Promoting Local Currencies

What is local currency?

What is money



What is Money?

To know what we are talking about here, a definition of money must be established. This is relevant, because a clear definition of money is not often given. Economic textbooks often present hotly disputed opinions as facts.

Wikipedia, which generally should be taken with a big grain of salt, gives a reasonable one:
“Money is anything that is generally accepted as payment for goods and services and repayment of debts.”It is similar to Lietaer’s: “Money is an agreement within a community to use something as a medium of exchange.”
  An optimal fusion would be something like this: “Money is anything that is generally accepted by agreement as a medium of exchange.”
  Wikipedia then goes on, which is traditional, to discuss the three functions of money. But this is where it starts to get fishy.

The Three functions of Money

Money is often thought to have three functions: Medium of Exchange, Unit of Account and Store of Value.These are indeed all three closely linked to money, but we can establish right away that we have defined money as a medium of exchange.The unit of account function, for instance, is basically an index, by which you can measure the monetary value of everything else. This in itself is not something that needs to be directly associated with the medium of exchange.
Before the implementation of the Euro, all national units were weighed in a ECU index. There was no medium of exchange directly associated with this index, but there was the account unit function. You could establish a Deutsch Mark was maybe 0.50 ECU and a Dutch Guilder 0.45 ECU. Would we call the ECU money? No.

Many regional currencies all over the world simply borrow the account unit function from their more widely accepted ‘national’ counterparts. They say: one Berkshare is one Dollar, or one Chiemgauer is one Euro.
Wikipedia correctly mentions that many consider the means of exchange to be contradictory to the store of value function. Most economists probably don’t agree, but I am absolutely positive that an efficient medium of exchange is a bad store of value. And that its use as such seriously hinders money in its capacity as a means of exchange.
The reason money currently is systematically scarce is to a large extent because interest makes it more efficient as a store of value.Using the medium of exchange as a store of value is a bad service to the community using the money.For this reason Silvio Gesell introduced demurrage. By having the holders of the money pay anything between 6 to 20% per year, circulation is vastly increased.Such percentages may sound like a lot, but because the money circulates far quicker, maybe up to a 100 times a year, in relation to the total activity financed by the money, the cost is really low. Far lower than with interest bearing systems. Not even enough by a long shot to finance the money supplying organization with. Gesell destroyed the store of value function totally in his money, clearly showing the true primary nature of money as a means of exchange.

So how about the savers?

Normally they are hailed as the backbone of any productive society, in this model they are savaged as abusers?The system creates behaviour. We need to clearly distinguish the different aspects of money and never lose sight of its main function.
It is normal to want to be able to spend wealth not now, but later in life. That is the basic function of ‘saving’. There are many ways to achieve that. The money can be invested in projects going on everywhere in the vicinity. You can pay up front for goods and services obtained later, so that future income is available then for other ventures. You can buy durable goods that can easily be liquidated back into money, you could even use Gold for that, these days. But many commodities will do.
We can easily conceive of ‘currencies’ that concentrate on the store of value function. These ‘currencies’ won’t circulate much, although probably many would accept them, therefore they won’t finance much economic activity, but they will allow ‘saving’ if that is what people want.But please do not put real money in a sock or hide it in a bank account where your bank will use it (and maybe lose it) in some silly fanancial game like Forex or other bizarre hoaxes. Or invest it in Monsanto, weapon suppliers, tazer producers or all those other highly lucrative industries. That money is no longer available to the community where you live to finance necessary trades.
The system should reward behavior consistent with these values.

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