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transcript: "What are regional currencies?"
What are regional currencies? Regional/local currencies are a relatively new phenomenon in economy. Since in 2003 the “Chiemgauer”, a local currency at the lake Chiemsee (Germany) started off, the project has inspired many similar projects, and enriched the ideas about how money can function a lot.
Regional currencies are a medium of exchange designed for a certain region, which are used in addition to the currency of the country.
How do local currencies work?
It's a basic principle of economy, that when products or services flow in one direction, money flows in the opposite. Everybody knows this. When for example you buy your bread rolls at the bakery, the bread rolls change hands from the baker to the buyer, and money takes the opposite direction.
The same happens when the baker buys ingredients for his products or hires services: Baking ingredients like flour, grains or fruit, energy, cleaning services or the human workforce of his employees.
In any case, products and services flow in one direction and money in the opposite.
This basic principle can now be placed into a geographic context.
Some years ago the currency area expanded all over Europe, so the appropriate framework for a geographical view is the EU. Within this currency area the same principle applies: When products and services flow in one direction, the revenues in monetary form flow in exactly the opposite direction.
In large currency areas this principle may become a problem. Sometimes services and money flow, like in a one-way street, always in one direction and there are no opposite flows to even out the distribution of money and products again.
In Europe, there are some regions considered to be structurally weak. These regions produce comparatively small amounts of goods by themselves. They buy goods from other regions whose infrastructure has been developed so that they have the necessary production capacity.
This however leads to the development of two kinds of regions: Structurally strong regions, which produce goods and sell them in other regions, and structurally weak regions, which buy products from outside and pay for this with an ongoing outflow of buying power.
For structurally weak areas, a vicious circle looms: The low buying power limits the income potential of the businessmen. Low revenues for the companies lead to low salaries, in an environment which makes founding enterprises more difficult. Lack of job opportunities and low salaries lead to emigration. All of these aspects reinforce the structural weakness of the region, and are particularly driven by the outflow of buying power.
The emigration tendencies in particular consolidate the structural weakness of the region, because it is often precisely those people who are leaving the region who are the most flexible ones and thus could best help to overcome the structural weakness.
In parallel to the money flows there are migration flows of skilled workers. They go where the money flows, because their labour is needed there for manufacture and also the money to pay them is present. In the interplay between structurally weak and strong regions, the weak ones lose their buying power and their most qualified staff, and as this development progresses they have hardly any chances to overcome their structural weakness (recently, Germany has been trying to counter this development with governmental aid for rural areas and the so called solidarity pact).
For these and other reasons, the phenomenon of regional currencies has developed in Germany. The Association of Regional Currencies (“Regiogeldverband”), in which most of these initiatives became organised, is aware of more than 60 regional initiatives of which about two dozen have already started off with a regional currency.
So far, these currencies play a very small role within the wider framework of Germany's economy. 2500 participating companies and a circulating volume of money of an equivalent value of a few hundred thousand Euros are small, especially when you keep in mind the sums being spent on the financial and economic crisis as subsidies.
The “Urstromtaler”, whose banknotes you can see here, is intended for the region of Sachsen-Anhalt in Germany. The Urstromtaler is a service-backed (leistungsgedeckt) regional currency, which exists not only in the form of printed notes, but can also be used electronically.
So, how do regional currencies work?
Just like the Euro needs to be considered within the European framework, regional money becomes active within a regional framework.
No matter which region you look at, whether it is the “Lausitz”, the region of Dresden or Sachsen-Anhalt or Chiemgau, in every case the following holds:
Revenues generated in the regional currency will definitively be spent in (and for) the same region.
The further a person moves away from Chiemgau, the less likely he or she will find another participant of the economy who accepts the Chiemgauer as a payment method. Consequently the currency will stay within its region, because places which will accept it can only be found there.
This geographic restriction however unfolds effects which benefit the respective regions: The retention of buying power (Kaufkraftbindung) through the regionality results in local commissioning, which in that region enables turnover, boosts jobs and the regional economy.
Using the example of the Baker, this idea should become more clear.
If you imagine that you go and buy your bread rolls with Euros, then the baker is completely free concerning the usage of his revenues. He can use these to buy supplies like machinery, flour, other baking ingredients or energy from all over Europe.
However if regional money is used for the purchase of the bread rolls, then the baker will be in a situation to re-think the composition of his suppliers.
From where does he obtain his supplies?
Are there regional suppliers to be found among his business partners who can accept the regional currency, or does it make sense to find new regional suppliers for some of the products and services he needs to buy?
Let us now imagine that in future the baker obtains flour from a regional miller, then the miller will also be in a situation to re-think the composition of his suppliers. He might in future obtain wheat from a regional farmer, or energy from regional energy producers, or give assignments to regional craftsmen.
In any case, regional currencies make sure that at each level from the producer to the retailer, every participant of the economy reflects on his shopping behaviour and adapts if appropriate to do so – with the effect of boosting regional economic cycles and an increase in local commissioning, which in turn has an effect on the turnover of the businesses and the creation of jobs.
Flowing from one participant of an economy to the next, currencies form a network of business relations. Regional currencies form regional networks in addition to the already established networks like the Euro or the pound, by strengthening the already existing regional business relations as well as creating new ones. Thereby it is quite likely that gaps within the regional chain of production can be discovered and filled by new foundations or the extension of existing local businesses. This strengthens the regional economic structure and enables even the structurally weak regions to build new structures and to set the trend to overcome their weakness.
Hence, the adoption of regional currencies results in:
boosting of regional products and services
shortening of transport routes and thus protecting the environment
the production moving closer toward consumption, which is relevant to the questions: How are the products we buy being produced?
What are the conditions of work and production like?
The production process is easier to observe if it is taking place in geographic proximity than if products are manufactured on the other side of the planet.
Regional money expands the world of currencies. What you see here is basically the world of currencies as we currently know it: Dollar, Euro, Japanese Yen, Rouble, British Pound etc.
Regional money complements this level by a further level, at which currency systems which are intended for a smaller scale lead to a restructuring of the economic architecture, due to an increased establishment of local economic networks and circuits.
Consequently, these levels should be complemented by yet another level: a global currency, which can be used for the global exchange of goods.
The result would be the creation of a multi-layered system of currencies, in which currencies would be developed and employed according to the area and purpose at which they were aimed: Local currencies for local economic activity, continental currencies for the exchange of goods and services between different regions of a continent, as well as a global currency for global trade.
A redundantly constructed, multi-layered currency system ought to be more stable than the present monoculture of currencies.
Regional money is an instrument for sustainable local development, not only in the industrialized countries but also in the developing areas of the planet. It affects various aspects of the economy and of life within a society.
As an instrument for economic growth it can be used as an incentive system for building up local economic structures.
As a new kind of funding tool it can help to finance regional projects, especially when conventional means of financing fail, as is often the case in times of economic crises.
The marketing aspect becomes clear when you look at the fact that several regional money initiatives use the flip side of their regional bank notes for advertisements from the participating companies. This is advertisement which surely nobody will throw away, which moves from one hand to another and hence is guaranteed to reach a regional target group with buying power.
Discussions about a regional identity unfold over questions about how big the optimal currency area for a regional currency should be and which name the currency shall bear.
In this era of global structures, the question “who are we and where do we feel we belong to?” becomes more and more important.
Moreover, regional currencies bear a powerful educational aspect, as the seemingly out-of-time approach of small-scale currency and economic systems raises questions like:
How does money actually work?
How does it come into the world?
Are yet different kinds of money imaginable?
In what kind of region do I live and what does the economy here look like? How do value-adding production chains work and how do regional economic cycles form? How do we want to perform our economic activities in the future?