Approaches To Community Currencies

By: Fernanda Powers

There are many ways to approach issuing a community currency. It can have absolutely no intrinsic value or backing, it can be backed by the US Dollar, or it can be backed by a precious metal. Regardless of how it's issued or backed, the determining factor in making a currency work is that people agree to accept it at an agreed-upon value, called the currency value or face value.

Ithaca Hours is an example of a successful community currency that has no intrinsic value and is not backed by a precious metal or anything of value. The Board of Directors issues a small amount of currency to members at the time they pay their annual dues, gradually increasing the community's supply. Participating businesses agree to accept Hours for a certain percentage of their offerings. When people spend Ithaca Hours, they are able to keep the dollars they would otherwise spend.

Berkshares in Massachussetts is an example of a community currency that is backed by the US Dollar. People can buy Berkshares from one of several local banks for 95 cents. They can then spend one Berkshare for one dollar or sell them back to the bank for 95 cents each. The five percent discount gives people an incentive to spend Berkshares over dollars whenever they can.

Liberty Dollar is an example of a local-acting currency that is made out of silver. Liberty Dollar silver ounces carried a face value that was roughly twice the spot price of silver, and the face value changed periodically as the spot price changed. Some communities had many businesses accepting them, while in other parts of the country the businesses have never heard of them.

The American Open Currency Standard (AOCS) has a built-in method for a community to issue a local acting AOCS currency using custom-designed one ounce silver rounds with an AOCS face value of fifty. AOCS also functions as a national barter group. There are two notable differences between Liberty Dollar and AOCS. The first is that while Liberty Dollar currently values an ounce of silver at a face value of twenty, AOCS has retained the AOCS face value of fifty for its one ounce silver rounds regardless of the ups and downs of the silver spot price. The second is that while Liberty Dollar has for ten years hoped for merchants to accept its silver by making a psychological or emotional connection to real value with varying results, AOCS has taken a more systematic approach to building a national network of participating merchants by starting with merchants who already trade in other national and local barter groups. AOCS also has an online database so shoppers wanting to spend AOCS approved silver can find out who's accepting it where they live.

Community currencies face some common challenges, regardless of how they are structured. The most obvious challenge is that it's less convenient to use than the US Dollar. The dollar is accepted everywhere in the United States, and even in other countries, whereas the local currency is only initially accepted at a few places. The main way to overcome that challenge is to structure an incentive to use the community currency right from the beginning. The incentive could be as simple as providing a way for people to obtain some of the goods and services they want without having to spend their limited dollars to get them. It could also be a desire to support the local community. An effective incentive is increased purchasing power of the local currency by allowing the local currency to be obtained at a discount relative to its face value. In the case of Berkshares, it costs 95 cents to purchase one Berkshare that's valued at a dollar, resulting in everyone spending Berkshares effectively getting a 5% discount on whatever they buy. Shoppers can often purchase AOCS barter medallions at anywhere from half to 80 percent of AOCS face value, even further increasing their purchasing power. That increase in purchasing power can be enough to remove the price advantage of shopping a big box retailer over a local business providing the same products.

Another challenge community currencies face is the issue of merchants determining how much of the currency they can afford to accept, and the potential hazard of accepting too much of it relative to what they can spend. In the case of a local currency with no backing, merchants need to continually tweak their terms in order to make sure they are not accumulating too much of the local currency. In the case of a currency backed by the US dollar, the merchant can always trade the excess for dollars at an acceptable cost, and that currency will be viable as long as the dollar is viable. In the case of a currency backed by a precious metal such as AOCS currency, the merchant may not be able to trade the excess for dollars, but he will never be stuck with something worthless either. Silver does hold its intrinsic value and at the very least, can be sold as bullion if it ever ceases to function as a currency. Should the dollar fail, silver rounds like the AOCS barter medallions can continue to circulate as currency based on their weight and purity rather than their assigned face value.

Article Source: http://yourfinance.co.za

About The Author
Fernanda Powers is the Executive Director of Northern Colorado Community Barter, a community currency initiative that uses AOCS barter medallions. Visit tinyurl.com/AOCSMint to learn how AOCS barter medallions can serve as a store of value and hedge against inflation for both you and your community.