Tools for plugging the Leaks

The new economics foundation (nef) coined the concept of the ‘leaky bucket’. Our local economy is like a bucket full of holes.

Money flows in from salaries, grants, pensions and other sources, but much pours out again each time we pay a distant utility company, shop in a supermarket or chain store, invest in foreign banks or favour imported goods over local ones.

Our money’s potential to generate economic activity and create employment at the local level is lost.

However, as nef points out, every outflow of money is a potential enterprise opportunity. If Transition is to revitalise local economies, we need to develop strategies and models that support and strengthen them. But what is so important about local businesses? As nef puts it:

“Local enterprises are more likely to employ local people, provide services to improve the local quality of life, spend money locally and so circulate wealth in the community, promote community cohesion and, by reducing transportation of goods from across communities, are likely to have a smaller environmental footprint.”

Another reason is the ‘multiplier effect’: supporting local businesses puts life into the local economy. Research[i] has shown that £10 spent with a local grower circulated two-and-a-half times locally, being worth £25 to the local economy. The same money spent in a supermarket left the community much quicker, with a local multiplier of just 1.4, being worth just £14. Transition initiatives look at encouraging the multiplier effect in a range of ways, described below.

Local currencies

As Peter North puts it in Local Money,[ii]

“local currency models are still in their infancy, more like Wright’s biplane than a Boeing 747”.

Transition groups have experimented with local currencies, generating valuable experience and knowledge. The Transition experiments have learned much from previous attempts at local currencies, such as Ithaca Hours and the currencies that emerged during the economic collapse in Argentina.[iii]

The idea is straightforward. A printed currency that can only be spent in a given community can circulate only locally. It cannot leak away. The first Transition local currency experiment, the Totnes Pound, was a limited issue of 300 £1 notes, accepted in 18 local shops. The second issue was made available at a 5-per-cent discount, so that 95p sterling bought one Totnes Pound, creating a 5-per-cent subsidy for supporting local businesses. The current issue of the Totnes Pound is a straight one-for-one exchange, accepted in over 80 businesses. 

This inspired other places to develop more sophisticated schemes.

The Lewes Pound was initially issued just as £1 notes, generating an unprecedented demand from currency collectors worldwide: three days after launching, the first printing had sold out and notes sold on eBay for up to £50! The Lewes Pound was expanded to include a £5, £10 and a £21 note(!), and I still consider them the most beautiful bank notes I have seen. Over 150 traders accept it and the scheme has a part-time project coordinator. 

The London Borough of Brixton launched the Brixton Pound, an experiment for the area. The faces on the notes were chosen through a ‘Vote for the Note’ poll, and featured figures with historical links to the area.

Lambeth Council funded the design and printing of the notes, and the council’s CEO told the launch

“I want this to become the currency of choice for Brixton”.

The Stroud Pound was organised by the Stroud Pound Co-operative to ensure control by the community (people who aren’t members can still use the currency, picking them up in change). It required a small charge every six months for them to retain their value, as an incentive for their circulation.

The Hawick Pound in Scotland was a smaller scheme that issued just a £1 note. As with all these schemes, it generated a lot of media coverage. 

Peter North argues that local currencies appear to work well among ‘green’ and ‘lifestyle’ businesses, where alternative-minded customers accept them in their change.

For Molly Scott Cato,[iv] one of the originators of the Stroud Pound,

“making people believe that change is possible is the first step towards change. Local currencies do that like nothing else”.

North notes that all Transition currencies so far focus on consumption; none has yet influenced local production of local goods for local consumption.

Transition currencies, he argues, need to start

“moving from being a means of circulation between existing local businesses to tools for building greater local resilience by stimulating new local production”.

For Cato, while local currencies have not stimulated local production, they are

“a fantastic educational tool because they demonstrate this weakness with local supply (and therefore lack of resilience) so clearly”.

For her, the next step is for local currencies to partner local food production.

Backing local currencies with something tangible, such as food, or Shann Turnbull’s idea of energy-backed currencies, such as ‘Kilowatt Dollars’,[v] could help develop these currencies.

Another important consideration is that so few people regularly use cash in their daily transactions. We increasingly favour cards and electronic transfers of money – forms of exchange that reduce a community’s financial control. Transition Network and nef are developing an electronic currency system; at the time of writing being piloted in Bristol and Lambeth, London.

Time banks

Time banks are a exchange system using time as the unit of exchange. With time banks, everyone’s time is worth the same, whatever their work. People help each other and claim return favours when needed. Transactions can take place between individuals, organisations or agencies. Time banks have a good track record; they are straightforward and can be especially useful for disadvantaged communities.

LETS

Peter North describes LETS (Local Exchange Trading Systems) as being “really just a network of people who agree to share their skills with each other by means of a local currency that they have created and agree to use”. Members list the skills they offer and the services they would like, and these are compiled into a directory. Members are then encouraged to trade with each other, with LETS units exchanging hands as cheques or electronically. One more recent experimental evolution of LETS is the Lewes SwopShop,[vi] where members trade goods and services online.

Transition Chichester in early 2011 launched the Tchi, which is an interesting hybrid between a printed currency and a LETS scheme. The value of a Tchi is equal to an hour’s work, and it can only be used by people who are members of the scheme. Then, as in a LETS scheme, members can trade with anyone else who offers services through the scheme’s extensive directory. The notes are, at present, only in 1 Tchi denominations, and feature a picture of local hero William Morris and his quote “All that lives, lives not alone, nor for itself.”[vii]

Local procurement

One of the key ways to plug ‘leaks’ is by local procurement of goods and services. Hospitals and local authorities have large budgets and could have a major local economic impact. The UK public sector spends £1.8bn a year on meals, around 7 per cent of the entire UK catering market. EU legislation sees specifying local produce as ‘anti-competitive’. However, there are ways around this. Many cases can be justified under broader environmental policies, such as designing into tenders clauses that specify

• fresh ingredients (tends to promote locality, as distance and transport time reduce quality)
• demanding food in season
• favourable service criteria such as fresh food, minimal packaging and organic food.[viii]

Transition initiatives could help their local schools or hospitals to procure locally.

The Soil Association’s ‘Food for Life’ programme[ix] can be very helpful with this. As Kevin Morgan and Adrian Morley of Cardiff University point out,[x] procurement, if done well, is about stimulating demand for local produce and services. What is also needed is the developing of the supply to meet that demand. If done skilfully, good procurement can be vital to local economic regeneration.

Other approaches

Creating new financial institutions can be attractive to some Initiatives. Credit unions are easier to set up than new community banks, for which UK regulations are onerous. Local banks (six municipal banks still exist in Scotland) or credit unions will help plug the economic leaks of your community. There is plenty of scope for new models once the principle of maximising the number of local transactions is established.  

Peter North has speculated on how these various tools might hang together.

“We can see a LETS system or time bank being used for local production and exchange of things we can produce at home or in a local community – helping each other out; sharing food grown on allotments; renovating each other’s houses. More complex goods would be produced by local businesses, perhaps using a local or regional scrip at a national level . . . or a business-to-business exchange. More local production could be developed using local currency loans, or through a local bank or financial vehicle. Special-purpose currencies could finance local food production and Community Supported Agriculture, and local power generation. Local bonds could finance a major renovation or our housing stock and a new green infrastructure to replace our out-of-date Victorian infrastructure.” [xi]

Transition in Action: the Bristol Pound

by Mark Burton

In Bristol we are working to launch a currency across the whole city region. Following an extensive design and consultation period, here is what the project looks like at the time of writing. Like the pioneering Transition currencies, the Bristol Pound will be fully backed by, and exchangeable with, sterling. But it will be different in three important ways:

First, and most exciting, is that Bristol Pounds will be used electronically, with mobile phones as the payment device. There will be notes of several denominations, as important symbols of community values and identity, but most face-to-face transactions will take place electronically. A shopper will send an SMS text containing payment information and the trader will receive a confirmation text to say the funds have been received. It’s as simple as that! Both texts will contain security checks and the transaction will be as convenient as conventional card payments. Transactions will also be possible over the internet. Incorporating electronic payment systems gives a number of benefits:

• It makes the currency far more convenient and usable.
• Use of the currency can be easily monitored.
• Certain behaviours can be rewarded and incentives incorporated. In Bristol, users will be rewarded in proportion to how much they use Bristol Pounds.
• Crucially, it allows an income stream, meaning the currency can become financially sustainable. In Bristol a small transaction fee will be deducted equivalent to established card payment fees.

Beyond these pilots it will be available to all communities setting up a local currency, and the platform will have flexibility, able to run different currency models and rules tailored to the needs of each particular community.

Second, the Bristol Pound is being developed with involvement from key institutions in Bristol. The accounts will be run by Bristol Credit Union – an established, well trusted and regulated local financial institution. This builds on current local financial expertise. Bristol City Council is working on ways it can accept and spend the currency. How the currency develops will be up to the people of Bristol.

Third, the currency will ultimately operate over a region covering a population of more than a million people. This scale of operation includes a large and diverse business community, increasing the ways for the currency to circulate. It will also allow sufficient use of Bristol Pounds for the system to become financially sustainable. 

We believe that we have the ingredients to achieve high participation levels for the currency in the short term. In the longer term, having an established local currency infrastructure provides the means to better adapt to changing global dynamics and to the changing needs of Bristol.

For more information see www.bristolpound.org

Tool written with input from Molly Scott Cato and Peter North