What is LOCAL CURRENCY? What does LOCAL CURRENCY mean? LOCAL CURRENCY meaning & explanation



What is LOCAL CURRENCY? What does LOCAL CURRENCY mean? LOCAL CURRENCY meaning & explanation. Source: Wikipedia.org article, adapted under https://creativecommons.org/licenses/by-sa/3.0/ license. In economics, a local currency, is a currency that can be spent in a particular area at participating organisations. Usually it will act as a complementary currency, that is to be used in addition to a national currency, rather than replace it. The purpose is to encourage spending within the local community, especially with locally owned businesses. This may also help reduce environmental footprints.:1 The currency may not be backed by a national government or be legal tender. As a tool of fiscal localism, local currency can raise awareness of the state of about the local economy. They are useful for people who are unfamiliar or uncomfortable with traditional bartering. They encompass a wide range of forms, both physically and financially, and often are associated with a particular economic discourse. The Wörgl experiment dramatically illustrates some of the common characteristics and major benefits of local currencies. 1. Local currencies with negative interest rate tend to circulate much more rapidly than national currencies. The same amount of currency in circulation is employed more times and results in far greater overall economic activity. It produces greater benefit per unit. The higher velocity of money is a result of the negative interest rate which encourages people to spend the money more quickly. 2. Local currencies enable the community to more fully utilize its existing productive resources, especially unemployed labor, which has a catalytic effect on the rest of the local economy. They are based on the premise that the community is not fully utilizing its productive capacities, because of a lack of local purchasing power. The alternative currency is utilized to increase demand, resulting in a greater exploitation of productive resources. So long as the local economy is functioning at less than full capacity, the introduction of local currency need not be inflationary, even when it results in a significant increase in total money supply and total economic activity. 3. Since local currencies are only accepted within the community, their usage encourages the purchase of locally produced and locally-available goods and services. Thus, for any level of economic activity, more of the benefit accrues to the local community and less drains out to other parts of the country or the world. For instance, construction work undertaken with local currencies employs local labor and utilizes as far as possible local materials. The enhanced local effect becomes an incentive for the local population to accept and utilize the scrips. 4. Some forms of complementary currency can promote fuller utilization of resources over a much wider geographic area and help bridge the barriers imposed by distance. The Fureai kippu system in Japan issues credits in exchange for assistance to senior citizens. Family members living far from their parents can earn credits by offering assistance to the elderly in their local community. The credits can then be transferred to their parents and redeemed by them for local assistance. Airline frequent flyer miles are a form of complementary currency that promotes customer-loyalty in exchange for free travel. The airlines offer most of the coupons for seats on less heavily sold flights where some seats normally go empty, thus providing a benefit to customers at relatively low cost to the airline. 5. While most of these currencies are restricted to a small geographic area or a country, through the Internet electronic forms of complementary currency can be used to stimulate transactions on a global basis. In China, Tencent's QQ coins are a virtual form of currency that has gained wide circulation. QQ coins can be bought for Renminbi and used to buy virtual products and services such as ringtones and on-line video game time. They can also be obtained through on-line exchange for goods and services at about twice the Renminbi price, by which additional 'money' is being directly created. Though virtual currencies are not 'local' in the tradition sense, they do cater to the specific needs of a particular community, a virtual community. Once in circulation, they add to the total effective purchasing power of the on-line population as in the case of local currencies. The Chinese government has begun to tax the coins as they are exchanged from virtual currency to actual hard currency.

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