What is 'Fiscal Localism'

Fiscal localism refers to an institutionalized monetary exchange that is focused on local and regional aspects. It can refer to buying locally or the use of local currencies. In addition to the idea of buying locally to support the local economy, fiscal localism can also include the use of a localized currency. A community may be able to better gauge its true economic performance by using a local currency, as economic factors such as inflation and interest rates tend to be a national metric.

BREAKING DOWN 'Fiscal Localism'

Fiscal localism in its most basic and easily recognizable form would be the idea of buying locally. Advocates of the practice believe that fiscal localism allows communities to grow organically and more efficiently, as local merchants and consumers work together to further their resident economy.

The United Kingdom’s recent referendum and decision to leave the European Union and the Eurozone can also be seen as an example of a push toward fiscal localism.

Fiscal localism is sometimes seen in the creation of Local Exchange Trading Systems (LETS), which are locally organized economic organizations where members exchange goods and services with each other and use a locally created currency with which they barter and trade for goods or services.

LETS groups generally have about 100 to 150 members and have a few basic guidelines that they follow such as membership fees and logs of transactions. LETS do not require an exchange of currency or monetary units. For example, one member can pay for a service by performing a service in return.

Examples of Fiscal Localism and Local Currencies

One of the biggest examples of fiscal localism is the adoption of local currencies by communities to promote and support patronage of local businesses. This has been seen both in the United States and overseas. One such example is in Brixton, a neighborhood in South London where residents in 2009 began to use a local currency of Brixton Pounds to make purchases at local businesses. Similarly, in Germany, as recently as in 2010, there were several local currencies in circulation such as the Augusta and the Havelbluete.

In the United States, local currencies were mostly outlawed by Congress. However, some communities, in an effort to adopt fiscal localism and support the local economy, have attempted to issue and use local currencies, even if the government does not back their use. One such example is the Ithaca HOUR, which is a currency that is issued and used in Ithaca, New York. It is one of the oldest local currencies which aims to support local businesses and keep money from leaving the local economy. The value of 1 HOUR is pegged at $10. In the 1990s, hundreds of businesses in the community pledged to accept the currency. In fact, dozens of communities across the country adopted Ithaca's lead and attempted to introduce similar, local currencies.

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