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 rely 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 and a market.  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 credit at the store.  That is, those people with credit at the store must be able to transfer that credit to other people.  The credit could be recorded at the store and cheques/checks used to transfer the funds between people.  Alternatively, the store could issue tokens that people can exchange.  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. 

Convertible system

For an convertible system, a banker, which may be a co-operative or store, will need to have capital in an existing currency and the currency of the community must initially be valued in terms of that currency.  Assume that the banker has $10,000 and it operates a currency on a one for one basis.  That is, one unit of the community currency (CC) is equal to a local dollar or whatever the local unit of account is. 

The store then buys products in the same way as for the unconvertible currency. But it can also use it "foreign" currency to "import" products from outside the community and "export" to outside 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 currency does not buy enough of its own products so that stocks of domestic products rise, 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.  

The current monetary system of some countries is destined to build up unsustainable levels of debt and may collapse so that the money is worthless.  Yet people will need to continue to trade.  A community monetary system allows a small region to continue to trade with each other 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: 7 June 2010