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Local Currencies Emerging in U.S. Towns as Economic Downturn Lingers

An idea popular during the Great Depression appears to be growing in popularity again today as the effects of the financial crisis continue: local currencies.

Downtowndollars-20-Spot The American Banker reports that in May 2010, people lined up around the block in Ardmore, Penn., to purchase "Downtown Dollars."  Downtown Dollars are offered at a two-to-one exchange rate with the dollar, allowing consumers to instantly receive a 50 percent discount on purchases at participating merchants in Ardmore. Merchants then get the full value of the purchase when they exchange the Downtown Dollars for U.S. dollars.

According to the American Banker, local currencies are perfectly legal and have gone in and out of vogue for decades. Today, more than 200 such currency systems are operated in the U.S., operating in different ways: "Some systems use community banks as conduits to exchange dollars for the local currencies and the reverse; in other programs, banks and credit unions let customers pay a portion of loans and fees with the local money. Still others don't involve banks at all." Large cities such as Detroit and Brooklyn, New York are now reportedly planning local currencies, as well.

While the Downtown Dollars initiative has been a success, other local currencies seem to be losing steam. Steven Kyle, a professor at Cornell University in Ithaca, N.Y., says the long-running local currency system known as "Ithaca Hours" does not appear to be thriving. Indeed, he says that in his 25 years in Ithaca, he's never seen an "Ithaca Hour" actually used. "Nobody only uses Ithaca Hours," he said. "To the extent that you do, you are basically limiting your options to spend that money that you have. It is, to some extent, a disincentive."

Posted by Bruce Carton on July 21, 2010 at 01:01 PM | Permalink | Comments (2)


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