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Won’t community currencies create inflation?

Submitted by on September 17, 2010 – 5:21 amNo Comment

A common reaction to the concept of a community currencies is that it will increase the money supply and therefore fuel inflation. This reaction is further reinforced by the observation that the built-in incentive to get rid of a booster or demurrage currency reflects behavior observed in an inflationary environment. What happens beyond these first impressions?

Consider the issue of increased money supply: Do airline frequent flyer programs increase total airline flying? The answer is obviously yes. But does a frequent flyer ticket create inflationary pressures on air fares? The answer is no, because the airline will readjust as needed the constraints on frequent flyer usage (by, for example, having frequent flyer seats available only on weekends or in off seasons, or only for red eye flights, or only for a certain percentage of the seats). In other words, the airlines will ensure that only otherwise empty seats will be used by frequent flyers.

The same is true for community currencies: their natural niche is linking unused resources to otherwise unmet needs. The more sophisticated community currencies even specifically target this application. The local businesses participating in the Commonweal experiment in Minneapolis accept the community currency only for otherwise unused resources, as when, for example, a restaurant accepts community currency from early diners. Even the quantity of local currency issued is only 75 percent of the discounts of goods or services made available to the system by participating merchants. So long as community currencies are issued specifically to ensure the use of otherwise idle resources, inflationary pressures cannot be generated.

In summary, while the behavior patterns generated by the booster concept may look similar to what is observed under inflation, the cause is different. More importantly, the consequences of spending are diametrically opposed: Under hyperinflation, society collapses, while with community currencies the fabric of society is reinforced.

It is important to realize that  “normal” national currencies and community currencies play different roles.  Nonetheless, theory and practice show that it is possible to design a truly symbiotic relationship between them.

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