Community Currency

AAA

DEFINITION of 'Community Currency'

A form of paper scrip issued at the county, town or community level for use at local participating businesses. The theory behind community currencies is to encourage spending at local businesses as opposed to chain or "big box" stores. Local residents can exchange dollars for community currencies at local bank branches that participate in the program, usually at a discount to encourage their use; for example, $0.90 buys $1 of community currency.

Business owners who accept community currencies may have to create separate accounting methods to deal with different taxation guidelines, but this is considered an acceptable tradeoff for increased business from local customers.

INVESTOPEDIA EXPLAINS 'Community Currency'

Most attempts at creating "local dollars" fall through because they fail to achieve a critical mass of issuance and acceptance by businesses. Their success is generally in their ability to gain widespread use - the towns that have run successful programs have hundreds of small businesses that agree to accept the currency. While business owners may lose money on some purchases due to currency discounts, they find that customers tend to give them more repeat business. The effect has been to save some companies from shutting their doors, and maybe even stall the growth of big box retailers such as Wal-Mart and Best Buy.

Studies have shown that communities who try this program are able to keep more money circulating in the local economy, whereas money spent at big box stores is much more likely to leave the area altogether. Community currencies, if run with strong leadership, can also instill a sense of community pride that further aids in supporting small business efforts.

RELATED TERMS
  1. Local Tax

    A tax assessed and levied by a local authority such as a county ...
  2. Brick And Mortar

    A traditional "street-side" business that deals with its customers ...
  3. Base Currency

    The first currency quoted in a currency pair on forex. It is ...
  4. Inconvertible Currency

    A situation where one currency cannot be exchanged for another ...
  5. Big Box Retailer

    A retail store that occupies an enormous amount of physical space ...
  6. Accident Year Experience

    Premiums earned and losses incurred during a specific period ...
Related Articles
  1. Forex Education

    Top 7 Questions About Currency Trading Answered

    Whether you're puzzled by pips or curious about carry trades, your queries are answered here.
  2. Forex Education

    Dollarization Explained

    Find out how fledgling economies can find some stability in their currency and attract foreign investment.
  3. Forex Education

    The History Of Money: From Barter To Banknotes

    Money has been a part of human history for at least 3,000 years. Learn how it evolved.
  4. Delivery duty paid (DDP) is a shipping term.
    Investing

    What does DDP Mean?

    Delivery duty paid (DDP) is a shipping term specifying that the seller is responsible for all costs associated with delivery of the goods to the buyer. It is usually used when goods are exported ...
  5. Active Trading Fundamentals

    What is liquidity risk?

    Learn how to distinguish between the two broad types of financial liquidity risk: funding liquidity risk and market liquidity risk.
  6. Technical Indicators

    What is a good gearing ratio?

    Understand the meaning of the gearing ratio, how it is calculated, the definition of high and low gearing, and how they reflect relative financial stability.
  7. Fundamental Analysis

    What is a good interest coverage ratio?

    Learn the importance of the interest coverage ratio, one of the primary debt ratios analysts use to evaluate a company's financial health.
  8. Fundamental Analysis

    What is a bad interest coverage ratio?

    Understand how interest coverage ratio is calculated and what it signifies, and learn what market analysts consider to be an unacceptably low coverage ratio.
  9. Investing Basics

    What is considered to be a bad gearing ratio?

    Understand the basics of gearing, including the net gearing ratio, what constitutes a bad gearing ratio and how this figure reflects financial stability.
  10. Active Trading Fundamentals

    What does the gearing ratio say about risk?

    Find out why lenders and investors pay close attention to a firm's gearing ratios, and why both too much and too little borrowing can be risky.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center