I recall going to the currency museum in the Bank of Canada in Ottawa three years back.
It was a fascinating place (I spent several hours there). One of the key discoveries I made while there was the sheer variety of money in use in Canada prior to 1935.
In fact, going into the twentieth century, money wasn’t issued by the government, other than coinage. It was issued by banks and companies (Molson’s Brewery, various railways and others issued currency, as did the banks of the day).
Money was more local — and competitive. A dollar wasn’t necessarily a dollar: if the (say) Canadian Western Bank issued a $1 note, and the Bank of Montreal did likewise, it was likely that the CWB $1 was accepted in Montréal at 95-96¢, the western bank being seen as “potentially less solvent”.
Through the 1900s, 1910s, 1920s and into the 1930s the Government of Canada wanted to be in the money game. $1 and $2 notes being offered by private organizations, it issued $3 and $4 notes. These had to compete for usage (although they were seldom discounted).
Come 1935, the decision to create the Bank of Canada and have a single national currency was made.
Similar moves occurred in the United States, leading up to the Federal Reserve Notes starting in 1913.
Since then, we’ve been used to something Europeans had had for centuries: government-issued money.
Also, since then, most money has not faced discounting within a country. (Between countries, it’s known as an exchange rate.)
Yet, with the rise of national currency, came another issue: it became easier to shift money away from your community to elsewhere.
Money, after all, was “made round to go ’round”: when receipts and profits, for instance, are sent to another community they’re not available to work in the economy of the community they came from.
Local, independent monies had done that. It didn’t matter to an Indianan in Jasper County that a New York bank thought his local dollar was worth only 78¢, unless he went to New York — or was paying for something to be “imported” to his county.
We don’t think of commerce between towns and across state or provincial lines as “importation” but, in fact, it is. Indeed, customs posts used to exist between the counties of England, or towns in France. German unification came on the back of the Zollverein: a customs union.
As Jane Jacobs pointed out, local economies — a city/town and its region — grow because it engages in import substitution. It stops sending its money elsewhere to get goods, and starts making them locally. Once this happens, the value of the local currency relative to others is irrelevant — and the spending stays in the community, circulating and helping its growth.
One reason the Transition Towns movement generally tries to get local currencies re-established — the Brixton Pound, the Toronto dollar — in parallel with the existing national currency is to promote local business and local production. It’s a key part of making relocalisation work.
The twentieth and twenty-first centuries have put a premium on scale. The local should become the regional, the regional the provincial, the provincial the national and the national the global. Each move up the chain has impoverished the level being left behind — not only is there less in the community, but the economies of scale and arbitrage between regions have traded the welfare of the many for the welfare of the few.
Good management or bad, ownership in country or not, it makes no difference. Wealth concentrates and communities die.
Local currency reverses this.
Global chains hate the concept. What was the Euro but an attempt to replace local currencies at the nation-state level with one for the entire European Union. That there is no set of interest rate policies, or monetary policies, that would have worked across countries with radically different economies was irrelevant: the corporations didn’t want to have to risk the value of one currency rising or falling relative to the others, and their books across all their subsidiaries were much easier kept in one measure.
However, if history is any guide, government monies do fail. They fail because the governments fall — they fail because debts are inflated out of existence — they fail because one day people just up and decide “I’m not accepting that any more”. (This is why precious metals like gold and silver keep reappearing as “money” all through history: the issuer of a coin may no longer be around, but the metal value can still be assayed and valued in terms of spending power. Dead paper is just dead paper: the coins of a dead system still have their place. Well, at least ones that are worth something.)
If people suddenly decided that the $100 with Benjamin Franklin was unwelcome, it wouldn’t just signal the fall of the US dollar: it would trigger the fall of global corporations.
Local currency should be encouraged. It better reflects the rise and fall of regions. It better suits the ongoing economic needs of communities.