We've all seen the signs in shop windows: "Local currency accepted here." But what does that mean? And how can having a local currency invigorate the local economy?
A local currency is one that can be used to complement the national currency. Shops, community organisations and other participating places can all decide to opt in or out of this local currency. Why bother over-complicating local finance?
Well, cities that take part feel that these currencies can strengthen their local economy. It’s a strong idea in places like Bristol, Kingston upon Thames and Brixton - the local currency can create a sense of pride and identity among business owners. Mostly, the point is to get shoppers to shop local.
So how does it work? Local currency can be earned and spent only in the specific area, which in theory means that the local area’s independent businesses are supporting and creating a thriving, vibrant locale. In some cities, employees even receive wages in local currency. In Lambeth, which has introduced the Brixton pound, council employees can sign up and receive some of their wages in Brixton pounds.
According to the Brixton Pound website this means that staff are "investing in local, being part of a more connected, sustainable community, and embracing new technologies." And Lambeth employees are not alone. In 2013, Bristol’s mayor George Ferguson accepted all of his salary in Bristol pounds.
Local currencies are usually run by not-for-profit agencies and are also available in Totnes, Lewes, Stroud and Kingston. Places with pounds in the pipeline include Exeter, Hackney, and Oxford.
James Blair is marketing and communications officer for the Bristol Pound. He explains how the local community is supported by using the Bristol Pound. "Known as the multiplier effect, Bristol Pounds will be spent repeatedly only within the local economy. With sterling, much of the wealth spent in the city is lost to big international business, related management structures, remote shareholders and the boom-bust of the financial banking system. The Bristol Pound can help deepen and diversify the connections between local business people and all the citizens of the region – an important part of building a sustainable regional economy and providing high quality employment."
It hasn’t come without challenges. Although Bristol currently has 800 local businesses on board, Blair acknowledges that it’s still early days. "Getting the technology working and meeting all the financial regulations have been tricky but we’ve worked with others across the UK who are setting up their own currencies to make sure we get it right. Bristol’s community spirit and openness to new ideas has meant people have taken the Bristol Pound to their hearts, and into their wallets."
Local currencies haven’t come without wider challenges though. The Bank of England states that "existing local currency schemes are unlikely to pose a risk to the Bank’s objectives. However, consumers should be aware that local currency instruments do not benefit from the same level of consumer protection as banknotes." Their website reinforces that "the only banknotes to have legal tender status in England and Wales are those issued by the Bank of England." The Bank of England website also underlines that in the event local currency initiatives don’t work out, notes can’t be exchanged for 'legal tender'.
Andrew Connolly is the co-founder of the Kingston Pound and emphasises that local currencies are not 'new' money, but tagged Stirling. "Each K£ is backed by real pounds that we hold in our local Credit Union account. If the system winds up everyone with K£'s gets the equivalent Sterling back. Local currencies like Kingston Pound have nothing to do with and should not be confused with Bitcoin. There is a potential issue if we were using technology that was not fit for purpose. For example we are using Cyclos 4, a banking software which underpins Brixton Pound and the UK's largest local currency Bristol Pound. We are using a tried and tested system and work closely with other currency systems so that we do not have to reinvent the wheel."
Connolly feels that local currencies can play just as large a part in communities as the local election: "Users of local currencies are able to have a continuing impact on the society in a way that a vote in the general election every four or five years cannot." He explains that "one of the UK's biggest economic problems is the low velocity of money. The New Economics Foundation (NEF) suggest that money spent with local businesses can lead to a 'multiplier' which can increase the velocity of money - in other words the money re-spent has a bigger impact. If local money is tagged Sterling (not created) and its velocity is increasing, then collectively, systems like Kingston Pound can help the national economy."