Sound Money for Your State and Community

Local currencies can keep value in your community, alleviate poverty, and promote your local economy.



National governments issue legal tender and generally prevent local governments from doing the same. However, legal tender and money are not necessarily the same thing. Local governments, private industry, and nonprofit groups can and are issuing local currencies for a variety of reasons. Each of these currencies has their uses. None of them are a complete replacement for legal tender, but none of them are intended to be such. These complementary currencies can help revitalize communities and stabilize local economies.


Local Exchange Currencies

Many nonprofit and for-profit groups in the US and other countries are issuing various forms of currency that attempt to revitalize their area, keep value in their communities, and provide a sound alternative to the dollar. The following list provides a small sampling of such groups and also gives links for more information.

Tucson Traders
Bay Area Bucks
Maine Time Dollar Network
Ithaca HOURS
Madison HOURS
TimeBanks
BerkShares


Local currencies of the type mentioned here are often called Local Exchange Trading Systems (LETS), community currencies, and regional currencies. There are currently more than 4,000 such currencies in use worldwide.

The currencies noted here and other currencies like them use a variety of methods for issuing and managing their currencies. Some of them are digital and some are not. Cognisaya can supply anyone issuing a local currency with the technology they need to give their customers a single integrated and easy user experience for their currencies.


States, Gold, and Sound Money

The fact that only the federal government can issue legal tender has not prevented state governments from seeking more stable forms of money that the US dollar. For example, Utah has a law that enables people to use gold or silver coins issued by the US federal government as legal tender currency, exactly as the Constitution states. At least ten other states are considering similar moves.

In general, the citizens of Utah have not moved toward the use of gold and silver as a substitute for the dollar. This is primarily due to the inconvenience of using them. It is possible to use CommerceRiver to issue a digital currency that is backed by a reserve of gold and silver coins. This gives the usability of modern currencies with the value and long-term viability of precious metals or other commodities.

The downside of commodity-backed currencies is that someone has to pay for the storage of the commodities. One possible answer to that is to charge demurrage.

What is demurrage? Demurrage is a kind of negative interest on money. In ancient times, each local lord issued his own money. When he died, the new lord would issue new coins. The old ones were exchangeable at ¾ their face value. So 4 of the old coins equaled 3 of the new ones.

Because people never new when the local nobleman might get a cold, eat bad food, fall off his horse, or get stabbed by someone looking to inherit, they did not hold onto their money. Instead, they spent it fairly rapidly on income producing assets such as land, waterwheel-driven factories, and so forth.

In a commodity-backed monetary system, a demurrage charge would probably be levied quarterly, semi-annually, or annually. The demurrage would be used to pay the storage fee of the commodity. The longer a person hangs onto the currency, the bigger the demurrage charge.

The software we're producing at Cognisaya supports commodity-backed currencies by enabling issuers to package certificates of ownership within the digital currency it generates. Anyone who receives such a commodity-backed currency can exchange it for the commodity at any time because their currency is proof of ownership.


State and Local Currencies

It may possible that local governments could issue currencies for their specific areas. In the US it is illegal for states, counties, cities and other local governments to issue legal tender currencies. However, it may be legal for them to issue a bond, or some other kind of financial instrument that anticipates tax revenue, and use it as the backing for a local currency that is not legal tender. That lets the state create a currency-like financial instrument that would be legally usable for settling private debts. People in that state could use it to buy, sell, and pay local taxes.

Cognisaya enables this scenario because it can package certificates of ownership inside a currency that it creates. Imagine that the state of Texas issued a currency called LoneStar Bux. Imagine also that LoneStar Bux are denominated such that there is a 20 Bux bill. Suppose that you have one in your digital wallet right now. That 20 Bux bill is actually a certificate of ownership for 20 Bux worth of the bond that the state of Texas issued as backing for the LoneStar Bux. When the bond matures, the 20 Bux bill will be redeemable for US dollars if you want to redeem it.

Although a currency-like bond can be used like money within the state that issues it, it would not be legal tender and could not be used to pay taxes to the federal government. It would probably also not be usable outside the state. However, the citizens of that state would have sound, stable money that would not inflate if it were managed properly.


Summary

Local currencies help complete transactions that would otherwise not be possible. They help keep value in communities. They encourage local spending and stabilize local economies.

Each kind of local currency has its own strengths and weaknesses. As such, any particular kind of local currency should be targeted toward uses that correspond to its strengths.

It is possible that the concept of local currencies might be extendable to currencies that are not legal tender but that are issued by regional governments such as states and cities. These currencies could be backed by commodities, such as gold or silver. However, city and state currencies are more likely to have success if they are backed by a bond or some other promise of future tax revenues.

To reinvigorate our economy and revitalize our communities, we must realize that we have more tools at our disposal than have traditionally been recognized. Local currencies are tools that have definite community-building potential.

In general, anyone can start a local currency. It cannot be used to pay taxes and it cannot be a general-purpose currency like the dollar. It is not legal tender and may be refused by anyone who doesn’t want to accept it. However, local currencies have a proven track record of stabilizing the economies of their communities and are worth issuing to help resolve local poverty.

shapeimage 4



© Cognisaya 2013-2015


                Home |  Products | Services | Blog | Articles | Videos | Links | About | Contact