Local Currency to Avoid Deflation.

Deflation

As explained in my previous blog See here , deflation will continue. Individuals and local communities have seen their wealth trickle up to the 1%, and it will continue. how can this be stopped?

It is unlikely that central governments or central banks will take any action to reverse the situation in the foreseeable future. Therefore local communities must protect themselves, one way of doing this is local currencies. Local currencies lock wealth into the community, a local currency cannot be used outside the local area therefore it remains within the community it serves.

How to Create a Local Currency?

Many local currencies have been created over the years, the most popular near my location is the Bristol pound. Although the Bristol pound sounds great, it is little more than a gift voucher. It can be bought for pound sterling and spent in local shops, the shopkeeper can then convert the Bristol pound back into pound sterling. The Bristol pound lacks full autonomy, it can only be created by buying it with sterling.

Rather than creating a local currency, I propose creating a local credit. Credit is created from nothing but has value. How is this possible? Credit is essentially a debt agreed between two parties that is repaid at sometime in the future, it is based on trust.

Banking law prevents anyone creating bank notes, but it does not prevent the creation of credit. This is why private banks can create electronic credit between themselves. The difference between bank credit and other credit, is that bank credit can be used to pay taxes, fines and government services. This is what gives bank credit its real value.

I propose that local governments could create their own electronic credit currency. It could be issued in exchange for goods and services used by local government, the recipient of this credit could in the future use this credit to pay for services provided by the local government maybe even pay local taxes. Local government provides many services to its local population, swimming pools, refuse disposal, adult learning, parking etc. Local government now charge for many of these services. If local electronic credit could be used to pay for these services, it would give the local credit currency, value. Once a currency has value people will accept it in exchange for goods and services they sell. Since this credit is only of value to the local community, it would stay in the local area creating productivity and growth in local area. The creation of credit by local governments expands their cash flow leaving cash reserves that could be productively invested in the community.

Creating an electronic currency is very simple. As a qualified computer programmer I believe the cost of creating a currency database would be negligible compared to the benefits it would bring. The technology already exists in the local community. Local governments have Secure servers to host an online database, most people these days have computers and phones that can access the internet. Indeed the only thing stopping the creation of a local electronic credit is political will and a very simple database!

Having given much thought to a local credit currency there is one more criteria that I believe would increase the productivity of a local currency. Money is very similar to oil in an engine, it needs to circulate to be of any use. If the oil in an engine sits in the sump and does not circulate, the engine seizes up. So how can we make sure that local currency circulates and is not hoarded by individuals? The answer is negative interest rates, the longer the local currency is held by an individual the less value it has. This would give people incentive to spend the local currency and allow it to do its job of creating transactions. The local credit database could be programmed to make very small deductions of credit every day from peoples accounts. The amount of negative rate would be set by local government.

A similar local currency to the one I propose has already been used, and it was very successful. Please see Here.

The next time you walk down your local high street or shopping center, count how many localy owned shops are there, then compare that to the number of corporate chain shops. Corporates  now own most of the supply chain that feeds our consumerism, corporates cannot use local currencies, local businesses can!

The graph below illustrates the UK trend in CPI (consumer price index). Production and sale of goods and services in the CPI basket create wages. The more CPI falls the more pressure there is on companies to reduce wages and employees.

sept-pr

Published 24/09/2016

Author Paul Fear.

 

 

 

 

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2 thoughts on “Local Currency to Avoid Deflation.

  1. In one sense, I agree… Local currencies can be better than global currencies – Sterling is better than the Euro, for example, because Sterling aligns a currency with a tax regime, a sovereign state, a statute, judiciary and enforcement measures. It is plausible that other (smaller scale) systems of credit may prove more desirable in some niche – but… in order to achieve this, one needs a compelling reason to trust the smaller currency. I can imagine gangsters running an effective ‘dark’ system of credit – with the ultimate sanction for default, for example, but I can’t imagine law abiding citizens establishing a system of credit more desirable to the creditors than hard currency.

    Your comments about deflation are curious… I do not believe that deflation results in concentration of wealth at ‘the top’ – in fact, I think it does the opposite. What concentrates wealth at the top are monetary policies that preclude a correction in asset prices. It is low interest rates that egregiously enrich owners of assets – while impoverishing subsequent generations. Conversely, deflation reduces the cost of commodities, goods and services – improving the wealth of the common person.

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