Homegrown Currencies Are Popular Right Now, But Do They Work?

Remember the Downtown Dollars that Ardmore, PA sold to its citizens this year? Sara Lepro at American Banker looked at that and other “homegrown currency” experiments happening across the country, which are intended to stimulate the local economy and take advantage of “a growing ‘localism’ movement.”

Research suggests that these programs flare up in times of financial distress but quickly fade once the economy improves. However, some experts believe the growing “localism” movement could fuel a more lasting commitment to the concept.

“There is a lot of concern about the lack of community in this country,” said Ed Collom, a University of Southern Maine sociologist who has studied local currencies. ” ‘Local’ is a hot topic, and that’s why local currencies will continue to grow.”

Collom told American Banker that he estimates there are currently more than 200 homegrown currencies in circulation in the U.S.

It’s unclear, however, whether the programs actually work: Lepro notes that Berkshire Hills Berkshares and Ithaca’s Ithaca Hours are well known even outside their towns, but not widely used by locals.

“Distrust of Banking System Sows Return of Homegrown Currencies” [American Banker]


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  1. dragonfire81 says:

    I think it’s a brilliant idea and I hope more towns follow this approach.

    • SomeoneGNU says:

      Perhaps I’m missing how this is a good idea. So, let’s say the town prints $1000 of it’s currency, and values it the same as the dollar. A ten dollar item now costs ten nu-dollars. The store can then sell back those nu-dollars to the town and get ten dollars.

      Let’s assume the store gives a discount of one nu-dollar on the ten dollar item. So now I spend 9-nu dollars (which only cost me 9 real dollars) and the store took a 10% loss on an item.

      I’m lost.

      • Npakaderm says:

        From what I’ve seen of these programs these “Nu Dollars” are quite a bit cheaper than an actuall dollar but spend the same. The idea here is that you will shop locally versus buying something online which puts the money into the local economy. The store doesn’t take a loss as far as I know, the local government (or whatever entity is running the program) pays them the full value of the item when they turn in their “nu dollars”.

        Could be wrong though…

      • TheBusDriver says:

        I believe the idea is that the store does not sell the money back, but uses it elsewhere in the town – think of it like going to a foreign country, you don’t change your money before each transaction. You use the money where you can, and when you leave the country, you change back to your home currency.

        • SomeoneGNU says:

          Let’s try this again with this. I buy 10 nu-dollars for $5.00. I then buy $10.00 worth of product for $5.00 and the store gets the full $10 when they cash in the 10 nu-dollars. Where does the additional $5.00 come from? Tax dollars? Money tree? Underpant gnomes?

          Step 1 – Print localized currency
          Step 2 – ???????
          Step 3 – Profit!

          • Draygonia says:

            Tax Dollars. The government is taking a loss these days to help make the economy better. They lost a lot of money by providing the 8 grand tax credit for houses, why did you not say that it confused you too?

          • Bishop says:

            Local currency is created, printed and issued by private companies not governmental agencies, cities or townships.
            Nu-dollars? Wow, what a bargain! Let’s take a look at how it really works
            Berkshares are note printed up and delivered to 5 local community banks with 13 locations. All notes are kept in the vault and behind the counter. A consumer walks in and give .95 cents and gets one Berkshare, he then goes out to participating merchants and spends it at face value $1. The $.95 stays on deposit at the credit union. That local note, the Berkshare, after being received by the merchant then continues it’s journey as the merchant either gives it back to another shopper in change, pays an employee or spends it restocking his shelves. The note then enters into any one of many other possible local transactions. These notes, will recirculate 4-5 times before eventually ending up back at a local participating bank. The last person/merchant to exchange the Berkshare for $.95 cents will take a small loss of 5% on the out-exchange. He can then account for that transaction as a 5% or .05 cent fee in his local business.
            You have a merchant, who can increase his local foot traffic and business by accepting the local currency and in a worst case situation have to take a 5% on that transaction. Do you know that when a customer uses a VISA card, the merchant pays a 2-3% fee? Did you know that Amex Cards create a 4.75% fee to the merchant? How about PayPal? I think they are 4.75% per transaction. The fee in a local currency Berkshares transaction, is pretty much in line with other methods of payment which work on a much larger scale.

            Now, that original $.95 cents remains safe and sound on deposit, all the time. If every Berkshare ever issued and outstanding in circulation came in for exchange at the same time, there is exactly enough USD on hand to fund them. No risk of bankruptcy or loss.
            Now,….http://www.theplenty.org in NC, is 100% backed, 1 to 1. The http://www.chemainusdollar.com/ in Canada is also 100% backed, one CD for one ChemBuck.
            Ha, not at all like the Nu-dollars :-)

      • Loias supports harsher punishments against corporations says:

        I believe the way it actually works (based on a previous article) is that you get city dollars for a discount (i.e. buying $100 city dollars costs your $50) and those dollars are redeemable in your locality.

        So, you’re spending $100 in your locality but it only cost you $50. Not the confusing story you posted above.

        • SomeoneGNU says:

          My confusing story is exactly what you’ve described. You buy currency at a favorable exchange rate, and the business then turns around and exchanges that back into real money.

          • Loias supports harsher punishments against corporations says:

            No, it would work like this:

            A) Citizen gives city $50 for 100 city dollars
            B) Citizen exchanges 100 city dollars for $100 worth of merchandise at local business
            C) Local Business exchanges 100 city dollars for $100, a 1:1 exchange rate.

            The “loser” here is the city, not the business. The city eats the loss in the hopes of boosting local businesses, and thus local tax revenue.

    • Harmodios says:

      It’s dangerous & stupid. There is no security whatsoever. Any moment your money could become useless.

      • Liam Kinkaid says:

        So it’s just like the US dollar, or any fiat currency, right?

        • Harmodios says:

          yeah, but because of the grander scale and institutions such as the FCC real money has a relatively stable value. No one can stop a city form suddenly devaluing the currency, there’s no check on that. I just seems very, very risky to me.

      • Loias supports harsher punishments against corporations says:

        That’s a pretty freakin’ alarmist point of view. To believe your city’s locality could suddenly go bankrupct, disband, and reneg on all it’s duties for its citizens is well…. how did you put it? Dangerous and stupid.

      • vastrightwing says:

        Let me see, any security in the Federal reserve? They are basically a ponzie scheme: printing money as fast as the press will go, causing inflation. The difference here is that since the Federal government is doing it, it’s OK. The way to protect yourself is to keep a basket of currencies, but that isn’t practical for most people.

        Personally, I have more faith in local currencies in terms of value. Now the problem is that if any local currency catches on and gets big enough, guess who will shut it down? Anyone care to guess who will stop it? Sure. That’s right, the Federal reserve will. They don’t want competition that might become problematic. So enjoy it while you can.

  2. chaesar says:

    would counterfeiting be an issue? (I didnt RTFA, so ease up if its mentioned)

  3. Alvis says:

    They’re just like regular dollars, but they’re more … fun. …

  4. pantheonoutcast says:

    I don’t understand the point of this. In order to get the currency in the first place, you’d have to make a local transaction. Which means you shop locally to begin with. The people who don’t do business with local merchants, for whatever reason, wouldn’t buy into the program because a) it seems campy and silly, and b) it severely limits the purchasing power of your money, which is a fiscally stupid thing to do. And the people who *would* buy into it, would shop at local stores without any gimmicks at all. It seems like an economic equivalent of “preaching to the choir.”

    Unless the “exchange rate” favors the people who purchase product and services with the local currency, in the form of a discount, then this seems pointless. Like Itchy and Scratchy money – like regular money, only more, um, fun.

    • grizz says:

      Consumers have an incentive of getting the local currency because they can purchase items for 50% off. According to the article (didn’t read the whole thing), the exchange rate is 2:1, so two “downtown dollars” equals one USD. After the store receives the downtown dollars, they can exchange them at the same 2:1 exchange rate back to USD. Assuming that the people who don’t shop locally are smart buyers, they would hopefully quickly see that using the local currency is advantageous because you can essentially buy twice as many goods with the local currency.

      • pantheonoutcast says:

        How does the customer gain an advantage? If the store charges me 2 localdollars for a cup of coffee, it still only costs me one US dollar, unless they are selling the product for the same rate – one localdollar OR one US dollar – in which case this would bankrupt them in no time. I’m quite sure that the store’s national distributors and suppliers don’t take localdollars, and when they go to exchange their localdollars, they’re only receiving half as much back.

        It sounds confusing and needlessly complicated. I need more coffee.

        • Breve says:

          You missed the part where the business exchanges the “local” bucks back to real USD at the same face value. Here’s an example:

          John Q. Citizen buys $2 TownBucks from the City for $1 USD.
          John goes to Local Coffee Shop and pays for his $2 coffee using $2 TownBucks instead of $2 USD.
          Local Coffee Shop returns the $2 TownBucks to the City and gets $2 USD.

          Basically the city issuing the TownBucks loses twice the amount of money they issue, but the point is that they guarantee that money goes into the pockets of local businesses in their town.

          • pantheonoutcast says:

            And how does the town recoup their losses? Surely the entire town is not going to go bankrupt to protect the survival of Local Coffee Shop. And if its through tax hikes, then it’s a zero sum game.

            • nbs2 says:

              Through increased tax revenue.

              As local business do better, Income basis for appraisals will help increase the value of the property. As the appraisal and assessment values increase, so will property tax income. As local businesses, usually owned by folks residing in the community, their income taxes will increase (both business and personal). Even without hiking tax rates, tax income increases. Will it be enough to offset the cost of the currency? Perhaps not. However, by encouraging the use of local businesses, you potentially increase to opportunities that people have to experience the local business and thus return later using US$. As businesses do well, folks from outside the community come into town and use US$. And the income from those transactions doesn’t cost the city.

              Short term loss, long term gain.

            • nbs2 says:

              Through increased tax revenue.

              As local business do better, Income basis for appraisals will help increase the value of the property. As the appraisal and assessment values increase, so will property tax income. As local businesses, usually owned by folks residing in the community, their income taxes will increase (both business and personal). Even without hiking tax rates, tax income increases. Will it be enough to offset the cost of the currency? Perhaps not. However, by encouraging the use of local businesses, you potentially increase to opportunities that people have to experience the local business and thus return later using US$. As businesses do well, folks from outside the community come into town and use US$. And the income from those transactions doesn’t cost the city.

              Short term loss, long term gain.

              • pantheonoutcast says:

                Sorry, but that sounds like an unnecessary burden on the taxpayer. Yet again. What does the town do when the residents realize that their property taxes are too high, they are essentially not reaping any additional benefits from these taxes (besides low-priced coffee), and decide to move somewhere else? Then you have homes sitting vacant in the town because no one in their right mind wants to move to a place with artificially inflated property taxes which exist for the sole purpose of supporting some guy’s local business.

                If a town wishes that their citizens buy locally, they need to kick out all the Walmarts, Starbucks, and other such nationally owned chains and operate as if it was 1953 all over again. But if they do that, they’d be eliminating hundreds of jobs and essentially cutting off their own nose to spite their face.

                I imagine that the reason why more and more towns don’t do this is because it just flat out doesn’t work, given today’s contemporary economic variables.

        • nbs2 says:

          You confusions seems to come from the exchange of ND to USD. My understanding is that the exchange rates are not equal. US$0.50 will buy you N$1, but N$1 will buy you US$1. I suspect that the goal is twofold. One, that local businesses that source from each other will utilize US$ or N$ with equal aplomb; two, that there will be some mechanism for ensuring that citizens don’t churn.

          I can see three churning risks:
          – one, that residents simply buy and try to redeem (which is easily foiled through a merchant acceptance verification scheme that ensures that the redeemed bill has been “used”);
          – two, that residents launder the N$ to evade the schemes of problem one and scam the city for money (difficult to stop, but tracking may be possible to identify and capture abusers);
          – three, that folks use bills to buy product and obtain cash for the overage, as they did in the gift certificate days of yore (only stoppable if the city produces currency of multiple denominations and notes that no change will be provided for overages)

          Certainly businesses can’t pay non-local sources in N$ and can’t deposit N$ into the bank, but those dollars can either be exchanged or hopefully used elsewhere in a business process – such as for providing change to N$ using customers.

          As for me any my house? We would use these locally. There are a lot of local shops that we would love to frequent, but their prices are often out of line with common sense. One thing I do like is that chains are heavily restricted in our down town. There is a Ben/Jerrys and 5 Guys. Everything else I can think of is locally owned and operated. Now, if only the owners would use common sense in developing their summer hours. You can’t stop serving food before sunset.

    • quail says:

      The reason to ‘buy’ into the system is for bartering purposes. It’s a good way to generate jobs for plumbers, carpenters, babysitters, and other service jobs. It becomes more difficult for a retailer to go full out and use the currency because their vendors are likely outside of town and the local economy.

      I don’t know how a local retailer could go fully into using the local money unless they have an option to trade into greenbacks when they needed to pay vendors.

    • Loias supports harsher punishments against corporations says:

      I have large retail stores in my outlying localities which I usually shop at. If I got a good discount shopping in my locality I would weigh the savings and choose my shopping accordingly. In other words, Mom and Pop shops are usually more expensive, but not with discounted city dollars.

      It can work.

  5. Rocket80 says:

    The problem is that this is illegal – however only enforced if/when it gains enough traction to matter. Ron Paul has been advocating laws legalizing competing currencies for decades now. The Fed. Reserve has a legal monopoly on money production, so their worthless fiat currency is forced upon consumers. Should competing currencies be legalized, private companies or local governments, could issue their own money actually backed by something of value, likely gold, but anything of value would be better than the nothing of Federal Reserve Notes.

    Suffice to say, a ‘free market’ of competing currencies would destroy the value of the value-less FRN, (because people would naturally be inclined to use a currency with real value) therefore this would never be legalized or allowed on a massive scale. unfortunately.

    • chaesar says:

      argh, I was wondering when one of you people was going to show up and ruin this

    • Woodside Park Bob says:

      Federal Reserve Notes are backed by the full faith and credit of the United States and are among the most secure if not the most secure currency in the world. Our interest rates are so low because foreigners and foreign governments would rather hold dollars than any other currency.

      I’d trust the value of the dollar a lot more than I’d trust any privately issued currency. By the way, before the civil war, banks issued their own currency, and fraudulent currency was rampant. There is no reason to think it would be any different now if anyone with a printing press or a printer could issue their own money.

      • Harmodios says:


      • BobSalawalatski says:

        “I’d trust the value of the dollar a lot more than I’d trust any privately issued currency.”

        Federal Reserve Notes are a privately issued currency.

        The Federal Reserve Bank is a private entity. It is not part of the United States Government.

    • kmw2 says:

      There is no currency with a “real value” – even the value of gold is contingent on its use in symbolic ornamentation (and a small number of industrial applications – we could as easy use lithium as a currency base in that case). The only value of a currency is in its symbolic and agreed-upon representation of a given exchange value. The Fed’s “worthless fiat currency” is no more or less worthless than the “real wealth value” of gold. (Or, indeed, the value of a local currency.)

    • Back to waiting, but I did get a cute dragon ear cuff says:

      I am pretty certain that the currencies are not illegal. Not reporting the income and sales taxes in equivalent US dollars is definitely illegal.

      An analogous setup. My company belongs to a bartering system. You sell something and get “Barter Dollars” that you can only spend at other companies that belong to the system. We pay sales tax and report as business income all sales. This is what keeps these legal. And, no, I do not need to find a plumber that needs $286.37 worth of office furniture. The central clearing house takes care of all that. So I use a plumber, they spend the dollars on printing, the printer pays their lawyer, etc. Almost all are in the local area, so they keep the funds local, if only on paper.

      This is the same concept and execution as the homegrown currency, just the Barter is all virtual in a computer vs printed pieces of paper.

      As long as all appropriate taxes are paid, these are perfectly legal.

  6. faring says:

    Didn’t the feds come down hard on the Liberty Dollar a while back? I get the feeling they don’t like successful alternate currencies.

    • Geekybiker says:

      The problem apparently was printing suggested USD values on the currency. As long as you have no reference to the USD, I don’t think there is a problem.

  7. Andy S. says:

    Right, because what I really need right now is more crap to have to carry around in my wallet. Offer me a local currency that exists purely as a virtual currency, and allow me to pay with my phone, and then we’ll talk.

  8. Darwin says:

    Fail from the start of the title. Homegrown currencies are not popular.

  9. Harmodios says:

    Does anyone want to buy my seashells? Only 10 dollars for 5 shells, and you can use them as currency! e.i. This is stupid & dangerous

  10. Illusio26 says:

    itchy and scratchy money. It’s just like regular money…but fun.

  11. TheAssociation says:

    This reminds me of barter organizations, like Art of Barter, Illinois Trade Association, etc. Essentially, they are their own, self-contained, structured monetary system.

    At my old company, we were actively participating in all of them in the Illinois area. They generated a lot of business and was great at strengthening business relationships. It wasn’t shady or anything either, let’s say you wanted to buy a $500 cash ring for somebody, you could just go to a participating retailer and pay $500 in trade dollars.

    Done right, their system could work. The only thing that stops systems like these are non-participation.

    • NarcolepticGirl says:

      Yes. My ex’s father owns a successful bartering business in Florida.

      It benefited the local businesses – not really the non-business owners.
      So, a local artist and ‘buy’ dental exams with her art.
      or a plumber could buy a fancy meal at a local restaurant in turn for plumbing services.

      • Harmodios says:

        But what could a consultant like me do? I’d starve!

        • Back to waiting, but I did get a cute dragon ear cuff says:

          What field do you consult in? The Barter system I belong to has business, computer, restaurant, sales, health care, personal growth, and other consultants.

          The secret is that the barter system company is the clearing house. You do not have to do direct trades. You find someone who needs what you do, they pay you in barter dollars, then you can spend them for whatever you want, travel, restaurant, printer, electrical work, web site hosting, golf, whatever.

          Most of the barter exchanges will work with other exchanges for specialized items. So if your field is resort hotels, there may be someone on the other side of the country that needs your specialty, and has sold a number of excess rooms on trade. Their exchange will call around to other exchanges looking for a resort hotel consultant.

          We have been on various barter systems for over 30 years, and they work wonderful.

    • dreamfish says:

      Actually, one of the main problems with bartering is coming to an agreement about fair equivalent value of any product or any service compared to any other.

      If it involves only a few people, an understanding can be reached quite easily. With more people, it gets more complicated and I can imagine it getting very heated regarding the ‘scope’ and quality of any service offered, e.g. in return for these goods you paint my fence, but what sort of quality of paint will be used and how many coats will you apply (and proper primer too?) and will you be responsible for taking stuff off the fence beforehand and putting it back exactly as it was afterwards?

  12. A.Mercer says:

    Lets talk about counterfeiting for a moment. A great opening conversation on a first date.

    I will bet that this will probably be made illegal by the town that is printing the funny money. They probably copyrighted the thing and put in a special law. Plus, fraud and all of that good stuff.

    However, who is responsible for enforcing that law? I will bet the Secret Service will not be racing in to find people who are turning out even funnier versions of the funny money. The towns do not have the resources to crack down on people in other parts of the country. In fact, it may be close to impossible to really stop them. So, lets say that I print some really good copies of this stuff and thru various channels I can get it into the town and stock up on all kinds of goods I can take to another town and sell for cash. The town will have a hard time tracking me down and the money they will spend doing that will be a lot. Sure, odds are I will be caught but if I am smart enough to figure it out then golly there are some criminal types who can really capitalize on this.

    Lets say that someone does get the Secret Service to do something. Who pays for their additional expense of adding tracking down fake money counterfeiters from various regions to their duties? They can barely stop actual counterfeiters. Now, they would be dealing with places with stuff that has very little in counterfeit protection. The more places that do this then the more problem the Secret Service would have deal with. It will bog them down. I have a feeling that if a mayor of one of these towns called the Secret Service and asked them to find the felon who is copying the funny money then the Secret Service would tell the mayor that they should have just stuck with regular money.

    Plus, lets say that a business accepts the funnier money. This stuff cannot have the level of counterfeit prevention that our currency has. It would cost too much. Making a copy of it would probably be pretty simple to someone with the right knowledge and equipment. A business would have a very hard time telling the difference. If they accept the money, would they be out the money? Or would the city still trade in the money? Either way is bad. If the business gets burned like this then they will probably decide to stop accepting the money. Give me funnier money once, shame on you. Give me funnier money twice, shame on me. Enough businesses get burned like this then the whole funny money concept fails. Ok, lets say the city still gives money back to businesses turning in funnier money. The taxpayers get to shoulder the burden of that and it will get costly fast. Plus, it kind of removes the incentive for businesses to not accept funnier money. Heck, some may even get into the printing business themselves.

    I think that the cost involved with stopped and dealing with counterfeits will make this plan too expensive to maintain itself.

  13. jessjj347 says:

    I found the link for entering the lottery to get Ardmore Downtown Dollars, in case anyone is interested: http://ardmoreinitiative.org/sponsorshipopportunities/downtowndollarslottery.asp

    • chaesar says:

      that is a decent list of participating businesses, one of which is a pub

      half-price drinks anyone?

  14. rorschachex says:

    I tried to get Ithaca Hours the four years I went to school up there and I could never find them.

  15. 4Real says:

    I live close to Ardmore. It is a pretty good deal you can get like $20 worth for $10 cash.

  16. Tarceinus says:


    NPR ran an interesting article on the rise of local currencies in Germany. The Kingower is a local South German currency that depreciates by 2% a year in order to stimulate local spending.

  17. MatheusDebull says:

    There is a reason why the US went to a national currency…

    Just wait until the next couple of years, we’ll probably hear about this same issue on Consumerist again saying how the city is bankrupt because everyone has this currency that is worthless now.

  18. BoredOOMM says:

    Shop Local and Spend Local

  19. RogueWarrior65 says:

    Bleah. This reminds me of Pullman dollars. Pullman factory workers wouldn’t get paid in U.S. dollars so they were forced to buy stuff in the factory stores. It basically trapped the workers.

  20. JJ! says:

    Assuming the new dollars have an exchange rate favorable compared to USD (Which every post suggests), you could pretty much get free money. Trade 100 bucks for 200 new dollars. Next day, trade 200 new dollars for 200 USD. Then 200 USD for 400 new dollars. Etc etc.

  21. jim says:

    the trades are only one way. the retailer would have to turn the cash in for the actual money, probably at the discounted rate the customer originally paid.

    also I can’t imagine the secret service would give a damn if some non-US currency collapsed, unless there was some sort of fraudulent claims being made.