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Local Currency: Empowering Communities and Boosting Economic Resilience

Last updated 04/30/2024 by

Abi Bus

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Fact checked by

Local currency, also known as community currency, is a dynamic economic tool issued by local organizations to encourage spending within communities, fostering economic resilience and community cohesion. This comprehensive guide explores the intricacies of local currency, including its definition, function, examples, advantages, and disadvantages, providing valuable insights into its role in shaping local economies.

What is local currency?

Local currency, often referred to as community currency, is a complementary form of currency issued by local organizations, businesses, or community groups to facilitate transactions within a specific geographic area. It serves as a medium of exchange alongside national or global currencies, aiming to promote economic activity and strengthen community ties.

How does local currency work?

Local currency operates similarly to traditional money but is typically issued and accepted within a defined geographic area. Residents can exchange national currency for local currency at designated exchange points, such as local banks or community centers. Participating businesses agree to accept local currency as payment for goods and services, creating a closed-loop economic system that encourages spending within the community.

What are the types of local currency?

Local currencies can take various forms, including paper notes, digital currencies, and even time-based currencies where individuals exchange hours of service. Examples include paper scrip, electronic credits, and community-based digital currencies. The choice of currency type often depends on the preferences and technological infrastructure of the community.

How is local currency different from national currency?

While national currency is issued by central banks and widely accepted as legal tender, local currency is issued by local organizations or communities and typically accepted only within a specific geographic area. Local currency aims to promote local economic development, whereas national currency serves broader economic functions and is regulated by national monetary authorities.

Examples of local currency


BerkShares, launched in the Berkshires region of Massachusetts, is one of the most well-known examples of local currency. Individuals can exchange US dollars for BerkShares at participating banks, and the currency is accepted by hundreds of local businesses. BerkShares aim to support the local economy by encouraging residents to shop locally and invest in community businesses.

Ithaca hours

Ithaca Hours is a local currency system in Ithaca, New York, based on the concept of time banking. Participants earn “hours” by providing services to others in the community and can then use those hours to purchase goods and services from fellow members. This system promotes community engagement and recognizes the value of individuals’ time and skills.

LETS (Local Exchange Trading System)

LETS is a community-based mutual credit system that allows members to exchange goods and services without the need for traditional currency. Participants maintain accounts of credits and debits within the system, enabling transactions based on mutual agreements. LETS fosters community connections and encourages sustainable economic practices.


Local currency plays a significant role in promoting economic resilience, fostering community connections, and empowering individuals to contribute to their local economies. While it may face challenges in achieving widespread adoption and acceptance, the benefits of local currency extend beyond economic transactions to encompass social cohesion and community empowerment. By embracing local currency initiatives, communities can take proactive steps towards building more sustainable and vibrant local economies.
Here is a list of the benefits and drawbacks to consider.
  • Promotes economic resilience and self-reliance within communities
  • Encourages support for local businesses and fosters community cohesion
  • Strengthens local economies by keeping money circulating locally
  • Provides opportunities for individuals to contribute skills and services to the community
  • Reduces dependency on global economic systems and mitigates the impact of economic downturns
  • May face challenges in achieving widespread acceptance and adoption
  • Requires ongoing management and coordination by community organizations
  • May lead to complexities in accounting and taxation for businesses
  • Could potentially create barriers to trade with businesses outside the local community
  • May not have a measurable impact on broader economic indicators or regional development

Frequently asked questions

How do local currencies impact the broader economy?

Local currencies primarily focus on stimulating economic activity within a specific community rather than affecting broader economic indicators. While they can strengthen local economies and promote community resilience, their impact on regional or national economic trends may be limited.

Are local currencies legal tender?

Local currencies are not considered legal tender and do not have the same status as national currencies. They are typically accepted only within the community or network that recognizes them and may not be legally enforceable for all transactions.

What challenges do businesses face in accepting local currency?

Businesses that accept local currency may encounter challenges in managing dual currency systems, including accounting for transactions, tax implications, and reconciling financial records. However, many businesses choose to participate in local currency programs to support their communities and attract local customers.

Can local currencies coexist with national currencies?

Yes, local currencies can coexist with national currencies and often complement existing monetary systems. While they operate independently within specific communities, local currencies can facilitate local economic exchanges without replacing national currencies entirely.

How can individuals participate in local currency systems?

Individuals can participate in local currency systems by exchanging national currency for local currency at designated exchange points and supporting businesses that accept local currency. Additionally, individuals can contribute to local currency initiatives by volunteering time or resources to community organizations that administer the currency.

Do local currencies have any legal or regulatory implications?

While local currencies operate within communities and are not considered legal tender, they may still be subject to certain legal and regulatory considerations. Individuals and organizations involved in local currency systems should familiarize themselves with relevant laws and regulations regarding taxation, consumer protection, and financial reporting.

What role do governments play in local currency initiatives?

Governments may have varying levels of involvement in local currency initiatives, ranging from passive observation to active support or regulation. Some governments may view local currencies as a means of promoting economic development and community engagement, while others may have concerns about potential impacts on monetary stability or tax revenue. Collaboration between local currency organizers and government authorities can help address regulatory concerns and promote the successful implementation of local currency programs.

Are there any risks associated with using local currency?

Like any alternative currency system, local currencies carry certain risks, including limited acceptance, fluctuating value, and potential regulatory challenges. Individuals and businesses participating in local currency systems should carefully assess these risks and consider diversifying their financial activities to mitigate potential downsides. Additionally, community resilience and support for local businesses can help offset some of the risks associated with using local currency.

How can local currencies contribute to community development?

Local currencies can play a significant role in community development by fostering economic resilience, promoting social cohesion, and encouraging sustainable consumption practices. By channeling economic activity toward local businesses and community initiatives, local currencies empower residents to take ownership of their economic destiny and build stronger, more vibrant communities.

What factors contribute to the success of local currency initiatives?

Successful local currency initiatives often rely on community engagement, strong organizational leadership, and support from local businesses and institutions. Building trust and credibility within the community, establishing clear guidelines and objectives, and addressing potential challenges proactively can enhance the likelihood of success for local currency programs. Collaboration and communication among stakeholders are key to overcoming obstacles and maximizing the positive impact of local currency initiatives.

Key takeaways

  • Local currency, also known as community currency, is issued by local organizations to encourage spending within communities.
  • Examples of local currencies include BerkShares, Ithaca Hours, and LETS (Local Exchange Trading System).
  • Advantages of local currency include promoting economic resilience, supporting local businesses, and fostering community cohesion.
  • Challenges associated with local currency include achieving widespread acceptance, managing dual currency systems, and potential regulatory implications.
  • Despite challenges, local currencies play a significant role in community development and empowerment.

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