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The local money paradox

You might be forgiven for thinking that local money can't move around, because it loses it's value outside the locality. And you'd be right, technically. After all, the very point of local money is to keep the value in the community that created it. But for years activists have been asking how local money, or at least local value, might move from place to place, which would be much more useful. It was all a bit academic while LETS was run on spreadsheets. But the internet was bound to change all that. CES has long had a system where every community has an account for every other community, so when the value leaves the community, the balance just goes into a 'gateway' holding account, where it can only be freed by value coming back into the community - and the zero balance principle is upheld. Trouble is, once money is freed up to move around, even if only into gateways, it will gradually redistribute itself unevenly around the system - which you may recall, was the original problem. This is the paradox.

The groups of communities doing cyclos in Austria and Germany have addressed this paradox by putting a maximum extent on the gateway account equal to 10% of the group's trading volume. In fact this is almost exactly the same mechanism which stops individual traders from hoarding or purging, so it has a certain elegance. It means the community has to act together to keep it's gateway account balance within acceptable limits, which although it could be inconvenient, is exactly the kind of community cooperation and grass roots economics which local money is all about. That's the theory, and it seems to work so far.

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