Is it time for the rise of local currencies?

Although there is scant evidence that any local currency to date has actually promoted local economic wealth, the mediocre track record of local currencies does not mean they don't have great potential in the future as a means of achieving specific economic objectives needed in many economies today. From a macro-economic point of view, a local currency is a perfect tool for local micro-economic management, where the objective is to develop micro and SME industry to serve the immediate community. This will more and more become an important objective both in developing and developed economies around the world due to poor local enterprise diversity in many places.

A local currency, coupled together with a hybrid of crowd funding organized by local cooperative banks, would be a powerful alternative for providing credit to local enterprises that the conventional 'big' banks have been hesitant to service.

There may be another philosophical reason for adopting this approach as well. The banking sector has become so centralized, that most governments across the world have deemed their local banks 'too big to fail", where these privately owned institutions are almost above the law, or worse still, become a law unto themselves. All lending, trade, interest rates, and other credit facilities are controlled by these banks. No government took any great effort to regulate these institutions post 2008, because the job was too difficult and very few had the political will to do it.

The nature of a national currency has given banks great power to create money through debt creation. Most money that makes up the currency system is actually electronic. There are no notes or coins or supporting wealth to back up this money. It's just a figure on a computerized ledger system where, if any bank was asked to produce the physical currency, it would be impossible. Technology has allowed this system to evolve, which arguably has been one of the underlying causes of financial crises i.e., electronic selling mortgages and derivatives etc. This is upsetting the balance of wealth in every country, where GINI indexes are actually widening.

Centralization has generally meant higher interest rates over time since single currencies and centralised banking came into existence. This suited government which found it easier to deal with a more centralised banking industry and fund economic activity. This also caused a rural crisis which was partly solved through the formation of specialized and subsidized rural banks in some cases.

One could also argue that the housing crisis was also caused by central currencies where investments made in land as a ledge against inflation of a national currency was encouraged and promoted.

However a local currency may be able to challenge the dominance of these banks, which impose their credit policies upon communities from outside. The local currency may help to provide some economic freedom from the interest rates banks apply to communities, and the prevailing inflation rates on the national scene.

This can be done by using local currencies to provide new means of obtaining credit and capital funding for businesses that banks won't fund. It is here local currencies can help most, where governments all over the world have failed to influence the banking sector to step into the area of micro-finance. In this period, nearing on deflation, i.e., real wages are relatively decreasing, a local currency may enable local trades people to exchange labor for local goods much more effectively.

The means of trade is typically changing today where the traditional means of exchange with state currencies are being discarded for electronic and cyber alternatives. One thing is for certain is that national currencies will be weakened by the number of alternatives to currencies and banking that are springing up on the internet and social media today.

The potential of local currencies has become a forgotten tool of development. New employment in the future is likely to be created through small business with limited capital. Very few large corporations will dramatically increase employment as they are looking for ways to reduce employment.

Many multinationals open and shut in the developing world, and move on to places where they can make larger profits, leaving vacuums in employment. Therefore micro enterprise and SME development, as well as seeking to diversify local economies should be a major economic objective.

 A local currency should go hand in hand with a local community banking system. Any local banking system should have a simple system that is easily understood, be consistent with existing system, be redeemers of currency (i.e., current currencies are not redeemable in anything, if a local currency is redeemable against a national currency gives it intrinsic value), provide a universal measurement of value to provide a sense of security, eliminate interest and install discount rates on loan repayments - i.e., voucher, and be organized at a local and community level.