Can Local Currencies be the Foundation for the Sharing Economy?

A relatively new financial tool is emerging that could greatly strengthen the sharing movement. The tool is local currencies, which are popping up in cities across the globe. The Boston Bean is one of the newest U.S. examples. The local currency in Bristol, U.K., can even be used to pay local business taxes. Excitement is spreading, in part due to desperate economic conditions and the potential of local currencies to boost local economies.

At the moment, most currencies are essentially “buy local” programs which encourage residents to purchase goods and services within their communities. But a more advanced form could serve as the financial underpinning of an expanded sharing economy.

A local currency could become a full-fledged local monetary system that creates new currency free of debt and uses it to drive smart, sustainable growth, as well as fund education, public works, and social services. Most businesses or non-profits — but particularly labor-intensive ones in construction, health care, child care, agriculture, education, tourism, food services, and research — would stand to benefit.

A Prototype

A prototype is the Token Exchange System, described in my book Creating Sustainable Societies and now being developed by the Principled Societies Project. Tokens are an electronic currency issued through a membership-based community benefit corporation. They complement, rather than replace, the dollar. The system represents an economic vision that stands in marked contrast to the conventional one. Rather than reflecting scarcity and struggle, the Token Exchange System embodies cooperation and shared purpose, and the economic and social benefits that can come from these.

Today, the rise of the sharing economy is hampered by the very monetary and financial foundations on which it rests. The typical investor and bank makes funding decisions based on expectations of profit and associated risk, not necessarily on community and environmental concerns. As a result, a host of small businesses that might advance the sharing and green economies — from local organic farms, to recycling and reuse firms, to solar installers, to bike- and ride-sharing start-ups — have difficulty obtaining the funds that they need.

Further, the drive for investor profit encourages economic expansion at any cost, often to the detriment of the environment and public welfare. Wasteful consumerism is promoted, rather than smart growth.

In contrast, funding decisions in the Token Exchange System are based on community and environmental concerns, as well as on the soundness of business plans. It employs a novel, profit-neutral form of crowdfunding in which all participants in the system become members of the investment class. By offering interest-free loans, the token system breathes new life into the entrepreneurial small business sector. The ethos of the sharing community — tapping into the skills, talents, and resources of its own members and deploying them for the benefit of others — becomes a more achievable dream.


Might alternative, local currencies soon join or replace the broader system? Photo credit: Carol Pyles

A similar crowdfunding mechanism raises new donations for local schools, non-profits, and public services. By using the system, local economies become stronger, greener, more self-sufficient, more resilient, and fairer. Participants receive tangible economic and social benefits. And, to top it off, it’s already legal; no new laws need to be passed. Further, the Token Exchange System is transparent and democratically controlled, and participation is voluntary. It does not replace conventional financial institutions but, instead, complements them.

The next step in developing the Token Exchange System is to create computer models that simulate the flow of tokens and dollars in a virtual local economy. These models will be used to refine the system and, later, will serve as aids to system managers. Computer simulations allow what-if questions to be explored, and set the stage for live pilot trials in host cities.

The pilot trials are still several years off, but the problems that urban areas face are not going away soon. If the pilot trials demonstrate increased economic security and community well-being, use of the system will spread to new regions. As it does, the sharing movement will be a beneficiary.

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John Boik is the author of Creating Sustainable Societies: The Rebirth of Democracy and Local Economies and is founder of the Principled Societies Project.  Follow the virtual book tour stops during January, 2013:

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