Not Your Grandma’s Wooden Nickel

Fears of global economic instability spawn DIY money.

Julia Pergolini May 19, 2013

The first Ithaca Hour was spent on a samosa in 1991.

The Amer­i­can idiom Don’t take any wood­en nick­els!” pre­dates the 1930s, but that era’s bank crises did lead to the actu­al use of wood­en cur­ren­cy. When local banks failed or were inac­ces­si­ble in the Pacif­ic North­west, some mer­chants and towns issued wood­en mon­ey as a stop­gap. The wood­en nick­els cir­cu­lat­ed as IOUs until the banks became accessible.

Not only can businesses pay their city taxes in Bristol Pounds, but the mayor has opted to take his full salary in the local currency.

The prin­ci­ples behind the wood­en nick­el are still at work in today’s alter­na­tive cur­ren­cy move­ment. Bernard Lietaer and Jacqui Dunne, authors of Rethink­ing Mon­ey: How New Cur­ren­cies Turn Scarci­ty into Pros­per­i­ty, argue that the more than 4,000 alter­na­tive and com­ple­men­tary cur­ren­cies in cir­cu­la­tion world­wide have the pow­er to help com­mu­ni­ties solve their mon­e­tary woes. The cur­ren­cies — mint­ed as a com­ple­ment to (rather than a replace­ment for) mon­ey backed by nation­al gov­ern­ments and usu­al­ly admin­is­tered by an inde­pen­dent local agency — not only pro­vide local liq­uid­i­ty in the event of a cash short­age, but can also boost local economies.

Only a frac­tion of the mon­ey spent in big-box stores or fast-food fran­chis­es stays local, the bulk is siphoned off to cor­po­rate cof­fers or fam­i­ly for­tunes. (For exam­ple, the mem­bers of the Wal­ton fam­i­ly, own­ers of Wal-Mart, have enriched them­selves to the tune of $115 bil­lion.) Mean­while, numer­ous case stud­ies — in New Orleans, West Michi­gan and Port­land, Maine, to name a few — con­firm that mon­ey spent at local retail­ers, rather than big chains, is twice as like­ly to recir­cu­late local­ly. And since local­ly issued mon­ey can only be spent local­ly, it encour­ages this recirculation.

Enter the Itha­ca Hour, the first local cur­ren­cy cre­at­ed in the U.S. after World War II and the old­est cur­rent­ly in cir­cu­la­tion. It was mint­ed in the mini-reces­sion of 1990 – 1991. Talk­ing about why he cre­at­ed the Hour sys­tem, its founder, Paul Glover, says that Every­one had more time than mon­ey. Peo­ple had plen­ty of skills that Wall Street wouldn’t hire.” So he decid­ed to write a book on the sub­ject, Home­town Mon­ey: How to Enrich Your Com­mu­ni­ty with Local Cur­ren­cy, which became the blue­print for the Hour.

Here’s how it works: Hours are admin­is­tered by the Cir­cu­la­tion Com­mit­tee of Itha­ca Hours, gov­erned by a board of direc­tors. The group claims $120,000 of Hours in cir­cu­la­tion, with more than thou­sands of par­tic­i­pants includ­ing 500 busi­ness­es and a cred­it union that accepts them for mort­gage pay­ments. While any­one can spend or accept Hours, those who sign up for an Hours mem­ber­ship can vote for or run for board seats, and apply for inter­est-free loans (in Hours, of course). The Hour resem­bles the U.S. dol­lar in size and shape, but is col­or­ful­ly print­ed and fea­tures sym­bols rather than states­men, rang­ing from local heroes to a spot­ted sala­man­der. The unit Hour” is meant as a reminder that mon­ey rep­re­sents time and labor. One Hour is equal to $10, the aver­age hourly wage in Tomp­kins Coun­ty when the cur­ren­cy was cre­at­ed. New­com­ers to the Hours sys­tem can go to spe­cial banks to trade U.S. dol­lars for Hours (but not vice ver­sa), while mem­ber mer­chants can deposit Hours as cash or use them in turn to pay wages, buy prod­ucts or give change to cus­tomers. Since Hours are real cur­ren­cy, the trans­ac­tions are still sub­ject to local, state and fed­er­al tax­es, but the exchange boosts local productivity.

The Hour has inspired imi­ta­tors across the nation: Ana­cos­tia Hours in east­ern Mary­land and Wash­ing­ton, D.C., BNotes in Bal­ti­more, Trade Dol­lars in Arkansas. The Hour itself, how­ev­er, has fad­ed from use since its hey­day in the 90s. Itha­ca Times writer Dana Khro­mov attrib­ut­es the decline to the rise of elec­tron­ic bank­ing and Glover’s move from Itha­ca to Philadel­phia. With cash trans­ac­tions grow­ing less com­mon, and with­out Glover to trou­bleshoot, some busi­ness­es had more Hours than they could spend, freez­ing the cur­ren­cy. Ithaca’s Green­star Co-op end­ed up tak­ing a loss for its sur­plus Hours, offer­ing them to its cus­tomers at a dis­count­ed rate just to help revive circulation.

The Berk­Shares, a cur­ren­cy launched in the Berk­shire region of Mass­a­chu­setts in 2006, learned from the tra­vails of the Hours, accord­ing to Berk­Shares co-founder Susan Witt. Berk­Shares Inc., the cen­tral Berk­Shares author­i­ty, rec­og­nized a freeze-up as a poten­tial pit­fall to its local cur­ren­cy, and decid­ed to make bank­ing one of its pri­ma­ry fea­tures. All 13 branch­es of the five local banks have signed on as exchanges between dol­lars and Berk­Shares, and­vice ver­sa. If mer­chants find they have excess Berk­Shares, they can sim­ply go to the bank and exchange them for dol­lars. Berk­Shares trade at a 5 per­cent exchange rate, mean­ing that $95 can be exchanged for 100 Berk­Shares, backed by dol­lars that remain on deposit. Those Berk­Shares then cir­cu­late with­in the com­mu­ni­ty at full val­ue, with the built-in incen­tive to keep the mon­ey local and cir­cu­lat­ing (since trad­ing them back to dol­lars results in a 5 per­cent loss). More than 400 busi­ness­es accept Berk­Shares, and more than 2.7 mil­lion have cir­cu­lat­ed through the region.

The prospect that local mon­ey may help pro­tect against the oscil­la­tions of the glob­al econ­o­my has led some Tran­si­tion Towns to enthu­si­as­ti­cal­ly embrace local cur­ren­cy efforts. The Bris­tol Pound, launched Bris­tol, Eng­land, in Sep­tem­ber 2012 with the help of Tran­si­tion Net­work, offers one of the most cut­ting-edge mod­els. Backed by the Bris­tol City Coun­cil and the Bris­tol Cred­it Union, par­tic­i­pants can take advan­tage of online bank­ing and a mobile app to help nav­i­gate where to spend their Pounds. And not only can busi­ness­es pay their city tax­es in Bris­tol Pounds, but the may­or has opt­ed to take his full salary in the currency.

If alter­na­tive cur­ren­cies still sound strange, Lietaer and Dunne quote Edgar Kam­pers, the direc­tor of a non-prof­it orga­ni­za­tion that sup­ports a cur­ren­cy called Qoin, to dri­ve home the point of what mon­ey actu­al­ly is: “[F]or me, cur­ren­cy is infor­ma­tion between a buy­er and a sell­er. … I buy a sweater. We agree that it’s worth 20 units of what­ev­er. The sweater is the thing with the val­ue. … Mon­ey is not valu­able at all, but mon­ey allows you to buy things, which are valu­able.” In oth­er words, local cur­ren­cies rec­og­nize that mon­ey is an inven­tion, which can change and be recon­struct­ed to meet the needs of the com­mu­ni­ty it serves. 

Julia Per­goli­ni, a 2009 grad­u­ate of Itha­ca Col­lege, co-owns and oper­ates Waf­fle Frol­ic in Itha­ca, N.Y. She is a for­mer Ms. mag­a­zine intern.
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