To understand why the introduction of complementary local currencies is essential to community revitalization and sustainable development, it is critical to first understand the monetary underpinnings of pervasive community challenges such as unemployment, lack of adequate housing and schools, environment-adverse practices, erosion of community fabric and civic engagement etc. First, local shortages of national currency engender a significant bottleneck when it comes to optimally connecting locally unused resources with unmet needs. And, second, the process by which increased use of conventional money to obtain services which used to be provided by family and mutual exchanges among neighbors, progressively erodes the very fabric of community.
Shortages of National Currency
National currencies are ill equipped to meet the needs of many communities because they are too scarce to optimally connect untapped resources and unmet needs. This problem is compounded by a highly skewed distribution of wealth in most countries. Places with the highest rates of unemployment are often the very same places where communities’ needs are least met. Communities that are cash poor constantly find themselves in a predicament whereby many of their most valuable assets (such as their inhabitants’ skills and talents) remain vastly unutilized or underutilized while many needs (for more and better housing or teachers, or cleaner streets) remain unmet. Lack of cash is a key reason why many communities are unable to “put people to work.” They are simply unable to pay for people to get things done. Money scarcity is the result of joblessness, and the scarcity in jobs is a result of money scarcity. We are dealing with a classical case of “mutual causality.”
I invite you to play the sufficiency of money game if you would like to understand why communities do in fact have much of what they practically need to flourish, once the bottleneck of money is removed from the equation.
The Community-eroding Effects of National Currency Exchanges
Our second claim is that the increased use of conventional money to obtain services which used to be freely provided by family and neighbors progressively erodes the very fabric of community. To understand how community is lost, we must find out how it is created. If community were a fabric, what would be the individual thread? Or to use another metaphor, if community were a molecule, what would be its constitutive atom, the smallest act that creates it?
Anthropologists have found that the single most important act for community-building is the reciprocity in gift exchanges. If you need a box of nails, you go to the hardware store and buy one. There is no expectation by either you or the shop assistant that any future reciprocity is involved. This is one of the main reasons why monetary exchanges are so efficient. Each transaction stands on its own. However, no community has been created either. Now, assume that you go out for another box of nails, and that your neighbor is sitting on his porch. When you tell him you are going to buy a box of nails, he responds, “Oh, I bought six boxes just the other day. Here is one, it will save you the trip to the hardware store.” He also refuses your offer to pay. What has happened? From a purely material viewpoint, in both cases you end up with your box of nails. But an anthropologist would point out that in the second case something else has happened as well. When you meet that neighbor again, you will definitely say hello. And if ever on a Saturday night he rings your doorbell because he forgot to buy some butter, you will most likely share some of yours. The gift of the box of nails is a community-building act. Its purchase is not. A commercial transaction is a closed system: the nail versus the money. In contrast, a gift is an open system. It leaves an imbalance in the transaction that some possible future transaction completes. The gift process creates something that the monetary exchange does not. An new thread has been woven into the community fabric.
Conventional money is simply not compatible with gift exchanges: just try to give a national currency bill as a birthday gift to your boy- or girlfriend, and you may discover empirically the nature of the problem.
Monetary Solutions for Building Community and Leveraging Local Assets
If national currencies are scarce, why not create your own money in sufficiency to complement the scarce national currency, to enable more work to be paid and more needs to be met? Sounds crazy? Too simple? It is nevertheless what hundreds of communities in various parts of the world have already done. They have introduced a dual currency system to solve their shortage of national currency, and empirical findings also reveal that these community currencies are more compatible with gift exchanges than conventional national money. We had mentioned earlier that when money gets involved, community breaks down. However, this turns out to be true only when scarce, competition-inducing currencies, such as our official national currencies are involved. In fact, the use of community currencies can have exactly the opposite effect and actually help build community, because they have reciprocity built in, which are more compatible with a gift economy.
You can find a summary overview of some of the best known community currencies here. Most of these systems are designed to remain small scale, and most don’t grow beyond the scale of about 500 participants. They play the role of the capillaries in our blood circulation system, a role which is great on its own scale. They are therefore best organized on a decentralized, local, way.
I have shown in The Future of Money (1999) that the effects of such community currencies are positive, and that, if properly designed and implemented, they do not actually create inflation. They are very effective ways of encouraging elderly care (e.g. Fureai Kippu in Japan) or fostering stronger community ties in neighborhoods (e.g. Time Dollars and LETS systems), or fostering regional development (e.g. Chiemgauer in Southern Bavaria, and other German regiogeld systems).
For more detailed overviews of the nature and benefits of community currencies, I recommend Chapter 6 of The Future of Money (let’s Scribd that chapter and link it here) as well as an excellent essay by Margrit Kennedy entitled Complementary Currencies: New Paths to Sustainable Abundance. If you are a community currency practitioner, or would like to explore implementing a community currency in your own community, I recommend looking up these community links and resources.