Periods of recession generally force states to reel in spending. Budgets are cut, infrastructure goes unsupported, and regional economies suffer a depressive domino effect. Yet, while central bankers look to reinvigorate their economies with tools such as quantitative easing or rate reductions, aspiring entrepreneurs and community organisers often shun the macroeconomic long game in favour of their own instant, hyper-local financial solutions. Community focused currencies are by far the most popular of those solutions.

Community currencies are currently enjoying a renaissance in terms of media exposure and consumer popularity, but they actually predate most of the state-backed currencies in circulation today. Community currencies typically appear and disappear in tandem with the state of correlating national economies. The Great Crash of 1929 pushed hundreds of municipalities on both sides of the Atlantic into issuing their own alternative currencies to salvage local finances, from the WIR system in Switzerland to corporate scrips in the US north-east. Elsewhere, the Spanish Civil War and subsequent socioeconomic instability led to the creation of nearly 400 different types of community currency across Spain, while Greece’s colossal economic crash in 2009 inspired the cashless Local Alternative Units system.

There are thousands of contemporary examples, but all community currencies tend to have one thing in common: they’re born out of economic strife, and usually fizzle out as a country’s wider economic health improves. In a few cases, poor structure or a lack of financial trust kill the schemes off. The Augusta in Göttingen, Germany was forced to liquidate after a four-year run in 2011 because participating businesses defaulted on their debts. The Time Bank of Lerapetra in Crete folded after just two years due to waning participation, the UK’s Stroud Pound went defunct within three years, and the Por in Thailand shut down after six years in 2012. Clearly, sustainability has been an insurmountable hurdle for community currencies in the past. Now, however, a few schemes are starting to buck the trend.

Communal power
Community currencies vary wildly by type. Loyalty schemes, reputation points, volunteering credits and money transfer systems are all popular among contemporary markets. Yet over the course of the last decade, a fresh crop of convertible and mutual currencies has demonstrated the long-term possibilities of these schemes.

Unlike some other schemes, convertible currencies are exchanged for and backed by national currencies, which means they’re guaranteed up to a certain value

Unlike some other schemes, convertible currencies are exchanged for and backed by national currencies, which means they’re guaranteed up to a certain value. Local businesses subscribe, and then consumers purchase the currency with a percentage discount that’s subsidised by a fee participating businesses pay to redeem the currency for real cash. In turn, area businesses enjoy a local multiplier effect, and small credit unions can use the scheme’s pool of national currency to extend cheap loans to local businesses. It’s a win-win for locals, and so long as organisers are able to perpetuate engagement through backed incentives, the net benefits are difficult to ignore.

One success story over the last decade has been the SOL-Violette in Toulouse. The currency exists primarily in paper form, and its rate value is benchmarked against the euro. When the scheme launched as part of France’s wider community currency movement in 2011, municipal support and a range of grants encouraged 150 consumers and 30 businesses to adopt the currency. Within 12 months, 63,000 SOL-Violette had changed hands between 800 consumers and 110 businesses – and the scheme’s numbers have grown annually since then. According to researchers at the University of Lyon, this success largely boils down to the scheme’s partnership with local authorities and positive social impact.

Consumers purchase the SOL with euros at a five percent discount, which goes on to bolster a group savings fund that participating cooperative banks use to extend over €30,000 per year in micro loans to local social initiatives. For their part, subscribed businesses enjoy an average four percent annual profit rise post-enrolment. Meanwhile, organisers have teamed up with municipal authorities to add 30 SOL-Violette onto the monthly benefits allowance of the poorest families in Toulouse. Those net benefits are all admittedly reliant upon the financial backing of city taxpayers, who subsidise 80 percent of the project with an annual €100,000 to cover management costs – a safety net most community currencies don’t have.

Further south, a team of enterprising childhood friends with little financial experience have kick-started an even bigger success in the Sardex. Launched in Sardinia in 2010, the Sardex was developed to alleviate the island’s reliance on an ailing euro. Inspired by Switzerland’s WIR system, the founders of Sardex believed a new, area-specific mutual currency scheme could help reverse Sardinia’s fortunes by creating a vibrant, regional, business-to-business, commercial credit circuit across the island. They were right.

There are no Sardex notes or digital coins. Instead, the scheme works by enabling registered companies to do business by extending credit to one another through a bespoke trading platform. This effectively closes any credit loops, and seamlessly connects supply and demand. More important still, the platform itself has developed a fairly sophisticated active brokering method and a conservative credit line strategy that protects participants from freeriding behaviour and speculative bubbles. The Sardex also enjoys a financial backing 20 times its own circulation, which is one reason co-founder Giuseppe Littera believes the Sardex has continued to grow in leaps and bounds. In its first year, 237 businesses traded just over €300,000 in Sardex. As of this year, more than 3,500 businesses and 2,000 individuals had exchanged €140m worth of transactions.

Future now
Scores of local communities have followed the examples of the Sardex and SOL-Violette. From the Bristol Pound in the UK to the Eco-Pesa in Kenya and BerkShares in the US, it’s now estimated well over 5,000 community currencies have been established across the globe. Before getting excited, however, it’s worth pointing out historical context dictates many of those currencies will fail. Indeed, recent technological innovations have begun to expose the pitfalls of kick starting a physical, cash-based local currency in the 21st century. Yet by capitalising upon Bitcoin’s blockchain ledger, enterprising start-ups are now looking to circumnavigate those issues of sustainability by rolling out a new generation of digital-only local currencies.

Israeli entrepreneur Amos Meiri is spearheading that movement through Colu, an app that benefits from the transparency, security and sustainability of the blockchain in order to create the digital equivalent of cash. Colu’s open-source protocol allows direct exchanges of digital currency in finite geographical catchments, creating localised peer-to-peer economies powered entirely via mobile. The app has already launched in Tel Aviv, Haifa and Liverpool, and as the start up begins to develop currencies across new markets, Meiri reckons other successful schemes will ultimately live or die based upon their ability to utilise the sort of technology Colu has harnessed.

“Cash-based local currencies are very expensive to produce, distribute and maintain”, he said. “Today, with digital currencies and the resources that have become available, we can do a better job with distribution and adoption.”

Advocates are already responding to that call. Successful cash-based schemes like the Bristol Pound have introduced new mobile payment methods, and the organisers of Toulouse’s SOL-Violette have announced they are exploring development options to go digital. That’s not easy to do in practice, and it’s not always cheap. Yet so long as these schemes can prove they are able to innovate and evolve, it’s no stretch of the imagination to say community currencies are finally taking a tangible first step towards a major paradigm shift in local economics.