshare in New York City, developed in 1991 by Diana McCourt and Jane Wilson; it combined LETS and Time Dollars to form a unique skills exchange system designed expressly for women.

Another example is the Member Organized Resource Exchange, or MORE, in the low-income Grace Hill community of St. Louis. There, in 1990, social service activist George Eberle and his team introduced the MORE Time Dollar Exchange (MTDE). MTDE has grown to include thousands of residents exchanging a wide variety of services and goods. The system has also added a store stocked with donated goods of all kinds, including food, which MTDE traders can purchase with Time Dollars; these goods are priced in fractions of the time it took other traders to operate the store itself.

Bringing Businesses, the Public, and Social Services Together

One of the limitations of HOURS and LETS, insofar as their economic impact and broader civic participation is concerned, is their exclusion of community members who do not offer goods and services for trade. In this, these systems more closely resemble the business-to-business nature of commercial barter associations (from which LETS, in fact, drew its inspiration). This point is significant because over 90 percent of Americans of working age are not business owners, but employees. Thus, the purchasing power of local consumers is more likely to be siphoned out of the community and into the external economy than it is to be spent and recycled within the local economy. But community currency organizers are beginning to address this problem while also putting local money to work in bolstering the non-profit service sector community economies.

The Toronto Dollar project (www.web.net/~tordoll/), launched early in 1999 in the St. Lawrence neighborhood of Canada's commercial first city, is a promising example of meeting social needs while also promoting local business. According to its organizers, the project seeks to strengthen the neighborhood's identity and autonomy, promote local trade, and provide a locally generated source of funds for charitable organizations tackling poverty and homelessness.

The Toronto Dollar is modeled on the pioneering work of the E.F. Schumacher Society, which helped merchants in Great Barrington, Massachusetts, issue their own scrip ­ the "Berk-Share. Berk-Shares were sold to consumers at a discount through local banks and then spent at full value with local merchants, who later redeemed the notes for cash at the bank. The Toronto Dollar project sells its notes to the public, but at face value. They are then spent with local merchants, who redeem them for federal notes at an exchange rate of 90¢ Canadian to one Toronto Dollar. The ten cent per dollar difference in the exchange rate is deposited into a savings account and distributed as grants to charitable organizations.

One of the system's organizers, John Flanders, reports that over 100 businesses are now participating, with more joining every week. "So far we have exchanged about 65,000 Toronto Dollars, and have been able to generate 10 percent of that for charitable community initiatives. The participation of the CIBC, a major Canadian bank, and Toronto's First Post Office as exchange bureaus has been "a huge endorsement for the Toronto Dollar project, Flanders says, "especially among those businesses that are on the brink of joining in.

In western Massachusetts, a trial series of the Valley Dollar will soon be issued, which will be sold to the public through local exchange bureaus (two banks, a credit union, and a visitor's center) for 95¢ (U.S.) to the Valley Dollar. Purchasers of the notes will spend them at face value ($1.00) for local goods and services. Those accepting them will, in turn, spend them at face value with others or sell them back to the exchange bureaus for 90¢, deducting the 10¢ "exchange fee as a promotional expense. The 5¢ per dollar difference in the selling and buying exchange rate will be split between the issuing organization, in this case, the Valley Trade Connection (www.valleydollars.org), and local social service groups. Grants to these groups will be apportioned through a public balloting process in which each person purchasing the local notes will cast one vote for each local dollar purchased.

LETS creator Michael Linton has developed a new model to serve both business and community needs as well, that he calls Community Way. With Community Way, businesses donate Community Way Dollars (CW$) to local non-profits of their choice. The non-profits use CW$ to pay their employees, to offer as volunteer incentives, and to exchange for donations made to the organization in federal dollars. The CW$ are then spent by their holders at participating businesses as full or partial payment for goods and services. The CW$ may be donated back to the organizations or spent among the businesses themselves.

Original community currencies have also made Third Sector work a priority. Ithaca HOURS participants have approved dozens of grant proposals for HOURS funding, equal to a percentage of HOURS in circulation, to community organizations. And Edgar Cahn, creator of the Time Dollars, has been actively joining Time Dollars to activities in some of the poorest neighborhoods in the nation, including peer tutoring programs in schools, juvenile justice programs, adoption agencies, elder- and child-care groups, and health organizations.

Community Currency and Public Works

Community money can be put to work for many uses, including public works. The government of Curitiba, Brazil, for example, has been issuing bus tokens to residents in its poorest districts, in exchange for recyclable garbage. Developed in the 1980s by Jaime Lerner, the city's former mayor, the bus token program not only keeps the city clean at a low-cost, but also helps residents gain access to jobs and business opportunities beyond walking distance from their homes. The program pays for itself through the sale of the recyclable garbage to large recycling firms.

Another example of how community-issued money can be used for the public good is told by Alexander Kim, organizer of Mo, Money in Louisiana:

In Ireland around the middle of the century, villagers wanted to erect a common indoor market center. However, they did not want to issue a municipal bond because of the interest they would have to pay over the years, and because of the potential lack of large investors. The community leaders decided to issue coupons, which were essentially a local currency that depicted the name of the town and the marketplace. By selling these notes, the town raised enough money to pay for the building. After the building was completed, the residents of the community could spend the coupons with any of the merchants in the market center. The merchants, in turn, were allowed to use those same coupons to pay their rent at the market. Eventually, all the coupons were redeemed. The town did not have to pay interest on the capital. In the end, the community enjoyed a powerful sense of ownership of the public market.

Thomas Greco, author of New Money for Healthy Communities, writes of an Argentine province, Salta (www.salta.gov.ar/), that in the 1980s issued four-year bonds as payment to employees for completing infrastructure projects. The notes effectively began to circulate as currency, with the unanticipated benefit of proving more inflation-proof than the national currency.

Technology-driven Innovations

A number of innovations were presented at the 2nd Annual Conference on Community Currencies in Chicago in 1999, including how the latest technologies can be used to improve and expand the impact of community currency.

Michael Linton demonstrated a new palm-sized, battery-powered "smart-card reader. The reader, which looks like a calculator, can move multiple local and federal currencies from the microchip-embedded credit and debit card of one trader to another. The device, the work of an international team, is a relatively inexpensive solution to the administrative burden LETS places on organizers and enables traders to trade with members of other systems, even internationally. The readers, Linton says, cost roughly $50 (US), with the cards costing about $2 each. Some of the cost may be offset by negating the need for printing and processing the traditional scrip and cheques used in scrip and LETS systems.

Another conference attendee, Sergio Lub, introduced a new web-based exchange system called Friendly Favors (www.friendlyfavors.org), in which anyone, anywhere, once sponsored into the system, can trade. Traders ­ now found in at least 12 countries ­ use barter, the system's currency, or currency of their choice to make transactions. Each participant receives an ID card on the web, which features their color photo, their needs, offers and interests, their sponsor and a map showing their geographical location. Lub describes it as "a friendly way to account for the favors we do for each other.

Critical Issues

With the exception of Time Dollars and Womanshare, which are currencies based on hour-for-hour labor exchanges, most local currencies are inextricably linked to national currencies. This leaves them susceptible to policy- or market-driven currency devaluation and inflation in the non-local economy. It was the acute shortage of federal currency during the Great Depression years that spurred hundreds of communities across America to issue their own notes. Later, in the 1970s and 80s, it was inflation that prompted further experimentation with community currencies.

Theoretically, participants in community currency systems could denominate their prices in local currency, as has been suggested by Paul Glover among others. This would be somewhat akin to the current two-price system in place in the European Union, where prices are marked and quoted in national currency and in the new common unit, the Euro.

A more radical solution has been proposed by Dr. Ralph Borsodi, who designed a currency that itself is immune to inflation. He tested his currency, the "Constant in Exeter, New Hampshire in 1972. There, Borsodi and community land trust pioneer Robert Swann sold the scrip, coin, and cheque currency into circulation through a local bank. People purchased Constants with dollars at a 1:1 exchange rate. The Constant's value, however, was not tied to dollars, but to the value of a "basket of 30 commodities including gold, soy beans, rubber, barley, hides, and jute. In theory, the notes could be redeemed for quantities of any of the commodities listed on the notes. In practice, Borsodi stocked only gold and silver to satisfy possible redemption demands and had arbitrage agreements to purchase the others if necessary.

In choosing commodities with which to back the Constant, Borsodi tracked the values of a wide range of commodities over a period of years and selected those that had held their value best. His assumption was that the changes in the value of each commodity in the basket would, over time, cancel each other out, thus maintaining overall equilibrium in the value of the basket and thus of the currency. The value of the Constant could also be compared to the value of the national currency, enabling the exchange rate and prices to be adjusted on a daily or weekly basis. The Constant system was tested for one year and proved, it is claimed, Borsodi's hypothesis.

In the late 1970s, Robert Swann revisited the Exeter experiment with a community-based group in the Berkshire Mountains of Western Massachusetts called SHARE, or Self-Help Association for a Regional Economy. SHARE attempted to tie local scrip, Berk-Share Cordwood Notes, to cordwood, a locally produced commodity. In the case of Cordwood Notes, however, the price of cordwood experienced wide fluctuations in tandem with the price of domestic heating fuel, a product whose price was set outside the community. The currency was thus even more vulnerable to external economic fluctuations than it would have been had it tied itself to the U.S. dollar.

Pegging a currency to a diverse basket of strictly local commodities is one system that has yet to be tested. This may constitute a way to make a community currency less vulnerable to fluctuations and breakdowns in the wider economy and to the monetary policies of distant central bankers.

In the meantime, a few systems, such as the Valley Trade Connection (VTC), have devised other means of backing their currencies. When traders join VTC, for example, they receive between 10 and 50 Valley Dollars (V$) in exchange for non-expiring gift certificates of equal value in the trader's goods and services. The VTC holds the certificates, which effectively back the issued currency. If traders leave the system, they are required to buy back their certificates in V$, ensuring a balanced amount of currency in circulation relative to the goods and services it may purchase. Should some traders accumulate more V$ than they are readily able to spend ­ an all too common experience for retailers in most scrip systems ­ they have the option of purchasing certificates at 100% V$, thus removing from circulation their surplus currency.

Monetary Policymaking

Unlike LETS, with its central bookkeeping system that creates currency only when a trade is made and in exactly the amount needed ­ every debit matched by a corresponding credit ­ currency issuance in scrip systems is an inexact science. Organizers rely on anecdotal information to determine if the amount of currency in circulation is in proportion to the level of trading activity and the goods and services which back it. Some systems, such as the Tlaloc system in Mexico City (espacios@laneta.apc.org), have attempted to get a firmer handle on their monetary policymaking. There, Luis Lopezllera and fellow organizers issue notes on an annual basis, with traders required to cash in their old currency for new each year. Tlaloc traders, similar to fellow traders in the Community Cash Program in Durango, Colorado, are encouraged to "endorse their notes during every transaction by recording their initials or name and the date in space provided on the back of each note. These policies help organizers assess the true impact that their system is having on the local economy and to make better monetary policy decisions by gauging the velocity, circulation and supply of their currency more precisely. More of these tools are needed.

Funding and Organizational Issues

Most community currency systems operate thanks to the tireless efforts of volunteers working with shoestring budgets comprised of small donations and membership dues, and, if fortunate, perhaps grant funding. They also tend to begin as informal efforts or under the umbrellas of a sponsoring organization. Most share common challenges in sustaining the systems over time.

Organizer burnout is a risk because, unlike traditional issue-oriented organizing, a wide range of skills is necessary and a long learning curve is required. Creating and growing a grassroots economy from scratch is an enormous commitment that does not always lend itself to simple delegation and job-sharing. Work at the start-up stage tends to be distributed more evenly among members, but as time passes, becomes more the labor of a few individuals.

The burden is increased by lack of reliable funds to pay operating costs, let alone staff salaries. Some systems have paid organizers with their own currency, but typically this is a short-term strategy, as spending money freely into circulation can be inflationary. Many turn to grant funding for support, but this requires tax-exempt status and specialized talent, and, at best, usually brings small returns. Donations, another source of funds, must be solicited. Dues are a more reliable wellspring, however, they must be kept modest enough to allow for broader initial appeal and to include lower-income members of the community. The regular collection of dues is costly and time-intensive and a renewal rate of more than 50% is uncommon.

Most systems begin as informal associations or individual enterprises (such as Ithaca HOURS), though a good number have found it necessary to have their activities sponsored by an existing non-profit organization. Some examples include Cape Ann Dollars, sponsored by the Gloucester, Massachusetts-based Wellspring House, Inc., an educational and social service agency; Summit HOURS, in Akron, Ohio, a project of American Friends Service Committee; and California's Berkeley BREAD, sponsored by the International Society for Ecology and Culture.

Valley Trade Connection began as a university-sponsored project and then moved under the umbrella of the Franklin County Community Development Corporation when it expanded into the wider community. The benefits typically include liability insurance, tax-exempt status, and in some cases, office space and administrative assistance. However, as a system grows, it may diverge in mission from its parent organization or become one more burden for it to handle.

Consensus appears to be building that community currencies should strive to incorporate as independent non-profits with elected boards of directors and member-approved bylaws, and find funding, especially income generated from program activities, such as advertising, to retain at least some paid staff. This will mean taking a more business-like approach to operations and risking the grassroots ideals of volunteerism and informality held by most systems. In the case of Ithaca HOURS, this recent shift toward a more formal structure seems to be serving the community well, with more people stepping forward to take ownership of the program and lifting some of the burden from the shoulders of its primary organizer, Paul Glover.

Scale, Size, and Composition

Community currency systems come in many shapes and sizes. Some are limited in area to include just a few households, an apartment complex, a city block, or a neighborhood. Others span a town, a county, or several counties. Geographic scale is determined by organizers and participants based on equally diverse criteria: a women's group within a university, a child care cooperative of mothers who work together, a public housing project, a neighborhood of several blocks, an industrial district, a downtown, a business association, or a bio-region, determined by natural boundaries.

Several key factors determine the scale of systems: diversity, relations of proximity, and relations of affinity. Diversity refers to the variety of skills and resources among participants. If there is an imbalance of availability and demand for participants, offerings, currency tends to lose value or become prohibitively concentrated in the hands of those whose services are in high demand.

Relations of proximity include such factors as "social friction, or personal contact among participants by virtue of shared space. This, it could be argued, is a key determinant in the amount of trading activity that takes place between participants and the quality of their trading interactions. Repeated exchanges build trust, predictability and accountability into trading behavior. If a system has only one member offering haircuts, for example, and that member is located far from the bulk of the membership, it is less likely that people will travel a long distance for a haircut just so they can use community currency to pay for it.

Relations of affinity refer to relationships based on shared goals, interests, needs, beliefs, membership, or identity that are not necessarily bounded by proximity. Today, it is common to find people who are closer in affinity to a 12-step group, a martial arts studio, or "regulars at a bar, than they are to their next-door neighbors.

Membership size is also an issue. Womanshare in New York has purposely limited membership to 100 members for the above reasons, and prefers to have a waiting list, rather than risk losing the intimacy its members share. GuruNam Kaur Khalsa, a founder of the Valley Trade Connection, decided to take the risk in expanding the system beyond its university-based membership of nearly 70 women, to the wider 1,200 square mile region. She later lamented that "I used to know everyone [in the system], but now I don't know even half of our members. Thomas Greco believes that there should be a minimum membership size of approximately 35 people, while Paul Glover in Ithaca sees the benefits of having a membership of over 1,000, noting, in particular, the diversity of goods and services offered among them.

Using these criteria, the ideal configuration for a local currency system, it seems, would be a limited geographic region and a relatively small, but diverse membership offering a range of goods and services, and with members enjoying relationships of both proximity and affinity. A wider cachement area can be possible, but only if there are embedded communities within it, in which these elements are present.

Most systems of this generation have tended to be college town phenomena, taking root in communities of relative prosperity, high education levels, and populated by "cultural creatives. In response, organizers today are working to address issues of cultural and class diversity. In Calgary, Canada, Bow Chinook HOURS has formed a linkage with the Calgary Centre for Newcomers, "Calgary Works program that assists refugees and immigrants in enhancing their skills and finding employment. The services of these community members are listed in a section of the system's directory where other Bow Chinook traders may contact them through a central contact who arranges translators or terms of trade on their behalf.

Another example of working with diverse and economically-challenged community members is Equal Dollars in inner-city Philadelphia. This innovative LETS-HOURS-Time Dollars hybrid trading system, operating with a substantial budget under the auspices of a large community action agency, has been very proactive in including young people, single parents, and those on public assistance in the neighborhoods they serve. One of the keys in including low-income participants is having a sufficient mix of basic goods and services, a weak point in many current generation systems in which more luxury types of offerings are over-represented.

Movement Building

Similar to the early days of the computer software industry, when tireless tinkerers were collectively pushing the technological boundaries, the community currency movement has been a relatively cooperative phenomenon. Notwithstanding the inevitable pitched battle over which model is superior, most organizers share ideas and tools freely and openly. The recent growth in knowledge and experience has only added to the richness and productivity of their exchanges.

Various email listserves, websites, and postal mailing lists help keep organizers in touch. Conferences have also played a key role. Over the last few years, the E.F. Schumacher Society has sponsored two major gatherings, while the Center for Community Futures has hosted two national conferences focused exclusively on community currencies. Recently, a National Organizing Committee for Community Currencies has been formed, sponsored by the Center for Community Futures (www.cencomfut.com), to sustain the momentum by planning regional gatherings, collective research, and lobbying efforts. This should only help to strengthen the work of organizers and better make the case for the effectiveness (and seriousness) of community currencies in the eyes of policymakers, funding agencies, academia, and organizers working on related issues, who have tended to dismiss or diminish the role of community currency in community economic development. While it may seem at cross-purposes with the mission of community currency ­ fostering greater local self-reliance ­ the movement may never reach its potential without the financial support and backing of external sources. The work of creating an economy from the basement up is no quick or easy task and requires long term commitment of every kind to prove its mettle.

The rest of the world seems to be much further ahead of North America in recognizing this. Ironically, even the recent creator of a centralized currency itself, the European Union, has budgeted millions of dollars over several years to implement and evaluate the effectiveness of various community currency models in a variety of settings in its member nations. Other efforts are the International Journal of Community Currencies (www.geog.le.ac.uk/ijccr/), an Internet-based publication which compiles the work of a wide range of academic researchers, and the International Development Research Centre-funded research project on community currencies in Asia, Africa and Latin America (http://ccdev.lets.net/), coordinated by a former Canadian LETS organizer, Stephen DeMeulenaere (stephen@lets.net).

New Directions

According to Bernard Lietaer, a former Belgian central banker and businessman who writes and lectures extensively on money, we are beginning to see a plethora of new transaction vehicles being introduced, especially on the Internet. These include e-cash, e-gold, and others. He believes that, in general, the trend is toward trade utilizing multiple currencies ­ local, national, and international.

This development coincides nicely with the maturation of today's community currency systems. This may help mainstream the movement and increase participation beyond the relatively small, selective memberships of most current systems. One would also expect to see the shift toward hybridization continue, with new technologies providing convenience for traders and relief for administrators and organizers. And, the question of resources for system operation and development is one that will have to be dealt with.

The question of which systems are superior is really a non-question ­ a community should have all of them, or at least a mix, as each satisfies different needs. One can imagine earning and spending scrip for odd jobs and everyday purchases, writing a LETS cheque when we need interest-free credit, or spending Time Dollars earned by helping others in a pinch for the services we need when we're in one. In the meantime, as Paul Glover so succinctly puts it, "we're making a community by making a living.

Tim Cohen-Mitchell, M.Ed., CET, is co-founder of the Valley Trade Connection in rural western Massachusetts. He is co-author of Local Currencies in Community Development, and a charter member of the National Organizing Committee for Community Currencies. He is also founding director of the Young Entrepreneurs Society (YES).

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