In economics, a local currency is a currency that can be spent in a particular geographical locality at participating organisations. A regional currency is a form of local currency encompassing a larger geographical area, while a community currency might be local or be used for exchange within an online community. A local currency acts as a complementary currency to a national currency, rather than replacing it, and aims to encourage spending within a local community, especially with locally owned businesses. Such currencies may not be backed by a national government nor be legal tender. About 300 complementary currencies, including local currencies, are listed in the Complementary Currency Resource Center worldwide database.
Terminology
Some definitions:
Complementary currency - is used as a complement to a national currency, as a medium of exchange, which is usually not legal tender. Community currency - a complementary currency used by a group with a common bond, such as residents of a locality, association, or members of a business or online community. Local currency - a complementary currency used in a locality. Regional currency - a local currency where the locality is a larger region. Auxiliary currency, microcurrency, Eco-Money - less common synonyms for community or local currency. (see for example Douthwaite & Wagman 1999) Private currency - a currency issued by an individual, business or non-governmental organization. Complementary currencies are a type of private currency. Sectoral currency - a complementary currency used within one economic sector, such as education or health care. Alternative currency - generally, a synonym for complementary currency, referring to a currency designed to work in conjunction with the national currency; less often refers to a type of private currency which attempts to supplant or circumvent the national currency.
Purpose
Local currencies aim at using money as a tool to achieve social or environmental objectives. According to the New Economics Foundation partner Community Currencies in Action:
Some of the purposes for community currencies identified by Community Currencies in Action include:
Democratizing services and organisations: time credits for volunteering encourage people to actively engage in their community while making services, such as elderly care, more democratic. Zeitvorsoge, Makkie Supporting small and medium enterprises: Community currencies can serve as a means to promote independent shops over large corporations since they keep on circulating locally. They can also help SMEs support each other financially by lending and receiving credit, goods and services within the currency network. Examples are: Bristol Pound, SoNantes, TradeQoin, Chiemgauer Countering inequality and social exclusion: Specially designed currencies can address inequality issues by giving everyone the chance to get involved in their community; for instance by rewarding participation in voluntary programs. (Spice Time Credits, Makkie) Addressing environmental impacts: Community currencies can play a role in better valuation of environmental resources and providing an incentive for more sustainable behavior. For example, the Belgian Portemonnee rewards residents for environmentally positive actions such as composting. Reward currencies can also encourage businesses to adopt more environmentally sound practices.
Benefits
The Wörgl experiment illustrates some of the common characteristics and major benefits of local currencies.