Should Your Community Print its own Currency?

Posted on 10. Sep, 2009 by Jason Guthrie in Economy

Did you know that printing and distributing local currency is completely legal? Under certain circumstances your local city could print its own currency – and because of the current economic conditions many are.

First, the rules:

The currency can’t resemble a US dollar
Only paper currency can be printed – no coins allowed
Any income received in local currency must be taxed as if it were federal dollars

So who’s using these alternate currency systems? In the United States, there are already alternative currency systems in California, Wisconsin, Oregon, Pennsylvania, Michigan and Massachusetts.

Right about now you’re probably asking, why? Isn’t the green $20 bill in your pocket good enough? The point behind local currencies is to keep the currency within the community – forcing residents to spend the currency on local businesses instead of encroaching “big-box” stores such as Walmart or Target or even online retailers such as Amazon.com. The bills can usually be “bought” for around $.95, essentially giving holders an instant 5% discount on any purchases they make. When the time comes to pay that cable bill, however, the local currency can easily be exchanged back into “real” dollars.

While the purpose behind local currency might be a bit idealistic, running your own mini economy is not as easy as it looks. Just printing the right amount of local currency is a challenge. If you print too much currency, there’s the possibility of inflation. If you print too little, there are no economic advantages.

“They usually don’t hold up too well, or too long,” says Bert Ely, a banking analyst. “It’s something that applies only in simple and closed situations. It lacks the flexibility and geographic breadth that currency has.”

So what do you think? If your community offered a local currency, would you use it? If you were a merchant would you accept it?