The currency of independence

Bristol is best known for Banksy, Brunel – and soon, the Bristol Pound. If you haven’t heard of it yet, you will – it’s a fascinating experiment in local currency and local autonomy.

The way it works is that anyone can buy a Bristol Pound for one British Pound. That £B can be spent in participating businesses in the Bristol area – mostly owned and run by local people. The businesses can then pay their suppliers and staff in £B (and Bristol taxes and rates – even the mayor is paid in the local currency).

In Bristol there are £B cashpoints, a text to pay system, hundreds of participating businesses and there’s expected to be £B1.3million in circulation next year, helped by Bristol Council’s first major building project tender to be paid in £B. Keeping money circulating in the city has a multiplier effect on the local economy and gives the city a small but growing independence from the UK economy as a whole. It also tends to have a beneficial environmental impact, for example in reducing food miles by encouraging the consumption of local produce.

Interesting enough in itself, and very much in keeping with Bristol’s slightly anarchic, bohemian spirit. But it’s not the only example in Europe – the Rheingold currency based in Dusseldorf (though used by among others, an Ayurvedic health resort in Kerala and a theatre in New York) has been going since 2007, although as a voucher system it claims to be a non-currency. It’s hard to tell the difference in practice, of course. There are also UK schemes in Lewes, Brixton, then there are the Berkshares in the USA, Salt Spring Dollars in Canada and many other schemes around the world.

The city of Barcelona has been actively looking at introducing a more extensive, regional £B style local currency. It’s a fascinating response to the Spanish government’s refusal to discuss Catalan independence – more economic autonomy with its own currency could give the area some of the effects of secession without causing a major political fight. Given the massive support for independence from Spain in Catalunya (a referendum last year, though rejected by the Madrid government, produced 80% in favour) it might be expected that a Barcelona-based local currency would be instantly popular.

As the Greek crisis has recently made very clear, a single currency area like the Eurozone may not be the best way to maximize economic efficiency for all its member regions. So why wouldn’t the Basque separatists in Spain do the same as Bristol or Barcelona? Or even Scotland, with an independent Scotland-only currency? It already has the banknotes, after all.

There is a case against local currencies. Being restricted to a smaller economic area means they can increase inflation by reducing competition. Lacking the high tech of larger currencies can more easily lead to counterfeiting. But perhaps the most compelling argument is that local (or community) currencies are voucher-based not legal tender, so cannot in theory be used for international (or even national) trade. Local currencies still have to be backed by a parent currency, which means they can never be truly independent.

But does all that matter? As Bristol has shown, community currencies can work. Barcelona may well be trialling one next year. How long will it be before a Eurozone nation starts a local currency of its own?

By Harry Henderson and Ian Henderson, first appeared in Chartered Banker magazine