“Local Bucks” Systems Circumvent the Dollar

by Robert Moskowitz

3 min read

It takes only one or two economic crashes like the Great Depression or the Great Recession for some people to start crying for an alternative monetary system. Over the years, these cries have been heard. Today, many alternative currencies exist around the world.

Under today’s economic stress, more and more people are dissatisfied with “mainstream” economies that seem to favor the few over the many, and that allow large-scale corporations to suck money (and life) out of small towns and their local economies. Local small business owners and would-be entrepreneurs are increasingly aware that alternative economic systems exist, make sense, and in many ways function to their benefit far more than do “mainstream” economies.

These “local bucks” can be classified into three different types: time-based systems (bartering), local-exchange trading systems (credits and debits), and alternative currency systems (tangible money).

Here’s a brief explanation of each one.

Time-Based Systems

Because all work requires time, it’s relatively simple and straightforward to build an alternative currency system based on bartering the time that participants spend working for one another, with no reference to actual dollars and cents. The roots of such labor exchanges first emerged as far back as 19th-century England.

Within this model, there can be variations. For example, the simplest method is to value every member’s time equally. But this may discourage people with relatively high-value skills (such as plumbers and doctors) from exchanging their time for services from people with relatively low-value skills (such as ditch-diggers and house painters). To eliminate this problem, some time-based exchanges allow for variable-rate time credits.

Hard to start and harder to maintain, many time-based “local bucks” systems are nevertheless thriving. For example, the Dane County TimeBank in Madison, Wis., claims more than 1,000 active members.

Local-Exchange Trading Systems

In these systems, people who do work for others earn credits, which they spend when others do work for them. Most of the time, there is no tangible currency involved: Credits and debits are simply entries in a centralized ledger.

Local-exchange trading systems are generally intended for use with mainstream currency, rather than as a replacement for it. One reason is that the two naturally complement each other. Mainstream currency is easy to spend and — for some — relatively hard to earn, while local-exchange credits tend to be easy to earn, but with so few merchants accepting them, relatively hard to spend.

Alternative Currency Systems

A third form of “local bucks” is a full-blown local currency. When a critical mass of merchants in a community agrees to accept and spend a special form of money, residents can then use these local bucks to make purchases, pay salaries, donate to charity, and so forth.

A prime example is BerkShares, a well-established alternative currency in the Berkshire region of Massachusetts. Anyone may buy (or sell their excess) BerkShares, at 95 cents each, and spend them as if they are U.S. dollars, effectively gaining a 5 percent discount on purchases. Five local banks issue the BerkShares, and nearly 400 local businesses and 70 local charities accept them.

BerkShares carry a fixed value, tied to the U.S. dollar. But local currencies can also be valued in terms of a “market basket” of local goods, effectively freeing them from dependence on larger economies.

Implications for Small Businesses

Many people are in favor of “local bucks” systems because they encourage community service and reciprocity among neighbors. They also tend to support and expand the local economy because tourists are free to spend “mainstream” dollars as usual, while the local bucks encourage residents to keep more of their spending within the community.

That’s why many “local bucks” systems are already in place, thriving or surviving with varying degrees of success.

But no matter how great alternative currencies sound to idealists, or how successful they appear on paper, in practice they remain “walled gardens” that are intrinsically limited to small-scale situations. The reason: Alternative currencies nearly always depend on one or more enthusiasts who keep them afloat via extraordinary personal effort.

As soon as the enthusiasts burn out or die off, the local bucks fade away. And even before that, they tend to “max out” at a small scale within the much larger, much stronger system of mainstream currency that lubricates both local and national economies.

Related Articles

Pricing Strategies For Products And Services

Pricing is a balancing act that involves psychology, art and science. You…

Read more

Your Financing Options

Current financing options are broken into three categories: Small Business or High-Growth…

Read more

Financing Options for Small Business Owners

Sooner or later most small businesses find they need financing for one…

Read more