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. Brick And Mortar

    A traditional "street-side" business that deals with its customers ...
  2. Local Tax

    A tax assessed and levied by a local authority such as a county ...
  3. Big Box Retailer

    A retail store that occupies an enormous amount of physical space ...
  4. Inconvertible Currency

    A situation where one currency cannot be exchanged for another ...
  5. Base Currency

    The first currency quoted in a currency pair on forex. It is ...
  6. Operating Cost

    Expenses associated with administering a business on a day to ...
RELATED FAQS
  1. How does transfer pricing help business?

    Transfer pricing involves the trade of goods or services between two related companies, and both can come out the winner. ... Read Full Answer >>
  2. How do I calculate my effective tax rate using Excel?

    Your effective tax rate can be calculated using Microsoft Excel through a few standard functions and an accurate breakdown ... Read Full Answer >>
  3. How important are contingent liabilities in an audit?

    Contingent liabilities, when present, are very important audit items because they normally represent risks that are easily ... Read Full Answer >>
  4. How does quantifying fixed overhead volume variance show whether a company is profitable ...

    Fixed overhead volume cannot definitively prove a company is profitable, but it can be used to provide an excellent indication ... Read Full Answer >>
  5. What does inventory turnover tell an investor about a company?

    The inventory turnover ratio determines the number of times a company's inventory is sold and replaced over a certain period. ... Read Full Answer >>
  6. What is a deferred tax liability?

    A deferred tax liability is an account that is listed on a company's balance sheet and occurs when its taxable income is ... Read Full Answer >>
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. Investing Basics

    Explaining Write-Downs

    A write-down is a reduction in the book value of an asset because it is overvalued compared to the market value.
  5. Economics

    What are Noncurrent Assets?

    Noncurrent assets are property that a company owns that will last for more than one year.
  6. Economics

    Volatility In The Yen Has Brought On Big Changes

    There's a difference between translation effects and the real effects that FX swings bring. We look at the difference, and how it's changing Japan.
  7. Forex Education

    How To Lock In An Exchange Rate

    Currency risk can be effectively hedged by locking in an exchange rate through the use of currency futures, forwards, options, or exchange-traded funds.
  8. Investing Basics

    How Much Do CPAs Make?

    If you're considering becoming a CPA, here's what you might expect to earn.
  9. Forex

    The Gold Standard Versus Fiat Currency

    What do "gold standard" and "fiat system" mean for currencies and economies? Investopedia explores the history of the gold standard and the rise of fiat.
  10. Economics

    Explaining Activity-Based Costing

    Activity-based costing (ABC) is a managerial accounting method that assigns certain indirect costs to the products incurring the bulk of those costs.

You May Also Like

Hot Definitions
  1. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  2. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  5. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  6. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
Trading Center