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Money Money Money (In a Local World)

Every third Sunday, local vendors, renowned culinary experts, and pancake and produce stands line the streets of Totnes, a small British town famous for its award-winning weekend market. There’s not much you can’t find: The attraction boasts everything from vegan dips to tikka masala to artisan rolled fudge. Until recently, the market also served as an important site of exchange for what an outsider might mistake as Monopoly money: the Totnes pound.

The Totnes pound is an example of a convertible local currency (CLC), a currency that can only be spent and circulated in a particular locale. It’s not the only one of its kind in England: Several other small towns, including Bristol and Kingston, have adopted their own versions. In theory, CLCs help support small businesses, foster community values, and create a sustainable local economy resilient to political uncertainty and national austerity measures. In practice, however, England’s CLCs have suffered from ineffective implementation, poor design, and a lack of government support. If they continue to operate as-is, it’s unlikely that they will be able to serve their intended purpose.

Under a typical CLC implementation, residents can freely exchange their local bills for national ones, and vice versa. In addition, the local currency is tied to the national currency; for instance, each Totnes, Bristol, or Kingston pound is backed by one British pound. Consumers are then encouraged to spend CLCs at local businesses; in some places CLCs can even be used to pay taxes or rent.

In order to succeed, however, a CLC needs local government to actively support its widespread adoption. In Bristol, for example, where CLCs can be used to pay taxes, residents have spent over £5 billion Bristol pounds, both through paper vouchers and electronic payments since the CLC’s introduction in 2012. By contrast, a lack of government follow-through in Totnes largely led to its ultimate demise.

Still, the failure of CLCs in towns like Totnes does not detract from the potential of the local currency model. CLCs are rooted in powerful ideals, such as the promotion of small businesses, sustainable practices, and community resilience. Fundamentally, circulating a currency that can only be used at the local business level helps small towns fight the power of bigger globalized chains. By encouraging residents to buy locally, CLCs foster stronger relationships between local business owners and residents. At the same time, as consumers grow increasingly reliant on local vendors, they create greener communities that prioritize local production as opposed to mass imports of foreign products. Altogether, CLCs help towns become increasingly self-reliant in times of uncertainty while also building a stronger sense of distinct community identity.

Promoting these community-based ideals is especially important in a world where small, rural locales are often left behind in the wake of globalization.  Though we tend to understate the significance of economic activity in these towns, they are bursting with potential. In fact, a 2017 report by the International Institute for the Environment and Development emphasizes the critical roles of these communities: They link food production with urban centers and are becoming hubs of non-agricultural growth, activity, and employment for small enterprises.

Clearly, prioritizing and protecting these small towns is critical. So if CLCs are, in theory, an effective way of addressing such concerns, where have they gone wrong?

British CLCs represent a classic conundrum: They’re powerful in principle but ineffective in practice. They have failed not because of their ideological foundation but because of structural flaws. Usually, this means that local government isn’t sufficiently dedicated to their success, local consumers lack an incentive to use them, or the changing nature of the global economic landscape, like its shifts toward electronic money, have rendered them futile. These failures, however, should not discredit the ideals that led to the establishment of CLCs in the first place. Rather, they underscore practical issues that have accompanied their implementation. There are a few ways to address these shortcomings.

First, although local currencies are rooted in community-based principles, local institutions need to make them more community-focused. These efforts must go beyond helping businesses opt into the CLC model. Instead, they need to actively promote sustainability. A good example of this practice is the SOL-Violette, a CLC used in Toulouse, France. Just as the Totnes pound was backed by British pounds, each unit of SOL-Violette purchased is backed by a pool of euros. These euros make up an investment fund that finances the development of ethical businesses and contributes to social assistance efforts for town residents living in poverty—in practice, a self-sustaining welfare-like program. By committing to investment in sustainability projects, those who control CLCs in Britain can increase their community impact.

Second, it’s equally important to address the issue of government support. As it stands, local governments in Britain haven’t done enough to support the usage of CLCs. To change this, governments could accept their currency in local tax payments, as Bristol does with its Bristol pound, or pay employees a part of their salary in the local currency, as Brazil’s São João do Arraial does with its Cocais.

Finally, towns need to create stronger incentives for their residents to use CLCs. One of the most powerful options is to offer discounts to encourage spending. The Cocais offers a helpful model for reference: Although Cocais notes are equivalent to the Brazilian Real, consumers who use the Cocais receive a 10 percent discount on everything they buy. Thus, consumers are incentivized to spend Cocais instead of Real notes when they enter local shops. Similarly, making a currency available and user-friendly would also incentivize consumers to use them more. The virtual availability of the Bristol pound also contributed to its success relative to the Totnes pound.

Britain’s early attempts clearly weren’t powerful enough to encourage the circulation of CLCs beyond the few thousand consumers who currently use them. But the ideals upon which CLCs rest hold powerful potential. Now, it’s simply a matter of making structural adjustments so that practice aligns with principle.

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