Posted by Mike Smith :: January 21, 2009 @ 6:17 am

During difficult financial times, people look to get more for their money. Some take that effort so far as to consider forgoing the use of traditional currency at all.

The Chicago Tribune recently reported that some Milwaukee neighborhoods were considering issuing local currency. The local money could be offered at a discount and would only be accepted by local merchants. This system is hoped to strengthen local businesses and thus the local economy. Whether consumers could get better deals using discounted local money at local stores or using regular dollars at national discount retailers remains to be seen.

Local currencies basically help to increase liquidity for what amounts to a bartering of goods and services. The trouble with traditional bartering systems is two-fold: first, it may be difficult to quantify one service in terms of the value of another. Second, it’s unlikely that you’ll be able to find someone who has what you need and also needs what you have. To solve both of these problems, many bartering systems use some form of credits for buying and selling. The local dentist gets credits for services performed on the townspeople that he can then use at other local merchants. Whether it’s credits, local currency, or the US Dollar, all serve the traditional purposes of money: providing a store of value, widespread acceptance, and a medium of exchange.

There may very well be a more efficient solution to the economic needs of society than to use a federally issued currency like the US Dollar. Whether needs are more local or more global, situations often warrant alternative solutions. The proposed local currency in Milwaukee is by no means the first such experiment and will certainly not be the last.

What are your experiences with alternative forms of currency, whether local, bartering, or other?