People don’t like it when they're asked to accept a new currency. It sounds too much like they’ll be stuck with a kind of Monopoly money, like the Patacones that were issued in Argentina when the economy collapsed in 2001.
That in part explains why, when Spanish Central Bank deputy governor Fernando Restoy was asked in June about the new local currency pledged in the campaign platform of Barcelona’s recently elected mayor, Ada Colau, he said that it sounded, “impossible, in addition to being undesirable.”
But in recent years, scores of economically healthy towns have introduced local currencies parallel to their national ones. And Barcelona is slated to be the biggest yet. In mid-October, Barcelona’s commissioner for commerce, consumer affairs and markets, Miquel Ortega, explained to city council that the administration was indeed moving forward with its plans for local money.
For Barcelona and places that have issued local currencies, the idea is less to get away from national currency than it is to keep money from leaving the area. The theory is that with local currency people will be aware where their money is going and spend more at locally owned businesses that accept it than at businesses with outside owners that don't. This in turn will increase the “multiplier effect” of money put into the local economy.
According to Ciaran Mundy, the CEO of Bristol Pound, a three-year-old local currency in England, about 80 percent of money spent at chain stores leave the local area, whereas with a local currency like the Bristol Pound about 60 percent stays local.
Barcelona’s effort comes at a moment when the city is experiencing an economic boom, but a tourism-based one that has favored big chains over small local businesses.
“We have worked a lot in the public administrations to bring in external investments. And that’s good,” Miquel Ortega says, speaking in his sparse office in Barcelona’s city hall. “But perhaps we haven’t worked enough to keep the inflows rotating inside the city to bring more benefits to the population.”
The oldest local currency of note is the WIR Franc, an 80-year-old business-to-business currency used by 60,000 companies in Switzerland. But it is an exception. Many others have been launched – and failed – over the years.
"In the U.S. and around the world, more than 100 community currencies have risen [in recent years], but most have faded away,” says Paul Glover, who launched the Ithaca HOURS local currency in 1991.
According to Glover, for a local currency to work, people have to be convinced that it has value, is easy to use, and is widespread. It also must have dedicated evangelists promoting it.
How to get there is up for debate, and the currencies introduced in recent years have followed a variety of paths. BerkShares, which were introduced in the Berkshire region of Western Massachusetts in 2006, are a paper money accepted at 400 local businesses (the project started with 90) that can be exchanged for dollars at three local banks.
“Having that conversion to dollars means that it’s not all mom-and-pops,” says Susan Witt, the Executive Director of the Schumacher Center for a New Economics and a co-founder of BerkShares. “I had foundation work done this summer on my house and paid 4,000 BerkShares for it. I paid 6,000 several years ago to my dentist for extensive dental work.”
Witt estimates that each BerkShare is used in four purchases because being exchanged for U.S. currency. There are about 138,000 in circulation now, in an area of 19,000 people.
The Bristol Pound has taken a different approach to broadening its appeal. As with BerkShares, each of the 130,000 paper Bristol Pounds sold are back by a reserve--the pound sterling used to buy it. But it also comes in digital form, and some 70 percent of trades in Bristol Pounds are digital.
“The backbone of any serious complementary money has to be digital. It won’t get that big if it doesn’t have that backbone,” says Mundy.
In addition, although it’s a private initiative, the Bristol Pound has government support. The city’s elected mayor takes his salary in Bristol Pounds, for example, and the currency can be used to pay some municipal taxes.
“If you can pay tax it in, it’s a currency,” Mundy says.
About 850 Bristol businesses and 1,500 individuals have Bristol Pound accounts, and there are 19 businesses around city that act as ATMs where people can withdraw Bristol Pounds.
“To make it as close to a national currency as possible, a local currency has to be accepted by a large network of businesses, be valid for paying taxes, or be exchangeable. You have to have at least one of those things, and two or three is even better,” says Andreu Honzawa, the Spain representative of the Social Trade Organization, the Dutch open source banking software provider behind the Bristol Pound system.
Honzawa is working with the town of Santa Coloma, near Barcelona, to introduce a local digital currency in the coming months. There, Honzawa says, part of city subsidies will be given in a local currency that must be used inside a local business network. To encourage use, each currency unit will be convertible to euros, but only after a certain amount of time.
All these issues will come under discussion in Barcelona as the city holds open meetings with businesses, residents, and currency experts to determine what form the local money will take and to convince people that it's viable. It’s likely Barcelona’s new currency will be both digital and paper, since local money is often a tourist souvenir.
Making it successful will be a sensitive process, as most local currencies – from Ithaca HOURS to the Burlington Currency Project – have faded into disuse, for reasons ranging from a lack of expertise to a shortage of representatives dedicated to making the network grow.
"The whole basis of the success of a local money is its acceptance by the local citizenry," says Ortega, the Barcelona commissioner. "You can’t use it unless it’s accepted."