local currency
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With big banks causing big worries and small-town economies struggling to survive, a growing number of communities around the country are trying to motivate the 'buy local' movement by printing their own money.

It's a trend that started in Ithaca, New York, in 1991. Now, over 80 communities in the U.S. have attempted printing a local currency.

But don't get rid of all your dollars just yet.

In Massachusetts, about 400 local businesses bag up goods paid for with the Berkshare.

You can buy bananas with Bay Bucks in Traverse City, Michigan, or if you're shopping in the Piedmont area of North Carolina, you can pay for everything from peanut butter to your local wireless provider with the Plenty.

"We know that money is not leaving this community; it's not going to some corporate headquarters. It's staying right here and being distributed all around this town, and it's spreading the wealth locally," says Tami Schwerin, the executive director of The Abundance Foundation.

  • Typically, the purpose of local currencies - like the Plenty - is to keep the money on Main Street.

    It's printed locally and used only at participating local businesses.

    Local currency is one way of dealing with the disappearing dollar, according to research by the Institute for Local Self-Reliance and the consulting firm Civic Economics.

    For every $100 spent at a locally-owned store, $45 remains in the community compared to about $13 when that $100 is spent at a big-box business.

    The Plenty is proudly printed with the words 'In each other we trust,' but can you trust local currency to last? And is it legal?

    Laura Ullrich is an assistant professor of economics at Winthrop University in Rock Hill, South Carolina.

    "Groups can create their own currency, but it has to follow the standards and it must be claimed as income," she says. "You can't hide your money in this currency."

    Federal law prohibits private coinage, but does allow alternative paper currency, assuming it's treated as taxable income to the Internal Revenue Service.

    "You don't get out of doing your taxes by using the Plenty," notes Schwerin.

    Unfortunately, when using local money, you also don't get insurance against its loss like you would if your money was deposited in a bank if the non-profit or organization that administers the municipal money checks out.

    That's why the foundation that sponsors the Plenty has given it more protection by holding it in a community bank.

    The truth is, the U.S. dollar is backed by nothing more than the promise of the federal government that's its worth the value printed on the paper.

    However, the Federal Deposit Insurance Corporation guarantees $250,000 worth of a deposit at any bank.

    "It really is the safest place to have your money," notes Ullrich.

    While it is true that banks fail and are bought out, Ullrich points to a study out of Bucknell University which found more than 80 percent of the local currency systems created since the 1990's have gone belly up.

    Still, many organizations with local currency offer an exchange rate for shoppers that delivers a discount.

    For example, $100 Berkshares are equivalent to $95 US dollars.

    Ullrich recommends storing local currency in your wallet only when you plan to spend it, and only in small amounts.

    Bridget Perry gets a portion of her paycheck in Plenties and she prefers to see it in her checkout line at the marketplace.

    She says the local currency isn't just about paying for purchases -- it's a way of showing community pride.

    "I guess it's another way to say we're all part of the same team," Perry says. "We all live locally. We're all looking out for each other."

    Local currency is one way to show small businesses support while still using your dollars and common sense.

    Most local currencies come in several denominations and have avoided counterfeiting with elaborate designs or exclusive online use.

    Additional Information:
    • Beginning with Ithaca, New York in 1991, over 80 communities in the United States introduced printed local currencies ("An Economic Analysis of Contemporary Local Currencies in the United States" by Gregory A. Krohn and Alan M. Snyder, Dept. of Economics, Bucknell University, 2007).
    • The per capita income of communities which printed their own currencies grew no faster during the 1990s than other communities. Fewer than 20 percent of these local currency systems remain active.
    • Federal law does not prohibit local paper currency, but it's use is restricted, and private coinage is prohibited.
    • The results show no significant difference between the growth rate of per capita income for cities that have or had local currencies compared to those that never did (Table 3).
    • The absence of widespread economic benefits and the increase in transactions costs might explain why over 80 percent of the local currency systems attempted in the 1990s failed to survive.
    • Local currencies may build "community pride and connections." In other words, local currencies may function as cultural capital.
    • For every $100 spent at a locally-owned store, $45 remains in the local economy, compared with about $13 per $100 spent at a big box, according to research by the nonprofit Institute for Local Self-Reliance and Austin (Tex.) consulting firm Civic Economics. Click here to read more.
    • Originally, our money was in the form of "commodity money" such as gold coins. The US dollar was then convertible to gold until 1934. Then, we had "fiat money" paper currency not linked to a commodity. There is no value other than that given to it as money or what the federal government says its worth. Click here to read more.
    • The Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails. Click here to read more.
    • An independent agency of the federal government, the FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure.
    • The FDIC receives no Congressional appropriations. It is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. The FDIC insures more than $7 trillion of deposits in U.S. banks and thrifts - deposits in virtually every bank and thrift in the country.
    • The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
    • The FDIC insures deposits only. It does not insure securities, mutual funds or similar types of investments that banks and thrift institutions may offer.
    • The Plenty: http://theplenty.org/.
    • BerkShares: http://www.berkshares.org/.
      Started in 2006 in Southern Berkshire, Mass. Used at more than 400 local businesses. 1,5,10,20 and 50-unit denominations. Exchange rate is 95 US dollars to 100 BerkShares. Merchants charged 5% fee at bank when exchanging for US dollar. 3 Million issued since 2006, with 5 community banks accepting and exchanging.
    • Equal Dollars: http://www.equaldollars.org/.
      Started in 1996 in Philadelphia. Launched by Resources for Human Development, a social service non-profit. Good at more than 100 local businesses. Earned through community service. 1,5,10,20-unit denominations
    • Ithaca Hours: http://www.ithacahours.org/.
      Started in 1991 in Ithaca, NY. 1 Hour = $10 (at the time, the average hourly wage in Tompkins County, NY). Also in ¼, ½, 1, 2, 4-Hour denominations "In Ithaca We Trust"
    • Bay Bucks: http://www.baybucks.org/.
      Started in 2006 in Traverse City, Mich. Good in about 100 local businesses. 1,5,10, 20-unit denominations.
    • Life Dollars.
      Started in 2004 in Bellingham and Seattle, WA. Membership is around 700. Almost all transactions online. Members have online accounts where they can transfer money directly. Value is between 10 and 12 US dollars, fluctuating based on local hourly living wage in community. More than $1 million worth of goods and services has been exchanged.
    • Potomacs: http://www.facebook.com/pages/Potomac-Local-Currency/331720845556.
      in 2009 in Washington DC and suburbs of Northern VA and Maryland. Created by grassroots organization called Ecolocity. 1,5,10,20 dominations. Each Potomac is worth 95 cents, but when used at participating store or at the farmers market it exchanges 1 for 1. Difference is an incentive for shoppers to spend and disincentive for merchants to exchange for the dollar. About a dozen businesses accept. 3,000 in circulations Started
    • Brooklyn Torches: http://brooklyntorch.org/.
      forming in Brooklyn, NY. Will be a $5 bill. QR code on bill to see where accepted. Each Torch = 1 dollar. Discounts for Torch users.
    • Crescents.
      Started in 2004 in New Orleans. Started when local farmers started being hurt by rising debit card use. Wooden coins that can be bought by check, debit card or food stamp at the farmers market. Over $1 million transactions so far "In markets we trust".