An Economic Analysis Of Contemporary Local Currencies In The United States

Attachment

IJCCRvol12(2008)Krohn.pdf

11yl9jqfy-2gg/b0bsl79jx59rwtw7lr978psshbdk7tsxlb1w4wlpmfhprmt/IJCCRvol12%282008%29Krohn.pdf

Description

 

Beginning with Ithaca, New York in 1991, over 80 communities in the United States introduced printed local currencies. This is a curious phenomenon. Over the same period of time, the United States economy was relatively stable by historical standards, electronic payments grew sharply, and 15 European countries abandoned their national currencies and adopted a common currency, the euro. Why did so many communities in the United States introduce their own currencies?

Local paper currency is a subset of the community currency movement that emerged in a number of countries during the 1980’s and 1990’s. One indication of the extent of the community currency movement is the establishment in 1997 of the online, peer-reviewed International Journal of Community Currency Research. Proponents argue that, as part of the anti-globalization movement, community currency systems empower the economically marginalized, foster social relationships, revitalize local economies by keeping money circulating locally rather than flowing out, and promote ecological sustainability.

The present study focuses on the economics of local paper currencies in the United States. To our knowledge, this is the first in-depth economic analysis of these systems. Community currencies in the United Kingdom have been written about extensively in the social science literature, but systems in the United States have received less attention. Jacob et al. (2004) conducted a case study of the local paper currency system in Ithaca, New York, and concluded that the local currency functions as social and cultural capital but does little to increase access to goods and services. Collom (2005) provided the first known comprehensive scientific study of U.S. local paper currency systems. He applied social movement theory and analyzed data on United States cities to identify the types of social environments in which community currencies emerge and survive. Little is known about the extent to which local paper currencies revitalize local economies in the United States.

The study makes several contributions to the literature on local currencies. First, a review of monetary theory and the experience with local currencies in Argentina earlier this decade indicate that in periods of financial instability and high unemployment, local currencies might provide widespread economic benefits. Second, the concept of seigniorage (profit from creating money) is introduced, and estimates of seigniorage in the Ithaca, New York system are provided. Third, a challenge is made to the claim that, because of their limited circulation area, local currencies increase the local expenditure multiplier. Finally, evidence is provided that cities in the United States which introduced local paper currencies during the 1990s grew no faster than those that did not. One conclusion drawn is that local paper currencies do not appear to promote local economic development during periods of economic and financial stability.

Author

Gregory A. Krohn and Alan M. Snyder. Department of Economics Bucknell University. Lewisburg, PA. 2008