Institutions of localized monetary exchange
This section is dedicated to the fascinating, and often overlooked, world of localized monetary exchange, a concept that’s gaining traction as a counterpoint to the relentless march of global capitalism and economic globalization. Think of it as a deliberate, often voluntary, effort to weave tighter economic tapestries within communities and regions, making trade not just possible, but more efficient and resilient on a smaller scale. It’s about fostering a sense of local economic sovereignty.
Fiscal Localism
At its heart, fiscal localism is about empowering communities through localized monetary exchange. It’s not just a quaint notion of buying apples from the farmer down the lane, though that’s a visible manifestation. It encompasses a broader spectrum of institutions, both ancient and modern, designed to bolster a community’s capacity for self-sufficiency and prosperity. Beyond the simple act of local purchasing, we’re talking about the intricate mechanisms that allow a region to thrive on its own terms. This includes the vital role of credit unions, those member-owned financial cooperatives, and CDFI's (Community Development Financial Institutions), which are specifically geared towards investing in underserved communities. And then, of course, there are the local currencies and complementary currencies, the tangible embodiments of this movement, designed to keep wealth circulating within a specific geographic area.
The most talked-about aspect of fiscal localism is undoubtedly local currency. Journalists often highlight shining examples like the Berkshares in Massachusetts, or the celebrated Ithaca Hours in Ithaca, New York. These are not isolated incidents. Across the globe, there are thousands of these localized monetary systems in operation, each a testament to the desire for greater economic self-determination. [^2]
The philosophical bedrock of fiscal localism is decentralization. It’s a belief that a community, or a region, can be more economically robust by nurturing its own internal economy rather than being solely dependent on the vast, often impersonal, mechanisms of a national or global market. This is a direct response to the pervasive trend of globalization. The core tenets are clear: prioritize locally produced goods and services, and employ a currency that keeps its value within the community. [^3] This approach allows for a more controlled and sustainable rate of growth, directly benefiting local farmers, shopkeepers, and service providers. Consumers, in turn, gain a more intimate understanding of where their products come from and how they are made. The use of a distinct local currency offers a more accurate gauge of a community’s economic health than relying on national economic indicators, which can obscure local realities. Taxation, too, is reoriented, with a strong emphasis placed on local levies and a diminished reliance on national taxes. The goal is to foster self-sufficiency, meaning communities must generate their own revenue through local taxation. Similarly, banking practices are expected to align with this local ethos. Rather than entrusting their finances to massive national or international banking conglomerates, communities practicing fiscal localism prefer local banks that serve their immediate geographic area.
Local Currency
The unique currencies employed by local economies often maintain a relationship with a national currency, though not always directly. Take, for instance, the Totnes Pound, which was in circulation in Totnes, England, from 2007 to 2019. It was pegged at a one-to-one ratio with the British Pound sterling. The fundamental idea behind these unique currencies is to ensure that money stays within the community, circulating and multiplying its economic impact, rather than leaking out or being entirely dependent on external infusions. This fosters a degree of self-sufficiency, enabling communities to fund local initiatives, energy projects, and reduce the costs associated with transporting goods. Totnes, for example, was motivated to achieve self-sufficiency partly to lessen its dependence on oil, recognizing its finite nature and the long-term benefits of operating with greater autonomy. Following Totnes's lead, several other English towns have launched their own currencies, including the Bristol Pound, Brixton Pound, Stroud Pound, and Exeter Pound. In the United States, communities like Berkshire, Massachusetts, and Ithaca, New York, have also embraced this concept with BerkShares and the HOUR, respectively. Notably, while a BerkShare is valued at $0.95 USD, the HOUR operates independently, not being convertible to US dollars or any other national currency. [^5]
The Calgary Dollars, established in 1996 as the Bow Chinook Barter Community, offers a different model. It has never been backed by or directly exchangeable with Canadian dollars. The rationale here is that while a 1:1 valuation simplifies transactions, it also risks importing the very problems associated with national currencies that complementary currencies aim to solve, such as speculation and interest-bearing debt. The intention is for Calgary Dollars to "complement" national currency, thereby amplifying the local multiplier effect for both the local currency and the portion of national currency involved in transactions.
An historical precedent can be found in the 18th century, when a British Quaker colony in Pennsylvania developed and utilized the Pennsylvania Pound. However, this experiment in fiscal localism ultimately failed, and the currency was abandoned.
Lorenzo Fioramonti, a prominent voice in governance innovation, has suggested that the European Union could achieve greater stability by integrating multiple local currencies alongside a "digital euro". [^5] This is a fascinating proposition, hinting at a future where supranational economic structures coexist with hyper-localized monetary systems.
Taxes
Advocates for fiscal localism contend that a shift towards higher local taxes and lower national taxes can significantly contribute to community growth and prosperity. A report by The TaxPayers' Alliance asserts that a decentralized tax system leads to a more efficient public sector, citing a German econometric study that found government efficiency improves with increased fiscal decentralization. [^6] The arguments supporting local taxation revolve around enhanced responsiveness to community needs, greater cost efficiency, stronger incentives for local economic development, and improved accountability to taxpayers. A comprehensive study by the Spanish Institute of Fiscal Studies, analyzing data from 23 countries between 1972 and 2005, concluded that reducing the central government's share of total tax revenue by one percentage point can boost long-run GDP growth by approximately 0.06% annually. [^6] However, setting local tax rates is a delicate balancing act. An excessively high rate risks alienating taxpayers, while an insufficient rate can starve local governments of the necessary funds to operate effectively. These local taxes are distinct from state and federal taxes, determined at the local level. By increasing local tax revenues, communities can reinvest these funds into public institutions and programs that directly benefit their residents. This proximity allows citizens to see and experience the tangible impact of their tax contributions on their daily lives.
Banks
The modern banking landscape is characterized by monolithic institutions with sprawling networks of branches, operating across national and international borders. This globalized nature of banking and its associated practices stand in stark opposition to the fundamental principles of fiscal localism. Toby Blume, in his essay "Changing the Debate: The Ideas Redefining Britain," argues for a radical restructuring of the banking system. [^7] He posits that a more localized banking system, which is prevalent in many other countries but less so in the UK, offers a crucial mechanism for connecting surplus capital with productive local endeavors, benefiting both savers and borrowers. [^7] Proponents of fiscal localism advocate for a banking system that is reoriented to serve the specific needs of smaller, local communities. These communities, built on the tenets of fiscal localism, seek local banks with a customer base confined to their geographic area. This proximity allows banks to develop a personal understanding of their customers, enabling a more nuanced assessment of loan risk. Furthermore, it empowers local banks to invest their surplus capital directly into local businesses and services, thereby stimulating the local economy at a steady and sustainable pace.
Local Exchange Trading Systems
A Local Exchange Trading System (LETS) is essentially a network of local members who agree to exchange goods and services with one another. These systems operate using a unique local currency as the basis for all transactions. Participants in LETS believe that these organized systems benefit both the members and the wider community. The defining characteristics of a LETS include: cost of service, consent, disclosure, equivalence to the regional currency, and being interest-free. [^3] Transactions within a LETS are not strictly limited to monetary exchange; a purchase can be settled through the performance of a service for the other party involved in the trade.
Brexit
A recent and highly prominent instance that brought fiscal localism into sharp focus was the United Kingdom's vote to leave the European Union in 2016. The European Union is an economic bloc designed to facilitate the free movement of resources and capital among its member states. Discussions surrounding the UK's departure had been ongoing for years, but the decision was formalized through a public referendum. A significant driving force behind the "Leave" campaign was economic in nature. Nigel Farage, a leading figure in the movement for the UK to leave the European Union, articulated this sentiment, stating, "We know that the European Union is hell bent on further, deeper centralisation." [^8] Farage's aversion to centralization stems from both economic and political convictions, with the economic aspect strongly aligning with a desire for increased fiscal localism. This sentiment resonated with a substantial portion of the UK electorate, leading to the referendum's outcome. This historic decision by the United Kingdom serves as a powerful example of a community opting to reject the pervasive trend of economic globalization. It is crucial to acknowledge, however, that a significant segment of the UK population favored remaining within the European Union, valuing the organization's role in promoting the free flow of wealth and services across member countries. In April 2016, then-Prime Minister Theresa May cautioned that leaving the European Union could jeopardize the UK's ability to prevent discriminatory policies and imperil London's standing as a preeminent global financial center. [^9]
This entire concept of fiscal localism, with its emphasis on community resilience and localized economic control, is a fascinating counter-narrative to the dominant forces of global integration. It’s a reminder that economic systems can, and perhaps should, be tailored to the specific needs and aspirations of the people they serve, rather than being dictated by abstract global forces. It’s a complex interplay of economics, politics, and a fundamental human desire for local agency.