Do local currencies work?

Six years on from its launch, a local currency in the United States continues to inspire others. But what can it tell us about their potential to nurture vibrant, distinctive local economies? Austin Macauley reports

Two months on from the launch of the UK’s first city-wide local currency, the Bristol Pound, the scheme continues to create a buzz. Last week, the city’s first elected mayor’s decision to receive his entire salary in Bristol Pounds gave a huge boost to the emerging currency.

There’s a confident feel to the Bristol Pound website. The Pound will, it declares, ‘support Bristol’s independent businesses, strengthen the local economy, keep our high streets diverse and distinct, and help build stronger communities’.

The Bristol Pound is the first to have electronic accounts managed by a regulated financial institution – Bristol Credit Union – and the most ambitious of the local currencies seen so far in the UK. But what happens when the initial excitement wears off? Realistically, what can initiatives like this achieve?

A few clues as to what the future might hold can be found in The Berkshires, western Massachusetts. Its currency, BerkShares, was launched in September 2006, some eight months ahead of the UK’s first modern day local currency, the Totnes Pound.

Examine the Berkshares website and you find an altogether more sober and scholarly tone, perhaps reflecting its development by the E F Schumacher Society, now the New Economics Institute. It describes BerkShares as ‘a tool for community empowerment, enabling merchants and consumers to plant the seeds for an alternative economic future for their communities’.

Six years on, the evolution of BerkShares offers a reality check to other local currencies. But its plans for the future should also provide inspiration for those who genuinely want to bring about fundamental changes to the way their local economy operates.

First off, the bad news. BerkShares made an almighty splash when it was launched, garnered huge amounts of publicity and in just nine months one million BerkShares had been issued. Over time that grew to 2.7 million BerkShares. To give that figure some context, Berkshire County, aka The Berkshires, is home to around 131,000 people. But use of the currency soon declined and in recent years has levelled off with around 140,000 BerkShares currently in circulation.

‘Use of BerkShares has dropped off because of a lack of money and staff for publicity,’ says Alice Maggio, coordinator of BerkShares at the New Economics Institute. ‘We expect that circulation will increase as we increase publicity efforts and work to educate on recirculation possibilities.’

Asked whether the currency has cushioned The Berkshires from the effects of the economic downturn and her response is frank: ‘The numbers of BerkShares in circulation are too small for them to have had an impact.’

But there are numerous ways to judge the currency’s success or otherwise and the number of bills in circulation is only half the story. At present 13 banks and several hundred businesses are signed up to the currency, a sign that it’s here to stay. There is also the broader role it has played in promoting local, independent businesses.

BerkShares’ launch coincided with a campaign to encourage people to shop locally, a drive which has continued to this day. ‘BerkShares played a large role in that, and after six years “local first” has definitely become part of the ethos of the Berkshires, as it has on a smaller scale across the country,’ says Maggio. ‘When non-local businesses try to come into the area there is significant push back from the local community. For example, box store/chain pharmacies and “dollar stores” do not have an easy time penetrating the Berkshires.’

While it’s hard to quantify its role in nurturing this ethos, it seems logical that ‘local first’ and a local currency are a powerful combination.


One area where local currencies here appear to have learned from the experience of BerkShares is around the terms of exchange. BerkShares are currently traded with a 5% discount, ie $95 will buy 100 BerkShares which are worth $100 in participating businesses. Some have argued that although this incentivises shopping in local stores it effectively devalues the local currency in the eyes of the public and the business community. Maggio admits that some businesses have complained that they are losing out when they come to exchange their BerkShares back to dollars and suggests some may want to consider a smaller percentage akin to a credit card transaction charge. Indeed, BerkShares current discount is half the 10% it originally launched with.

Local currencies in the UK have so far traded on the basis that one unit is worth £1, although many offer other discounts and incentives. For example, customers opening a Bristol Pound account with Bristol Credit Union will receive a 5% bonus on their deposits, capped at the first £100,000 exchanged across the scheme.

‘The roadblock is when businesses can’t break out of their habits and don’t see how to spend local currency.’

Bristol Pound CIC, which operates the scheme, charges up to 2% on electronic Bristol Pound transactions. This enables it to cover the running costs of the scheme – a crucial aspect if BerkShares is anything to go by.

Berkshares has clearly suffered from a lack of resources needed to maintain the momentum of its early years. Constantly finding new ways to animate the currency, encouraging people to use it and making it engrained the local economy are essential, according to Maggio.

‘Make sure to encourage recirculation of the local currency,’ she advises. ‘Build the possibilities and systems for businesses to use the currency. The roadblock is when businesses can’t break out of their habits and don’t see how to spend local currency.’ If local businesses simply take the currency back to the bank rather than spending it on their supply chain there’s a risk they will soon lose interest.

When BerkShares was launched it both inspired other currencies and paved the way for their roll-out. If its plans for the future come off it will raise the bar to a level that will grab the attention even of those who are highly sceptical about potential of local currencies. The ultimate goal is to make BerkShares a regional currency backed by local production rather than dollars.

Maggio explains: ‘To reach this goal BerkShares needs to begin issuing loans for productive purposes, without dollar backing. This is a move that will unhook the BerkShare’s value from the US dollar because the community (represented by members of BerkShares organisation and other community members) will decide which business ventures are valuable enough to the area for the community to invest in.

‘We are using the term “community supported industry”. It will allow the community to make decisions about its money supply.’

This is where the true potential of a local currency lies. Low interest loans will help get new business off the ground or support the expansion of existing firms  – but all in the name of local production and with the aim of locking wealth into the area.

‘Businesses that provide essentials to the local economy (food, clothing, shelter, energy) will be given priority in the loan process. This will also build the ethos of community support for local production – we are using the term “community supported industry”. It will allow the community to make decisions about its money supply.’

If local currencies in the UK can take similar steps it could herald a significant shift in the way our towns and cities determine their future economic development.


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11 years ago

“But what happens when the initial excitement wears off.” This in-built assumption is where this article’s analysis falls down.

Key difference in the Bristol Pound is that it will continue to expand, due to the nature of the TXT2PAY service and online banking software. This enables users to set up a standing order, or commit a portion of their wages into Bristol Pounds, guarding against inertia.

We can already provide lots and lots of examples of how using Bristol Pounds is reshaping how businesses and individuals spend their money. It is working, and it’s only just begun. Feel free to contact us if you’d like some information!

Austin Macauley
Austin Macauley
11 years ago

The line you quote is an observation based on fact (it’s what happened to BerkShares and other currencies). No one can say for certain whether or not the Bristol Pound will sustain its momentum, it’s far too early to judge. As the article indicates, the Bristol Pound offers more innovation than many other local currencies – I hope it pays off.

Rod Smith
Rod Smith
11 years ago

I feel that these are always going to be very small scale. I believe that if they really caught on, the government would classify them as taxable income

11 years ago

Loans for local prioritised projects and support of local suppliers by the populace can be achieved with “normal” money. Setting up local gift tokens with all inherent costs is a smoke screen hiding the real problems of lack of demand for local services.

If local currencies were the way forward then the uk would happily be supportjng thousands of them as each village drifted towards their natural efficiency. They don t. And as Europe has found out, local currencies don t work if they remain pegged to monetary and exchange rate policies set by others.
If you REALLY want a local currency to prove its worth then free float it with its own interest rates and see how it fares. Otherwise you just have the same as a locally minted greek euro. Its a euro but with a diffent picture on it. Oh and in the BPound case there is the added disadvantage of a 3pct levy to ever change them back to real money should you wish to buy anything that is imported into Bristol..which I would suggest is a very high proportion of everything sold in Bristol (Bristol not being renowned for its high tech manufacturing, heavy industry or agriculture). Or do the retailers make enough margin to cover those exchange fees? If so perhaps they would do better offering a 3pct discount to people using real money to drum up the business improvement they crave in the first place.

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