Role of Money in a New Economy

In considering the characteristics of a new economy, the question of money arises:  What is the appropriate role of money? What entity or entities should govern its issue? How much should be placed in circulation and on what basis? What determines its value once in circulation? How might its very structure favor financing for regionally-based businesses producing goods in a sustainable manner for local markets?

As a global financial crisis continues, economists are examining how national monetary policies may have played a role in the crisis.  They are also concerned with the dominance of a single currency as a global medium of exchange.

Responding to these questions and concerns, policy makers are revisiting Friedrich Hayek’s idea of competing currencies.  Hayek, an Austrian economist, argued that if the public could choose between multiple privately issued scrips, the currency exhibiting the strongest purchasing capacity would prove the favorite, thereby disciplining the rest.  Monetary historians recall that regionally issued bank currencies contributed to the economic growth and diversity of the United States in its early years, creating jobs and building skills.

In such a climate of inquiry about monetary matters, BerkShares, the local currency for the Berkshire region of Massachusetts has garnered much new attention, largely due to the fact that it is one of the few privately issued scrips in the US.  Hits to the BerkShares website in December averaged 10,000 daily.

Photo by Jason Houston.

Launched in September 2006, BerkShares are available at any of thirteen branches of five participating banks.  Ninety-five federal dollars may be exchanged for one hundred BerkShares and then used to purchase goods and services on a one-to-one basis at over 400 businesses in this region of 19,000 people.  Over 3.5 million BerkShares have been traded at banks since launch with 135,000 remaining in circulation at any one time.

Beautifully designed, honoring local historic figures and contemporary artists, the program in its current stage represents a sophisticated “buy local” initiative.  BerkShares are not yet a currency independent in value from the federal dollar.  They continue to be backed by dollars on reserve in BerkShares accounts and so fluctuate in value with the dollar.  Nevertheless, built into the design of BerkShares is the potential of becoming an independent currency.

BerkShares non-profit board of directors is planning to introduce a loan program in BerkShares that would start the process of linking the value of the currency to local production.  Loans will be made for the manufacturing of goods, now imported into the region.  The loan application will include social and environmental criteria as well as a sound business plan. Priority will be given to basic necessities such as food, clothing, shelter, and renewable energy.  The low cost loans in BerkShares will positively favor small regional businesses now competing with international corporations to borrow a global currency.

Some monetary economists argue for a commodity backing of currency as the means of establishing trust in its purchasing power.  Gold is the preferred backing for this purpose because it is rare, easy to store, does not deteriorate over time, and is universally valued.  Implementing gold backing for a local currency would mean binding our regional economies to fluctuations in a global commodity not available in the region.

The intent of BerkShares is to develop a tool for citizens to shape their own local economies, embedding local values and local standards in the process. A gold standard would not achieve this goal.  Instead BerkShares, Inc. is exploring backing the currency with a basket of locally made goods such as a gallon of maple syrup, two tubs of goat cheese, three bushels of field raised greens.  So even if the dollar were to fall in value and the cost of a gallon of maple syrup rose from $100 to $125, 100B$ would continue to buy the same gallon locally.

Much work lies ahead to research and develop BerkShares to its full potential as a model currency for other economies and our staff is continuing its ground-breaking work with the BerkShares board of directors to help us better understand the role of money in a new economy.

A good community insures itself by trust, by good faith and good will, by mutual help. A good community, in other words, is a good local economy.

—Wendell Berry from “Work of Local Culture”