What is Community Currency

Community currency is 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. 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.

BREAKING DOWN 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.

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.

Regional and local policymakers often find themselves toeing the line on encouraging small business and a community atmosphere while keeping their national retailers happy. Common big box stores such as Wal-Mart, Home Depot and the like often offer needed employment options and sales tax revenues. So it becomes difficult to balance economic growth initiatives that promote small business-friendly policies with tax incentives for national chains.