The UK is sliding deeper in to recession and it is becoming clear that the Government’s strategy of ploughing billions’ of pounds of tax-payers money in to rescuing the banks is not working. And as the UK’s debt increases, sterling’s volatility increases, with a recent recovery still leaving it historically weak against the pound and the Euro.
The Conservative’s solution to the sterling problem is for the government to commit to a more ‘fiscally responsible’ strategy, aka reductions in spending (and thus debt), to try and boost the confidence of investors. That’s not much use to the predicted 3 million people who will be facing unemployment by the end of the year. Will Hutton’s solution is to keep pumping money in to the economy whilst also joining the Euro, a currency big enough to mimic the dollar as a reserve currency and hence less likely to be subject to damaging currency speculation.
But abandoing the pound will weaken further the UK government’s control over monetary policy, as nef argued back in 2003 when the UK was last considering Euro-membership. Interest rates will be set by the European Central Bank and reflect the interests of the biggest economies in the Euro Zone, of which the UK is just one (and a shrinking one) amongst many.
Perhaps, instead, we should be considering diversifying rather than centralising our currency system. There are some parallels with the banks here. We now have four major banks, all of which have become ‘too big to fail’ as opposed to the rich patchwork of credit unions and building societies that were actually connected to and interested in local and regional economies. Maybe we also need to re-link our money system and currencies to local and regional economies, so that if the national (or even international) currency collapses, others will continue to enable people to conduct economic exchange.
This is exactly what happened in Argentina in 2000 when the government was forced to massively devalue the Peso, previously pegged at 1:1 with the dollar. As the national currency became virtually worthless in the space of a few weeks, municipal authorities across the country began issuing regional currencies to keep teachers and nurses and public sector workers in their jobs. Similarly, during the great depression in the US over 4000 local currencies had sprung up around the country before they were abolished by Roosevelt’s New Deal program.
Complementary currencies do not displace national currencies but serve different, but no less important functions. They encourage people to spend more money locally, thus supporting local independent businesses, as with the Transition Network ‘local pound’ currencies, pegged one to one with sterling, currently circulating in Lewes in Sussex and Totnes in Devon. Such currencies should also stimulate local production of goods and make local food growing more appealing for example, thus reducing carbon emissions and shortening supply chains. The Swiss WIR, one of the few complementary currencies that wasn’t squashed by Central Banks post-depression, has been circulating in Switzerland since the 1930s and is now used by 62,000 small and medium sized enterprises. A recent academic study showed that it is ‘counter-cyclical’ – i.e. that it is used more when the economy slows.
And, as George Monbiot and The Economist have recently pointed out, there is no reason why money should only be created as interest-bearing debt by private banks. Complementary currencies can also carry a cost in holding on to them which would encourage people to spend money in to the economy rather than hoarding it. Experiments in Switzerland and Germany point to the potential of such ‘free money’ in stimulating economies at times of recession and depression.
More research is needed to better understand the potential of complementary currencies and what optimal currency zones might look like in order to create a more sustainable and resilient monetary system. But, as nef argued in From the Ashes of the Crash, government and local authorities should encourage experiments in complementary currency systems and move beyond the ‘one size fits all’ approach that doesn’t work for banks and doesn’t work for currencies.