Some communities have begun printing their own local currencies, and the idea is spreading like wildfire as U.S. dollars are becoming more scarce in this recession, CNN reports. It sounds like an innovative new idea, but it's really as old as civilization itself. Written records have been used as a medium of exchange for millennia, be they on clay or on paper.
These local examples will not benefit from legal tender laws...[T]he whole experiment relies on the whimsy of public opinion.The list of problems with startup local currencies is long. The first that comes to my mind is that the example reported by CNN has an exchange rate of $95 U.S. for 100 units of local currency – so conceptually, if dollar scarcity is the reason for designing the new currency system, how is this going to help? Next, any earners of the local currency will have those earnings taxed in U.S. dollars, so there will have to be conversion back to U.S. dollars – better hope that exchange rate stays constant. And there are the problems that kings, governments and central bankers have faced for millennia: have they printed enough, did they print too much, yadda, yadda, yadda. And then there's confidence: currency only works if people believe they can exchange the notes they get today for something of roughly the same value tomorrow. These local examples will not benefit from legal tender laws, so the whole experiment relies on the whimsy of public opinion.
So why not implement a unit that has intrinsic value, you may ask. Well, that has its challenges too. CNN quotes George Washington University law professor Lewis Solomon as saying the alternate currency cannot be coins, so that rules out the monetary metals or the pot metal constituting our coins in circulation today.
So what are the disgruntled consumers to do? Well, there have been many commodity currencies. Arab traders used slabs of salt. Tea pressed into tablets was also used in some regions. Iron was once used in Africa as money. Even alcohol and moonshine have served as mediums of exchange in some regions when times were tough.
It seems the answer is to find something that everyone needs and which has an agreed-upon value. Something like gasoline or home-grown food products could be perfect. Or moonshine – there’s always that. [CNN]
Brian Williams, a TheSequitur.com senior editor and systems director, studies sociology at Morehead State University.
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