In times of severe recession, cash can be hard to come by. To somewhat maintain their standard of living and avoid being further driven into poverty, some communities developed their own alternative currencies. These community currencies are parallel systems of exchange. They are growing in popularity in countries such as Greece, which is currently battling the failures of modern capitalism, and could also be implemented in parts of the United States. The Rust Belt states could benefit from the implementation of similar initiatives. We take a quick look at how:
Community Currencies in Europe: Volos
The existence of community currencies as parallel monetary systems is justified by ecological economics, a branch of research that focusses on the interdependence of human economics with the natural environment. The aim is to promote sustainable development through the revival of vital aspects of the socio-economic fabric that have taken a backseat with the rise of capitalism: rebuilding social capital, replacing material consumption and bringing back value to labor to mean more than just as a mere factor of production. In short, it brings the market and its dynamics back to the grassroots level where it is simply an arena for the facilitation of provisioning survival rather than primarily for capital gains and growth.
The way community currencies work is best explained through a real-life example. Take, for instance, the story of Volos, a fishing village located in central Greece. Volos has experienced hard times since the Greek debt crisis began several years ago. Now, barter forms the basis of their system of exchange. The underlying currency is a local alternative unit of account called the TEM.
The TEM acts as a temporary IOU that allows for a more immediate exchange of goods and services the villagers in Volos require to maintain their daily living standards. People can exchange ironing service for language lessons, or potatoes for fish, and so on. The exchanges are supported by an online platform where ads for community members’ needs are posted. The system has come into existence to resolve villagers’ limited access to cash. It’s helped to maintain demand and prevent an economic standstill.
Community Currencies in the US: Time Banks
The most popular form of community currency initiated in the US has been the Time Banking system. Time banks were originally set up to create a social support system within neighborhoods, allowing group members to trade goods and services without money. Each hour of community work is exchanged at the bank for a unit of time-based local credit that can be redeemed for other goods and services. In this way, the labor is valued based on time, not market prices.
The positive impact Time Banking leaves on a community extends well beyond just the ability for low-income groups to access goods and services that might otherwise be unaffordable. It also helps alleviate to some extent the systemic problems of inequality that are often not factored into its cost. Although such systems have sprouted around the United States, they have gained much recognition. Participation rates at Time Banks have remained very low, and it remains unclear why.
Can Community Currencies be used more extensively?
So if Community Currencies can improve economic well-being among low-income groups, why is it not more popular? First, the systems have not been studied sufficiently. A lack of research on Community Currencies and their benefits has limited our understanding of their potential, and their growth in popularity.
Second, there are inherent geographic constraints that community currencies have yet to overcome. Under the current format, payment in community currencies is only accepted within small areas. As such, they can only be used for the exchange of goods and services that were arbitrarily made available within those areas. In order to make the system more successful, the geographic reach should be extended, allowing for more goods and services to be taken up in the system.
State intervention could make this happen. A local government could offer tax incentives to private healthcare facilities within the geographic sector of the community currency. In exchange, the health-care facility would accept payment from uninsured low-income clients in the alternative currency. If more necessary goods and services can be included in the range of products made available there would be more sustainable.
Therefore, Community Currencies require the strong and continued support from their local government to remain successful. In Greece, a first step was made several years ago, when parliament passed a law that allowed barter groups to be classified as non-profit organizations. The local government in Volos was appreciative of the change, given that it allows for some semblance of normal everyday life to continue in a time of austerity.
One reason why government might be reluctant to endorse more of these programs is that it challenges the conventional payment system. However, a community currency as a limited IOU need not pose a threat and can be of significant help in keeping up demand. This allows for more stable incomes for a larger proportion of people in the economy and the capacity to generate more tax revenues in the long run. This is especially relevant in an economic environment that is highly dependent on bank credit to remain functional.
As such, the potential of community currencies should not go unrecognized. Governments should step in to help broaden the system, and allow for their participants to reap the full benefits. This way, community currencies can be an invaluable source of demand in times of crisis.
The Case for Community Currencies in the ‘Rust Belt’
The Rust Belt comprises the set of states bordering the Great Lakes, which were once famous for being the heart of manufacturing and industry in the US. This changed with the economic decline brought about by the recessions of the late 1970’s and early 80’s, which continued to worsen with the further decline of US manufacturing.
Entire towns and villages in this region have disappeared along with the core industry that once sustained them. Some towns were able to salvage their economies by capitalizing on tourism or education, but this is not a strategy that can be extended to the entire region. States such as Michigan and Ohio also cope with an aging population, male joblessness, and rising opiate addiction. There is a dire need for the region’s underprivileged to become active and positive contributors to society again.
If aided by the state, community currencies could be the starting point for the Rust Belt states to begin their journey back to being the productive contributors to the US economy that they once were. Just like in Volos, it could boost economic activity and allow members to contribute to the rebuilding of their community.
The economic benefits of State regulated Community Currencies could include incentives for sharing skill sets to allow more unskilled workers to become employed. There would be less dependence on welfare as the marginalized begin to seek more socially and individually meaningful ways of sustaining themselves. This would also offer a much-needed boost to local economies that would be limited to purchasing goods and services within the community
The success of such initiatives often depends on communities coming together and organizing to collectively achieve economic wellbeing, setting aside social and class differences. The effective implementation of community currencies in places like Volos was ultimately determined by the way such systems are maintained and nurtured by the entire community under the appropriate community leadership. Whether such social dynamics also exist to the required extent in the communities of the Rust Belt is still something to be discovered. If so, then there may well be a light on the horizon to guide them out from under the burden of years of poverty.
Written by Athulya Gopi
Athulya is originally Indian, born and brought up in the United Arab Emirates. She joined the Levy Masters Program in 2016 after leading a successful career in credit insurance over the last 8 years. She has a few more years of worldly wisdom than her fellow classmates! The choice to swap her role as the head of commercial underwriting with that of a full-time student came after being inspired to see how Economics works in the real world.