Tuesday, April 7, 2009

Communities Printing Their Own Cash

From an article in USA Today,
"The systems generally work like this: Businesses and individuals form a network to print currency. Shoppers buy it at a discount — say, 95 cents for $1 value — and spend the full value at stores that accept the currency.

Workers with dwindling wages are paying for groceries, yoga classes and fuel with Detroit Cheers, Ithaca Hours in New York, Plenty in North Carolina or BerkShares in Massachusetts."
You read that correctly, they are printing money. They assign it an abritrary value and then they print it. This system is far worse than our national currency, which at least at one point in time was pegged to a real asset.
"Ed Collom, a University of Southern Maine sociologist who has studied local currencies, says they encourage people to buy locally. Merchants, hurting because customers have cut back on spending, benefit as consumers spend the local cash."
But is Mr. Collom aware as to why people are encouraged to spend? Local currencies are doomed from the start. Since local currency is worthless everywhere else, there is no incentive in holding on to it. Whoever is a recipient of a local currency would want to convert it to something that has value everywhere. Thus, no one would really want to hold a local currency. Hyperinflation of that currency will be the only outcome.
"Pittsboro, N.C., is reviving the Plenty, a defunct local currency created in 2002. It is being printed in denominations of $1, $5, $20 and $50. A local bank will exchange $9 for $10 worth of Plenty."We're a wiped-out small town in America," says Lyle Estill, president of Piedmont Biofuels, which accepts the Plenty. "This will strengthen the local economy. ... The nice thing about the Plenty is that it can't leave here." "
Apparently they did not learn their lesson the first time. On the bright side, local currencies will hyperinflate out of existence before they can cause real damage like our current currency is doing. How long will that $0.95 cents on the dollar last? My guess is not long, after all, there will be 'Plenty' more where they came from.

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