3 types of local money

By matslats, 8 February, 2010

It seems to me that local currencies come in three flavours.

Mutual Credit
This is what my software supports. It's just a way of tracking debts between people - and when all the debts are paid off, the total value in the system is zero. This system is best for communities with good boundaries, and a solid membership. The main problem with is that half the members will be in debt at any time, and there is nothing to stop them dropping out while owing.
Fiat
This is the same as national money. It just needs an authority to print money and declare its value. Governments usually ensure people will use this money by demanding taxes in it. The problem is keeping the right amount in circulation to prevent or control inflation while ensuring there's enough for everyone to transact.
Backed
Like fiat money, except you can go to the issuing authority and demand a real commodity for your money. There should be as much commodity in stock as money in circulation. The money simply represents that commodity. This system is abused when the authority puts more money in circulation than is backed by real goods.

The Transition town movement is working with this latter model where the local money is backed by national money - a dubious commodity! I want to be clear that that this does not address the intrinsic problems of the money system, but aims to encourage local spending (which any of these models would do). To me, these transition currencies are only marginally less noxious and vulnerable than the national money backing them.

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Bruce Colley (not verified)

13 years 9 months ago

A local currency backed by national money is not necessarily "noxious and vulnerable" if there can be developed a very high degree of self sufficiency in the community or region using the local currency. Total self sufficiency would allow total disengagement from the national money, eliminating the need to convert back and forth, and so the local currency could stand on its own while the national currency might be crashing. The national currency then simply becomes one means of "buying into" the local currency. This model of local currency and local self sufficiency is the basis for LocalMart, my own local currency - local Ecommerce project.