August 9, 2018   6 mins

In 1989, Frank Tortoriello needed to move his deli. Tortoriello had a thriving business and deep ties to his community in Great Barrington, Massachussets, but he also had a serious problem: he wasn’t much of a bookkeeper and couldn’t qualify for a loan to fund the move. So instead of going to a bank, he went the Schumacher Center for a New Economics (then the E.F. Schumacher Society), and they helped him to issue his own currency.

Locals could buy $10 worth of “Deli Dollars” for $8 in US currency, with the currency redeemable at a future date. In essence, they gave Tortoriello a tiny personal loan and collected a bit of interest. The program was a success, easily raising the $5,000 Tortoriello needed. Even the banker who turned down Tortoriello’s formal loan request bought some Deli Dollars: he couldn’t justify an institutional investment in the deli as a business, but he couldn’t pass up a personal investment in Frank.

The launch of Berkshares added momentum to a global movement for local currencies, which now exist from Bristol in England to Spain’s northern Basque region
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Tortoriello’s successful experiment was the first of several conducted in the area, known as the Berkshires, through the 1990s. They in turn inspired a local paper currency known as Berkshares, founded in 2006 with the intent of supporting local businesses – shoppers get an effective 5% discount when they use Berkshares at local businesses that accept them. Today, according to Schumacher Center co-founder Susan Witt, between $125,000 and $175,000 worth of Berkshares are in circulation at any given time.

The launch of Berkshares added momentum to a global movement for local currencies, which now exist from Bristol in England to Spain’s northern Basque region. The main goal of Berkshares is to support local businesses, but advocates say local currencies have many potential benefits, above all increasing community resilience and self-determination. Money, after all, is a kind of communication technology: the most important signal of what actors in a modern economy want. But the structure and administration of a currency can skew those signals, and national currencies can be seriously out of sync with what a particular community needs or values. Local currencies can take back a portion of that power, and use it to encourage environmental responsibility and community spirit, or just mobilise untapped resources.

If you’ve paid even marginal attention to cryptocurrency in recent years, your antenna might be twitching. Frank Tortoriello’s Deli Dollars and local currencies like Berkshares were precursors of ICOs, or initial coin offerings: private, digital currencies issued to help fund the development of tech businesses using distributed blockchain database technology.

ICOs first made headlines in 2017, and over the last 18 months have raised more than $15 billion dollars. That’s a far cry from $5,000 to move a deli – and not surprisingly, the ICO boom has attracted more than its share of bad actors, with many of the issuances proving to be outright scams.

Still, ICOs highlight how blockchain technology could help make local currencies more mainstream. Issuing a local paper currency is labour and infrastructure intensive: Berkshares are administered by a community non-profit in partnership with 16 local banks, who handle the exchange of dollars for Berkshares. By contrast, the basic software for cryptocurrencies like Bitcoin is open-source and relatively easy to copy, while a plethora of digital wallets and exchanges exist to facilitate the distribution and spending of cryptocurrency. Re-branding a Bitcoin-based system as a local currency is primarily a graphic design and marketing problem – no physical infrastructure is needed.

No surprise, then, that some of the very companies founded in the blockchain boom are joining the ranks of local-currency advocates. At the Oslo Freedom Forum in May of this year, Galia Benartzi, co-founder of the blockchain trading platform Bancor, told the story of the Lev Market, an experimental program in Israel. Bancor issued “Levs” – “hearts” in Hebrew – to 20,000 mothers, who used the currency to pay one another for services like babysitting, school pickups, and baking.

Adding new currency to communities with too little of it can help connect unused resources to unmet needs, generating real benefits that can improve quality of life
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Bancor’s experiment seems to have borne out one of the strongest arguments for local currencies – that they can unlock unused resources. According to Benartzi, in less than a year, network participants exchanged over $24 million worth of goods and services using the Lev currency. “Not a shekel, not a dollar ever changed hands,” Benartzi said. “And what we asked ourselves was, why weren’t they doing this to begin with? All the mothers were there before, all the goods and services were there before.”

According to Benartzi, the Lev market catered largely to women in low-income and marginalised communities – women who didn’t have much ‘official’ currency to spare. Such monetary privation has a double cruelty. Poor communities, more or less by definition, can’t build financial wealth or reap any benefit from long-term investments. But nearly as bad, and much less attended to, is their limited ability to benefit from money’s day-to-day role as an economic coordinator. If we consider money a communications technology that generates signals about collective needs and desires, poorer communities are being deprived of both wealth, and the information they need to generate it.

This is one of the key arguments made by Bernard Lietaer and Jacqui Dunne in their book Rethinking Money. Adding new currency to communities with too little of it can help connect unused resources to unmet needs, generating real benefits that can improve quality of life. Similar logic lies behind government stimulus spending during recessions – but local currencies, Lietaer argues, have the added benefit of providing some insulation from national fiscal and monetary crises.

Of course, at least some of the activity measured by Bancor’s Lev Market experiment was taking place before the introduction of the new currency: parents, especially in poor communities, have never needed money to coordinate shared child care, for example. And this suggests a possible drawback to community currencies. As Leitaier and Dunne themselves point out, considerable research has shown that non-monetary exchanges are crucial to cementing social bonds: when I babysit your children as a favour, we are bound together by an outstanding social obligation.

The network of social ‘debt’ built up by this sharing is weakened by adding money to the equation. When I babysit your children and you pay me for it in currency, we have no debt, and no resulting social bond. Injecting currency at the community level, then, could increase efficiency, but come at a serious cost in the erosion of social capital. That’s worrying, because social capital is itself a major factor in the resilience of communities – sociologists like Robert Putnam argue that in money-centric societies like America, it has been eroding for decades.

Creating local currency on a blockchain could also create a novel sort of risk: by nature, cryptocurrency can be sent anywhere on the globe, bought and sold freely, and, almost inevitably, financialised and speculated upon. In fact, increasing the convertibility of local currencies is part of Bancor’s stated mission, and its current major product is a trading platform.

Injecting currency at the community level could increase efficiency, but come at a serious cost in the erosion of ‘social capital’
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For some locales, this could actually be a benefit. Well-run currencies from economically dynamic regions could hold on to their value elsewhere – you’d probably be welcome to spend your Brooklyn Bucks in San Francisco, and vice versa. This could be a boon to local businesses, who would have privileged access to liquid capital, much as the international acceptance  of the US dollar gives American companies an advantage in world markets.

But many local cryptocurrencies, exposed to the wild complexity of the global financial market, could become chum for its circling sharks. As digitisation continues making financial markets more granular, the ability to ‘short’ any cryptocurrency – bet that its value will decline – could become widespread. This would allow speculators to bet against the currency of a city or region, and put downward pressure on its exchange value. Such tactics have had devastating effects when used against national currencies – George Soros’ historic shorting of the British pound, for instance, or the attack on the Thai bhat that kicked off the Asian financial crisis.

Those cases were made possible by mismanagement at the national level, and resulted in massive transfers of wealth from entire national populations to hedge funds and other speculators. Many local currencies rely on fixed exchange rates, or ‘pegs,’ to national currencies – the same sort of pegs that made the baht and pound vulnerable. Local administrators are at least as likely to make mistakes as the Bank of England, and would have fewer resources to defend against hostile speculators.

A world of local cryptocurrencies, then, could feature regular short attacks on the Portsmouth Pound, the Philadelphia Peso, and the Ypsilanti Yen. But these would have more limited impacts than large-scale shorts on national currencies, both because the impacts would be localised and because community currencies almost always coexist with national currencies. In fact, one of Lietaer’s most frequently made poinst is that using multiple currencies protects against fragility in any one of them.

Digitising local money would undeniably have complex and unpredictable implications. In fact, there may be a core tension to the idea itself: if digitisation inevitably connects a currency seamlessly with global finance, is that currency truly local anymore? Of course a certain level of trading friction may in fact be part of the insulating benefits Lietaer believes local currencies create, a technological moat against assaults by the global financial mob.

But digital currency, at its heart, is largely about eliminating friction – the friction of printing paper money, the friction of central bank authority, and the friction of geography itself. There may be ways to insulate a local digital currency, but this is largely uncharted territory: it’s not clear whether a local currency could prevent a global cryptocurrency exchange from listing it for trade, or perhaps use GPS systems to prevent it from being sent or used outside a particular region.

For their part, Susan Witt and the administrators of Berkshares say there are no plans to go digital anytime soon. They prefer to keep up good relations with trustworthy local banks – and make sure their local currency stays local.


David Z. Morris is a writer and researcher who regularly covers business and technology for Fortune. His work has also appeared in The Atlantic, Pacific Standard, Slate, and other outlets. He is a former social scientist with a focus on media, and has served as a research fellow with the Japan Society for the Promotion of Science and the University of South Florida.

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