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Could a local jobs guarantee be funded by a local currency?

Heather's picture

The town of Volos, Greece recently introduced the local currency TEM . I wonder if a local currency like that could be introduced in a US town and whether it could fund a jobs guarantee. I think of Philip Pilkington's description of a community controlled jobs guarrantee program:

The national government could set budget constraints for the local governments based on either a per capita basis or in relation to local unemployment rates. The local governments could then channel funds to already existing organisations – such as NGOs, grassroots community groups or charities – who could in turn use the funds to start up much needed projects and employ workers. If these organisations sought to expand their operations and required additional management staff they could then apply to the local government for an increase in funding. Local governments could also encourage the unemployed to form new organisations.

He also mentions that this sort of jobs guarantee has already occured in Argentina through the Jefes program.
I think about whether a local jobs guarantee funded by a local currency could be eventually pushed through here where I live in Berkeley since people tend to be a little more liberal and have had a time based local currency (BREAD). But sadly, the Berkeley Youth Alternatives garden program, a program providing minimum wages jobs with mentoring, exactly the sort of program that a Jobs Guarantee would provide jobs through, recently closed.
Maybe there is a huge amount of groundwork that needs to be done first in terms of highlighting how backward priorities are and then shifting them.

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Salmo's picture
Submitted by Salmo on

Here's a link to a local currency: http://www.greenbusinessnetwork.org/dail.... The idea is to create a currency that circulates locally, thus insuring that the multiplier effect is locally focused. There seems to be some success but my cousin who lives there (and who is otherwise a very down to earth, caring guy), has no use for them. That was a disappointment; I like the idea. While that sort of local currency is not directly a guaranteed jobs program, the practical limits of such a currency should necessarily create one.

letsgetitdone's picture
Submitted by letsgetitdone on

lies in 1) the Government's requirement that it be used to pay taxes; or 2) at least the Government's willingness to accept it in payment of taxes.

The local Government cannot require that taxes be paid using a local fiat currency, because the national currency is legal tender for all debts public or private. And while the local Government could agree to accept local currency it issued in payment of local taxes if a person wanted to use that currency, why would people accept the local currency in the first place since they can't use it for as many things as they can use US currency.

Also, if local governments cold persuade some people to accept locally issued currency in return for goods and services the local government wanted to buy, then that government would be obligated to accept that currency in payment of taxes, thus resulting in a reduction of its own tax revenues, which it might well need to by goods and services from people who won't accept its currency.

In short, I don't think a local currency would be viable.

Heather's picture
Submitted by Heather on

In this article several local currencies sound as though they worked:
1) WIR in Switzerland
2) bus token in Curitiba
3)Wara in Schwanenkirchen

So, maybe the being the only currency accepted for something such as taxes is not that important.

Agree that the local government may have less tax revenue in the main currency, but as long as the local government spending in the local currency had a positive net worth for the community, it would be worth it, wouldn't it? And the role of finance and local budget constraints would both be diminished.

letsgetitdone's picture
Submitted by letsgetitdone on

means. I think there's a direct trade-off between tax revenues and use of the local currency. So to the extent that tax revenues are needed to buy goods and services from outside a locality, one is just robbing Peter to pay Paul. In a national context, I don't think introducing a local fiat currency will do anything but make a locality more in need of Federal aid than ever.

I think the issue here comes down to having a sovereign fiat currency or not. If a locality is pretty self-sufficient, and can secede from a larger unit then having a currency of its own is essential. But otherwise, a local currency will just confuse the situation and make the locality more vulnerable to economic cycles.

Also I think it's hard to answer this question of impact in the abstract, but we can do much better than just exchanging pro and con considerations if we used simulation to estimate the effects of doing this.

Heather's picture
Submitted by Heather on

First by "worked" I mean accepted to the extent of being easily used and having a significantly large positive impact. The various time currencies here in the US probably wouldn't qualify as working, by that definition.
You bring up an interesting point about the self-sufficiency requirement for a fiat currency. Sovereign nations themselves are not entirely self-sufficient. They generally need to purchase goods from abroad such as raw materials. The US is an example. Couldn't the need for purchasing goods abroad more generally be used as an argument for a sovereign not taking MMT approach, but instead trying to maximize the value of their currency holdings against a foreign benchmark? How do you define "pretty self-sufficient"? Your concern as I understand it is that taxes function to collect needed revenue in the national currency and thus having a dual role of giving value to a local currency would interfere with that. But, doesn't my old point still hold-if the government purchase in local currency has a positive net value (considering future tax revenue lost) it would still be worth it? Couldn't you envision a local jobs guarantee program with a positive net value? I could imagine reductions in crime and health care costs while the value of the land is increased, for example. When there is large unemployment, the gains could be especially big.

As for simulation, since the end results are so dependent on the assumptions going in, my preference is to first look at relevant real life examples when they exist and try to understand them. In real life, local currencies seem to dampen the effect of economic cycles, it seems to me. Maybe a local currency accepted as tax revenue would be different..

Thanks for your thoughts, Let's get it done!

Salmo's picture
Submitted by Salmo on

Looking quickly through the web, I was surprised at the number of variations on the local currency idea presently operating in some fashion in the US. All of them seem to be aimed at a central problem: the export of profits to corporate headquarters leaves our towns and small cities much the poorer as a direct consequence of the various business models of our corporate culture. That impoverishing affect has accelerated in recent decades, but one need only look at the evidence of former prosperity in the relatively poor farming/small manufacturing villages here in Northern New England to see that it is anything but new. Erecting internal barriers to that sort of "trade" has shown it increases jobs in the participating area. The issue of whether or not local governments accept the local currency for payment of taxes seems to be a secondary consideration.

Submitted by lambert on

... that for those who pay no taxes (ie, those below the poverty level) there's no demand for a state currency?

Salmo's picture
Submitted by Salmo on

The poor pay more in state and local taxes than the rich as a percentage of their income. And, almost everybody pays one way or the other.

I wonder about how local government spending in a local currency would go over. The majority of my town's municipal and school budget is for salaries and wages, and a substantial additional amount is for local contractors. I would be willing to bet that this so common as to be reasonably considered a universal rule. In the most famous of the local currency examples I found (Wörgl experiment, http://en.wikipedia.org/wiki/Local_currency), those local government workers and contractors in aggregate were the principle beneficiaries of the local issue because they received wages, salaries, and contract payments when they would otherwise not. However, a currently employed individual might view an attempt to substitute the local currency for a national currency in her/his wages as not beneficial at all. Union negotiations around such a proposal would be lively indeed.