The Gaming Den

I was talking to someone last night about something called the Totnes Pound. This is an alternative currency that is supposed to be equivalent to the pound, and can only be used within one town. The idea of a local currency seems to have been tried in multiple places, including Totnes, Berkshire in Massachusetts, Lewes and back in 1932 in Worgl. Supposedly in Worgl it was a huge success until the banks got pissed.

The guy was talking about it being a good idea in theory to implement in the city I live in, because it is supposed to encourage the local economy and somehow bring the control over money to the public.

But I don't get it.

• If you try doing this a lot won't you end up with lots and lots of different currencies? Sort of like trying to get all the different countries in the EU to start using their own currency as well as the Euro? This would get really really confusing and irritating. The guy suggested that multiple towns that work with similar... trades would share one currency, but we no longer have a country where we have some towns mining, others smelting, others making and others using these.
• And even if, say, the London£ and the Edinburgh£ are both equivalent to the Pound Sterling, won't they be of different values as the economy of each city changes? Or am I getting really confused?
• Won't having a new currency mean a greater risk of forgeries, possibly leading to a lack of confidence in the new currencies especially if this is publicised in a bad way by the media? After all, there are huge numbers of ways that notes are protected from forgeries, and individual towns won't be able to do all this so it could end up the main minting facilities will be responsible for all the different currencies.
• Currently there are supposed to be incentives such as a 10% discount for using the new currency. Short term I can see the use for consumers, but what is the long term likelihood of these currencies being used?
• What real benefit is there to the shopkeepers (so far it seems to only be local shops and not national chains participating)? They won't be able to pay taxes, bills, new stock or wages in it, and it will take time to convert it back into Sterling. Even if it would be a good idea for society, not enough people are Kantian enough to do it for that sake.
• How will this be affected by the recession? If it is benefited by the recession, what is likely to happen when the recession ends?

I don't have any experience of economics, but a lot of other people here do. Could you help me understand it better?

All it gives people is the oppurtunity to sneer at you for being a filthy outsider, using your real world pounds. This is all insularism and xenophobia.

Unless it's not got a fixed exchange rate.

One of the big draws for holding a currency in the real world (as opposed to the ForEx world) is that you can use it in places you travel to. Holding microcurrency indicates you aren't going anywhere. It's like Black kids beating up other Black kids for "acting white" when the targets study and attempt to better themselves. Having an escape route makes you unpopular with people who are trapped.

It is entirely retarded and doomed to failure for a simple reason. You make most of your tractions electronically or with some sort of automated device like a vending machine.

Neither of these wants to have anything to do with regional currencies and both tend towards single currencies in as large a region as possible (hence the euro) to reduce transaction costs.

What local currencies are is an attempt to satisfy a psychological need to control your own destiny, rather than the fed reserve or whatever.

I read something that touched on this a while back, and pointed me at some books I haven't gotten around to yet: link

It argues for local currencies over national, although the summary on the link doesn't address transaction costs. Also it emphasizes networks of suppliers, which only really need to be near each other if transportation is hard, and it really isn't.

The argument for local currencies, though, is that exchange rates ensure your imports and exports balance if you leave them on the market (theoretically), so if you're trying to develop a city and surroundings as an economic unit (that is, mostly self-sufficient), having a local currency helps.

Sounds stupid to me, every time I exchange my pay for local cash I'll get slugged with a fee. Furthermore its only going to be pocket change. All my big purchases are from statewide or larger companies who probably won't want to deal in cruddy dollars.

IGTN wrote:The argument for local currencies, though, is that exchange rates ensure your imports and exports balance if you leave them on the market (theoretically), so if you're trying to develop a city and surroundings as an economic unit (that is, mostly self-sufficient), having a local currency helps.

The problem is, That doesn't really happen. Like, At All.

The thing where economists claim that floating exchange rates react quickly and decisively to counteract trade imbalances is total bullshit. Empirically this does not happen. Variable exchange rates exist only to benefit the coffers of people who own enough currency to influence those exchange rates. Adding more currencies with more exchange rates is simply an opportunity for currency arbitrage - which in turn is probably the least productive way to make money.

-Username17

given what's been said, it seems like communities who want to feel like they've got greater control over their lives would do better to work with barters within their insular little communities.

FrankTrollman wrote:

IGTN wrote:The argument for local currencies, though, is that exchange rates ensure your imports and exports balance if you leave them on the market (theoretically), so if you're trying to develop a city and surroundings as an economic unit (that is, mostly self-sufficient), having a local currency helps.

The problem is, That doesn't really happen. Like, At All.

The thing where economists claim that floating exchange rates react quickly and decisively to counteract trade imbalances is total bullshit. Empirically this does not happen.

-Username17

Ahh, thanks. So there isn't really a redeeming feature to local currencies, since they just add exchange fees and don't even do what they're supposed to do.

FrankTrollman wrote:The problem is, That doesn't really happen. Like, At All.

The thing where economists claim that floating exchange rates react quickly and decisively to counteract trade imbalances is total bullshit. Empirically this does not happen. Variable exchange rates exist only to benefit the coffers of people who own enough currency to influence those exchange rates. Adding more currencies with more exchange rates is simply an opportunity for currency arbitrage - which in turn is probably the least productive way to make money.

-Username17

Frank pretty much nailed this one. Purchasing power parity is something that just doesn't happen. It doesn't. There are some situations where you have a local community in the middle of, say, Zimbabwe, and rather than dealing with the 11,000,000% inflation (seriously) and the quarter-trillion notes rolling around that prove the national fiat currency is worth more as firewood than money, they could establish some currency of their own, probably backed by some real, physical thing (precious metals, etc.) and seriously, fuck the national currency. But that's an extreme edge case, and outside of that, local currencies are junk.

So they're pretty damn useless. Irritatingly, when I was talking to someone who liked the idea I disliked it, but now that I'm communicating with people who hate the idea I want to argue for it. Me being contrary I suppose.

Weirdly, looking around links from the wiki pages there seem to be several local currencies in the USA and a lot in the past during depression and they are all hailed as successes. Some of these I can understand: In Worgl it was because everyone was forced to be paid wages in steadily devaluing notes (each individual note would become less valuable over time so people used up the notes quickly), but I can't really see any success in issuing 300 notes (Totnes pound used only 300 notes to start with). Thats a stupidly small number. However, the current day local currencies have a flat exchange rate equivalent to the national currency.

The only thing I can think for it is that if you have some local currency then you might be more likely to use it in local shops rather than exchange it back into national currency meaning that the money goes to local shopowners rather than international companies. But this is more to do with the hassle of exchanging them or the experience of using a different currency rather than it being of any use.

Why do people think some of these current-day local currencies appear to be working?

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By the way, could people using technical terms explain them a bit better? I can normally get the meaning, but sometimes I have no idea. For example I could research what "purchasing power parity" is, but otherwise have no idea if Gelare is talking about floating exchange rates changing, using lots of money and messing about with exchanging currencies to make money or about creating a new currency when the old one is worthless. Not a dig at Gelare, but I have no background in economics so some of these terms lose me.

Even after I looked it up on wikipedia I only have a vague idea of what it is and the idea I have seems that Frank wasn't talking about it at all but Gelare was saying that Frank was talking about it. Which confuses me.

Purchasing Power Parity means that the nominal exchange rate and the price conversion are identical. If it exists, then a Big Mac should take as many US Dollars to purchase in DC as it would if you changed it to Canadian Dollars and went to Montreal.

So... how does it relate to this discussion? Yeah, it was just one example, but how does Frank's refutation of IGTNs point have anything to do with PPP? Can you see how using terms like this can confuse me a whole lot? Come to think of it, Frank didn't seem to say anything about the idea of local currencies in particular, just about the idea of multiple currencies in general.

Weirdly, it looks like the Totnes pound is supposed to have an almost perfect purchasing power parity to the pound sterling, with an equal purchasing power and an almost equal exchange rate.

Frank wrote:The thing where economists claim that floating exchange rates react quickly and decisively to counteract trade imbalances is total bullshit.

That right there.

Yep, what Zeruslord said. Sorry for not being clear; Frank wasn't quite explicitly talking about it, and I didn't mean to say he was, I was just expanding on reasons why exchange rates don't always work the way people hope.

Parthenon wrote:Why do people think some of these current-day local currencies appear to be working?

Because when you print a Waargarble Peso (or whatever) you are in fact printing money. It's not good money. It's not going to last very long. In the long run it has value only as a historical collector's item. But right here, right now, it's money.

We are in a monstrously large recession. We have a demand shortage. If you print some money, you can pay people with it and increase available demand.

Local currencies can have a slightly positive effect if the larger national government is too nutless to enact expansionary policy when it is needed. And when it isn't needed, a local currency would be a disastrous failure.

It's like how a city enacting its own socialized power grid would be a net positive thing in the face of not having one nationally. But it would still be better to have a national power grid. If you need more cash in your system and the nation won't deliver it, it's time to roll up your municipality's sleeves and issue some bonds of your own.

-Username17