Combating deflation<\/strong><\/p>\n In the depths of the 1930s depression, the last worldwide episode of falling prices, one Austrian community came up with an ingenious solution to the lack of circulation of money. It started its own currency.<\/p>\n In 1932 W\u00f6rgl, a city of 13,000 inhabitants in Austria\u2019s picturesque Tyrol region, printed its own banknotes to try and stimulate the local economy.<\/p>\n The currency had an innovative feature, suited to the deflationary times. Holders had to \u2018stamp\u2019 it to keep it in circulation. The stamp\u2014which was physically attached to each banknote\u2014cost 1 percent of face value a month.<\/p>\n The W<\/em>\u00f6rgl, with monthly stamps attached on the right<\/em><\/p>\n The result of this in-built depreciation\u2014called \u2018demurrage’\u2014was that W\u00f6rgl money circulated over a hundred times faster than the national currency, the Austrian schilling<\/a>. The rapid velocity of money stimulated the local economy and caused others to label the experiment \u2018the Miracle of W\u00f6rgl\u2019.<\/p>\n During the period of W\u00f6rgl money\u2019s existence, the city managed to build new houses, a reservoir, a ski jump and a bridge while the rest of the country was mired in unemployment.<\/p>\n Gesell thought his monetary framework could address the injustices caused by inherited wealth and privilege<\/p><\/blockquote>\n But Austria\u2019s central bank stamped out the local currency project little more than a year after it had started<\/a>, citing its monopoly right to print the country\u2019s money. The Tyrolese city sank back into the global depression.<\/p>\n There was a political angle to the repression of the experiment, too. W\u00f6rgl\u2019s so-called \u2018stamp scrip\u2019 design followed the ideas of radical German economist Silvio Gesell<\/a>, who had died two years earlier.<\/p>\n Gesell saw broader benefits from a depreciating currency than just getting the local economy going and preventing hoarding.<\/p>\n He thought his monetary framework could address the injustices caused by inherited wealth and privilege, especially the concentration of economic resources amongst a few large landowners.<\/p>\n More modest in design<\/strong><\/p>\n Gesell\u2019s ideas live on, and in surprising places. Within recent years, his name has cropped up in speeches made by leaders of the US Federal Reserve, in the research papers of the International Monetary Fund and in the Financial Times<\/a>.<\/p>\n But most local currency experiments undertaken since the W\u00f6rgl been more modest in design, aiming to complement rather than confront national money systems.<\/p>\n WIR bank, a Swiss initiative founded within two years of W\u00f6rgl\u2019s stamp scrip, issues its own private money, called the WIR franc, which trades on a one-to-one basis against the Swiss franc, the national currency.<\/p>\n The WIR franc is accepted by local businesses in the hospitality, construction, manufacturing, retail and professional services, but is not redeemable against Swiss francs.<\/p>\n Brazil has a community currency called the \u2018palma\u2019, circulating in the Fortaleza region in the north-east of the country. The palma also trades on a one-to-one basis against the national currency, in this case the Brazilian real.<\/p>\n In contrast to the WIR franc, the palma is formally exchangeable into reals, a promise backed up by a reserve of real-denominated assets owned by a local community body.<\/p>\n This model\u2014issuing a local money but backing it one-for-one by national units to ensure trust\u2014is followed by a number of community currency initiatives.<\/p>\n For example, each Bristol Pound, a local currency for the Western English city, which has a population of around half a million people, is supported by a pound sterling in an account at a local credit union.<\/p>\n Bristol\u2019s attempt to scale up<\/strong><\/p>\n Diana Finch, Bristol Pound\u2019s managing director, echoes Gesell\u2019s warnings about the dangers of hoarding.<\/p>\n \u201cMoney is a store of value that accrues value the whole time you\u2019re sitting on it,\u201d she told New Money Review<\/em>.<\/p>\n \u201cThat\u2019s so counter-intuitive. There shouldn\u2019t be a benefit to not using money. Every other store of value\u2014whether grain, goods or a car\u2014depreciates if it is left alone. For example, if you\u2019re going to maintain a woodland and make sure it carries on being productive in a sustainable way, you\u2019ve got to put work into it.\u201d<\/p>\n \u201cWe couldn\u2019t answer the question, \u2018what\u2019s in it for me?\u2019\u201d<\/p><\/blockquote>\n But Finch admits that the Bristol Pound has failed to reach adequate scale since its launch in 2012. Earlier this year the project was close to shutting down after running short of funds<\/a>.<\/p>\n \u201cAt its height, the Bristol Pound was used by about 700 businesses and 1300 individuals,\u201d she told New Money Review<\/em>. \u201cThings then plateaued and dropped off.\u201d<\/p>\n \u201cIt hasn\u2019t worked, and we\u2019ve learned a lot about why,\u201d she added.<\/p>\n \u201cIt appealed to a tiny percentage of very woke people. But the average person has half an hour to do his or her shopping and prefers to go to Tesco rather than searching out three retailers that are members of the scheme and then paying over the odds in Bristol Pounds.\u201d<\/p>\n \u201cWe couldn\u2019t answer the question, \u2018what\u2019s in it for me?\u2019,\u201d she said.<\/p>\n Other community money projects based on a local version of the national currency have also failed to take off.<\/p>\n The Brixton pound, advertised as \u2018the money that sticks to Brixton\u2019, circulates only in the south London neighbourhood. The main distribution points for Brixton pounds are a caf\u00e9 and a cash machine in the local market, while the notes are accepted at a small number of local businesses.<\/p>\n Brixton\u2019s pound is better known for the artwork on its banknotes than for its usefulness as money.<\/p>\n David Bowie on a ten Brixton pound note<\/em><\/p>\n From pound to pay<\/strong><\/p>\n But Finch and her Bristol-based colleagues haven\u2019t given up.<\/p>\n Earlier this month Bristol Pound said it was shifting its approach<\/a> from providing a complementary store of value to focusing on local payments.<\/p>\n \u201cThe plan is for Bristol Pay to become the preferred method of payment right across the city\u201d<\/p><\/blockquote>\n The non-profit company behind the scheme has entered into a partnership with e-wallet provider Payji to develop a new payment platform for the city, called Bristol Pay.<\/p>\n According to Finch, Bristol Pay will be able to operate at scale where the Bristol Pound couldn\u2019t.<\/p>\n \u201cThe plan is for this e-wallet platform to become the preferred method of payment right across the city\u2014big businesses, small businesses, everybody,\u201d she told New Money Review<\/em>.<\/p>\n \u201cAnd as the platform is peer-to-peer\u2014I will have an e-wallet in my name and so will the business I\u2019m buying from\u2014it should be much cheaper to run as there will be no external fees involved,\u201d said Finch.<\/p>\n \u201cOur idea is that for businesses it will be the cheapest form of payment,\u201d she said, citing a potential transaction fee of 0.1-0.2 percent.<\/p>\n By comparison, when it launched, Bristol Pound charged businesses a relatively high fee\u20142 percent of transactions\u2014for accepting the local currency in payments.<\/p>\n But the new payments platform is only half of the story.<\/p>\n To incentivise take-up of Bristol Pay, Finch and Payji plan to introduce a complementary local currency in the form of tokens, which will operate on the same e-wallet platform.<\/p>\n Bristol Pay\u2019s tokens will not be exchangeable for sterling, but they will have some value, since they will be used to promote particular forms of economic activity.<\/p>\n \u201cTokens could be used for various purposes,\u201d Finch told New Money Review<\/em>.<\/p>\n \u201cFor example, they could be used to encourage individuals to do things in line with Bristol\u2019s One City development plan, or to use local businesses. And businesses that collect tokens could obtain a discount on their rates (local taxes). We\u2019ll be using tokens to develop a better economy,\u201d Finch said.<\/p>\n According to Finch, the transaction data from the e-wallet will be used to build up profiles of local spending, but it will be used for the benefit of the local community, rather than being handed over to a large tech firm.<\/p>\n \u201cThe data from the money and the tokens will be held on one platform,\u201d she said. \u201cIt can be used in an anonymised way to take a snapshot of how the local economy is working and to develop local policy initiatives, instead of being used for commercial gain by the likes of Google Pay.\u201d<\/p>\n \u201cIt wasn\u2019t a commercially viable proposition for venture capitalists, and it was too radical for the mainstream\u201d<\/p><\/blockquote>\n The idea of a local economy boosted by new currency in the form of native digital tokens is not new.<\/p>\n For example, the creators of Hull Coin, a community currency project started in 2014 in one of the UK\u2019s most deprived areas, wanted to use a token-based incentive scheme to alleviate local poverty, rather than just introducing another version of the national currency.<\/p>\n Hull Coin, which was inspired by cryptocurrencies like bitcoin, was later abandoned after failing to achieve support from the UK\u2019s National Lottery fund.<\/p>\n \u201cMost local currencies are bought into existence\u2014you exchange \u00a350 for \u00a350 of the local money, which then sticks to the local economy. The origins of Hull Coin were different,\u201d Dave Shepherdson, the co-founder of Hull Coin, told New Money Review<\/em>.<\/p>\n \u201cOur idea was that if you did something to benefit people within your community, say local charities, the council or the health service, they would issue you with a credit that could be redeemed for a discount with local businesses,\u201d he said.<\/p>\n \u201cThe Hull Coin scheme was a hybrid between a local currency and what I would call a social impact bond,\u201d he said.<\/p>\n Shepherdson is frank about the failures of the scheme.<\/p>\n \u201cHull Coin was never designed to make money. It was designed within a public, civic context, to reduce poverty. It fell between two stools: it wasn\u2019t a commercially viable proposition for venture capitalists, and it was too radical for the mainstream,\u201d he said.<\/p>\n Local values<\/strong><\/p>\n But the arguments for \u2018smart money\u2019 and its ability to represent local economic activity are more valid than ever, says technologist David Birch, who predicts that local currencies will play an unexpectedly important role in the money of the future.<\/p>\n \u201cWe will return to the multiple, overlapping community monies of the past\u201d<\/p><\/blockquote>\n \u201cWe will return to the multiple, overlapping community monies of the past but they will be smart monies, monies with values, monies that know about us,\u201d Birch said in his 2017 book, \u2018Before Babylon, Beyond Bitcoin\u2019.<\/p>\n In a recent paper<\/a>, Birch said that he expected communities\u2014both geographically defined and virtual\u2014to be one of the five groups that will be making digital money in the future (the other four, he predicts, will be commercial banks, central banks, cryptographers and companies).<\/p>\n Community-based \u2018reputation money\u2019 will operate under regulatory control and in a competitive market, Birch predicts.<\/p>\n The economic emergency resulting from the coronavirus pandemic may act as a catalyst for this trend.<\/p>\n According to Dutch research firm Sustainalytics, interest in local economies is likely to boom as a result of the disruption to global supply chains.<\/p>\n \u201cWhile localised supply chains would likely increase manufacturing costs and prices for consumers, they could also bring material benefits in several areas,\u201d Sustainalytics\u2019 Bruce Jackson and Doug Morrow wrote in a recent blog<\/a>.<\/p>\n \u201cFor example, they could lead to an increase in local jobs and tax revenues for governments. The carbon footprint of goods would be reduced, as components would not have to travel such great distances.\u201d<\/p>\n \u201cTighter supply networks could also lead to better enforcement of supplier standards and enhanced product quality.\u201d<\/p>\n Past community money experiments have tended to generate more publicity than impact. If that changed, it\u2019s unclear how central banks and governments would react to their money-printing and tax collection rights being challenged at the local level.<\/p>\n But advances in technology and economic necessity appear to be setting up local currencies for a much bigger role in our everyday lives.<\/p>\n Keep up with New Money Review content: sign up here<\/a> for our\u00a0newsletter<\/em><\/p>\n![\"\"](\"https:\/\/newmoneyreview.com\/wp-content\/uploads\/2020\/04\/440px-Freigeld1.jpg\")
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