the plan for the future

Local and Regional Money

16 August 2023

Dutch replica of Noah’s Ark. By Ceinturion CC BY-SA 3.0. Wikimedia Commons.
Dutch replica of Noah’s Ark. By Ceinturion CC BY-SA 3.0. Wikimedia Commons.

There are thousands of local and regional currencies, but none created a second Miracle of Wörgl. They play a small role and are called complementary currencies. The blog post Natural Money and complementary currencies explains why that might be so. The reasons probably are:

  • If you work in the regular economy, you are less willing to work for complementary currency. Many people in Wörgl were unemployed and had skills to offer that would have been in demand if the economy was not in a depression.
  • There is little demand for complementary currencies when governments do not back them by making them legal tender or accepting them for taxes. The municipality of Wörgl accepted its money as payment for taxes.
  • Operating complementary currencies requires considerable effort and organisation. Usually volunteers do this work. In Wörgl, the municipality performed this task.
  • Switching to local or regional products can entail a reduction in economic efficiency. Economic efficiency often comes from a division of labour via international markets. There may be cheaper or better producers elsewhere.
  • Complementary currencies have only a few potential borrowers and lenders. The counterparty risk for lenders is high. Therefore, there are no financial markets in those currencies.

  • In today's globalised economy, the value of imports and exports for most nations amounts to 40-60% of their income, and local and regional currencies play an insignificant role. The global economy is unsustainable, so it is wise to plan for alternatives. In the blog post The collapse of complex societies dwells on what might happen. If the global economy collapses, local and regional currencies might help local economies like in Wörgl.

    A community bank can lend on a limited scale. The loans can be at zero interest. The negative interest rate on accounts can cover the bank costs and losses. The bank can issue cash with a lower interest rate than on bank accounts to cover the handling costs. If the negative interest rate is not too steep, possibly not below -5% annually, most people will accept the currency if there are no alternatives or when there is a strong sense of community.

    The larger their scale, the more efficient financial markets can be. Counterparty risk amounts to higher interest rates in a market. So to have negative interest rates, we likely need large-scale financial markets to spread that risk. Money is just a token and can go it everywhere at little cost. Buying something in a foreign country is nearly as easy as buying it close to home. Higher transport costs or reducing regulations on locally produced goods and services might do more to stimulate local trade.