Create Your Own Money: Advantages Of Local Currencies

Great Barrington, MA has its own form of currency called a BerkShare. It’s not legally considered money, it’s what’s called a ‘paper scrip’. According to Wikipedia, paper scrip is “any substitute for currency which is not legal tender, and is often a form of credit”. You’re probably pretty familiar with the idea even if you didn’t know the term: gift cards, vouchers, and subway tokens are considered paper scrip. In a nutshell, BerkShares are kind of like a gift card that just happens to look and feel like a monetary bill.

Since paper scrip is not legal tender and does not counterfeit existing US currency, it’s perfectly legal to create and use. Only private groups such as organizations and businesses can issue paper scrip: no city or state government can create its own currency.

So how does Great Barrington, a town, have its own currency? What about the other areas around the US that have their own currency? Simple: local businesses banded together and created it. These scrips are a means of encouraging residents to keep their money local rather than spending it at large, impersonal national chains.

There are over 800,000 BerkShares in circulation, with an exchange rate of 1 BerkShare to 90 US cents. When you shop at a local participating business, one BerkShare spends just like one US dollar, so in effect you get a 10% discount for your purchase just by using the local currency. There are several banks in the area that will exchange BerkShares for dollars, and at least one of them is hoping to create BerkShare based checking accounts and debit cards. In theory, people could start to pay their utility bills and grocery bills with BerkShares, receiving a 10% discount each time just for keeping their money local.

Paper scrip with an actual exchange rate such as the BerkShare can make creating a local barter system even easier. With a straight barter system, time and effort have to be monetized for tax purposes, and participants have to pony up real dollars for taxes when no dollars were involved in the transaction. Long story short, it’s a hassle and the tax man doesn’t like a hassle. With scrip, however, the exchange rate makes keeping track of things easy.

Say I take $9 to a bank and exchange that for 10 BerkShares at the .9:1 exchange rate. I buy breakfast and a cup of coffee, and my subtotal comes to $6. Add in sales tax at say 5%, and my total is $6.30. I pay with my BerkShares and have 3.7 shares left. I exchange these back to dollars and have $3.33. Since I started with $9 and have $3.33 left, my breakfast cost me a total of $5.67. When the restaurant exchanges my 6.3 BerkShares to dollars, they receive $5.67. After the restaurant takes away the $0.30 sales tax, they received $5.37 for my $6 breakfast.

In reality the local business loses 10.5% in this transaction because they have to pay the full value of the sales tax. Why would any business be willing to take this kind of hit? Guaranteed sales. By accepting the local currency, this restaurant will theoretically take some business away from the chains in the area. Even after the percentage loss on the sales, the extra customer volume should make up the difference and then some.

Businesses also grow community goodwill and branding when they accept this type of local currency, and these are what make one-time customers regulars. A regular is more likely to pop in and make a quick purchase (in any currency), not to mention they are a business’s best form of advertising.

In the end, everyone involved wins a little. Customers get a discount, and local merchants get more business and more loyal customers.

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3 Responses to Create Your Own Money: Advantages Of Local Currencies

  1. Amy F. says:

    This is very interesting and something I was not aware of. Thanks for the article.

  2. poundwise says:

    I’m not personally familiar with the practice and I wonder about certain aspects of it, however, overall, it seems pretty cool to me.

    Thanks for the article.

  3. Terri says:

    While it’s a book written for women, Suze Orman’s Women & Money is a great education on finances book anyone could benefit from. It discusses everything beginning with opening a checking and savings account. I learned more than I knew and really enjoyed the way it was written.

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