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The Socio-Economic Impact of Local and Complementary Currencies

Wojtek Kalinowski, 5 December 2014

[English] [français]

Socially and technically dynamic and innovative, local and complementary currency projects nevertheless remain fragile and generally follow a cyclical pattern with expansion and stagnation periods. Without denying the importance of local adaptations, this note argues that the success of these currencies depends on their integration into wider regulations. Notably, within ones that have a socio-economic assessment capable of directing the production system and the organization of exchanges in a way that allows for greater sustainability.

Under current conditions, local and complementary currencies indicate a fundamental problem without reaching a solution. Their actual impact is primarily focused on social action and citizen awareness. The limits of spontaneous and “grass root” circulation are not solely due to the contexts in which these projects are emerging – contexts which are hostile to the very idea of monetary plurality. More fundamentally, local and complementary currencies have to deal with the articulation of the sphere of "complementary" trade with the economy as a whole.

The different experiences are broadly divided into those that remain outside the traditional monetary circuit (non-convertible currencies) and those that fully or partially integrate it (convertible currencies). In other terms, the local exchange systems and time banks on the one hand, and the local currencies for commercial purposes and the intercompany exchange platforms on the other.

When the articulation consists of a separation of the spheres, the parallel circuit seems easier to implement. It provides project leaders with more room to maneuver in. However, its ambition is more modest, more restorative than transformative. Indeed, these arrangements presuppose the distinction between professional and punctual activities. Being confined to the second group necessarily limits their impact. One cannot exclude that this distinction may become less structuring in the future, especially when faced with the mutations of the job marked towards forms of "multi-activity" and a better distribution of paid employment. However, in the current state, it is more a question of forms of mutual assistance developed at the fringes of the labor society and the welfare state. Assistance that is intended for vulnerable social groups and territories. Most of the time banks rely on contributions from external resources that stem from the private sphere or public authorities. These projects are to be counted among the insertion tools by activity and carry the promise of a more innovative and democratic social action. When they suddenly and massively emerge, as in recent years in southern Europe, the solutions they propose still remain far below the needs of the people. Furthermore, their sustainability seems difficult.

When, on the contrary, parallel currency integrates the classic circuit, transformative ambition is more explicit. It, however, faces a limited effective circulation. Indeed, as a result of the small number of users, the costs often exceed the money in circulation. Revenues are limited while donors expect a gradual self-sufficiency. Consequently, the impacts of projects lie mainly in terms of advocacy campaigns. This "educational" function is essential. However, to go further, the local circuit must be able to “fully link” the local final demand with the local supply. In other words, it needs to evolve from the relocation of acts of purchase to the construction of a local productive system.

In many sectors, from the perspective of the social and environmental impacts of such activities, such an evolution seems desirable. It is however in direct confrontation with the economic organization in force. A system where local supply is disadvantaged by a system of relative prices that is quasi-blind to the negative externalities of productivist production methods. The complementary currency is one of the tools that can reverse the trend, provided it can overcome institutional barriers. More specifically, those at the level of local authorities that hinder said authorities’ ability to put into circulation a local currency pegged on their future tax revenues. This is how local monetary flows will reach the necessary volumes needed to actually change the economic life of the concerned territories.

This note is partly based on the discussions that took place during the "Rencontres monétaire de Villarceaux" (the Villarceaux Monetary Encounters) that took place in June 2014. The event involved thirty stakeholders and active researchers in the field of monetary plurality –including fifteen heads of social and complementary currency projects. The purpose of the Encounters is to deepen the understanding of the role of social innovations in the transition towards a more sustainable economy. They cross the perspectives of stakeholders with those of researchers. In 2014, the Meetings were devoted to the issues brought by the "changing of scale”, as they arise with local and complementary currencies.

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