Complementary Currencies and How They Work

In some areas, the local residents have essentially invented currencies instead of using the traditionally accepted currency when paying for local goods and services. These substitute currencies are referred to complementary currencies. Let’s see what they can and can’t do.

What’s the Point?

Complementary currencies can fulfill one or more of the following purposes:

* The promotion of the local economy. The money can only be spent locally with local businesses.

* To meet needs that the normal currency does not. For example, perhaps the local currency is easier for members of the community to obtain. So paying for their goods with the complementary currency is more beneficial for their personal finances.

* To foster social capital. It can help to bring a community together.

* To support a more sustainable lifestyle. Supporting local produce and other local goods means little transportation and corresponding fuel consumption.

Keep in mind that complementary currencies are not legal tender. Legal tender must be accepted to satisfy a debt. So no one has to accept a complementary currency as payment; they can refuse.

How Does It Work?

Complementary currencies can be tied to the normal currency, so 1 XYZ can equal $1, but that doesn’t have to be the case.

The new currency might not look like the normal currency, either, but regardless of how it relates to regular currency, businesses and individuals must count these earnings as income for tax purposes. Like regular currencies, complementary currencies also have counterfeit measures in place.

People can earn and spend this currency, but it can only be used in certain locations. National firms or retailers won’t accept it. And even some local businesses might only accept it as partial payment; the remainder of the cost might have to be paid for with U.S. dollars. These businesses often have to pay suppliers that don’t accept the complementary currency.

A complementary currency helps the local economy, since it encourages people to spend their money with local businesses and keeps the money in the community because it has no value anywhere else.

It also supports the environment, since local goods don’t have to be transported for long distances, thus reducing the carbon footprint.

Where Can You Find Complementary Currencies at Work?

There are a few great examples in the United States. One of these is called Berkshares. BerkShares are a complementary currency widely accepted in the Berkshire region of Massachusetts. It’s pegged to the U.S. dollar and residents can ‘buy’ a Berkshare for $0.95. This effectively gives the user a 5% discount on everything purchased with a Berkshare.

You can also find these currencies in Canada and England:

* For example, Toronto dollars are used in parts of Toronto and are pegged to the Canadian dollar. The exchange rate is 1:1, but businesses only get to keep 90% of the money they receive from customers. The other 10% is applied to grants that support the community.

* Lewes pounds are accepted in Lewes, East Sussex and are backed by the British pound. The exchange rate is 0.95 Lewes pound to 1 British pound. The other 5% is applied to the community.

As with anything else, there are proponents and detractors. Some state that a complementary currency is great for the local community, while others don’t believe it’s worth the hassle or even fundamentally right from a pure economic perspective.

Not all businesses agree to participate, and it can potentially keep national chain businesses away (some consider this to be a good thing). So keeping the money within the community has the potential to both hurt and help.

While it’s easily to argue whether real social and economic benefits exist, complementary currencies are here to stay.