There are a number of schemes such as LETS schemes for community currencies.  However, most of these currencies are not convertible to other currencies and may not last.  This page explains the principles of how to operate a community currency that is convertible to other currencies.

Any community currency needs a banker (responsible for the currency) and a market (in which to spend the tokens).  We will start with a simple example in which the banker also operates the store in which the community can exchange their products.

There are two basic approaches: an unconvertible system; and a convertible system.

Unconvertible System

For an unconvertible system, a co-operative or store is its own banker.  It buys products from the community in exchange for negotiable tokens or credit at the store.  That is, those people with tokens can transfer them to other people.  If the store keeps a record of everyone's credit, then credit at the store must be able to be transferred to other people.  Cheques/checks could be used to transfer the funds between people.  The credit and/or tokens are redeemable at the store for goods. 

Thus, the more credit and tokens that are circulated, the more stock is available in the store. The more that the community buys from itself, the greater the income of the community.   The store needs to manage its credit and tokens to ensure that it does not issue excessive amounts to itself for its own costs. Normal store margins need to be applied so that staff can be paid and stock that does not sell can be priced down to clear.

Convertible system

With a convertible system, the store buys and sells local products and "imports" from outside the local area.  It issues tokens (or issues credit) to purchase local products to stock the store.  The suppliers can be spent the tokens (or credit) in that store to buy either local products or imports. The store also accepts "foreign" currency or the normal currency of the country. 

The store can use it "foreign" currency to "import" products from outside the community and "export" (sell stock) outside the local economy in exchange for "foreign currency.  This provides the community with a broader market to sell its products and wider range of products to purchase with their community currency. 

The more that the community buys from itself, or exports, the greater the income of the community. 

If a community does not buy enough of its own products, so that stocks of domestic products rise relative to "imported" products, it may be necessary to pay less for domestic products and reduce their price in the store relative to "imported" products.  Alternatively, the exchange rate can be changed to make "imported" products more expensive in terms of the community currency (tokens).  

The current monetary system of some countries is destined to build up unsustainable levels of debt so that many people have high debt burdens and little money to spend on other things.  Yet they and other people will need to continue to produce and trade.  A community monetary system allows a small region to continue to trade internally and possibly, with the wider world.  Provided there are desirable goods to buy, the community currency will have value. 

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Last update: 2 March 2013