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.

RELATED TERMS
  1. Community Currency

    Community currency is a form of paper scrip issued at the county, ...
  2. Local

    Traders on future exchanges who may fill public orders occasionally, ...
  3. Private Currency

    A private currency is typically issued by a private firm or group ...
  4. Accounting Currency

    Accounting currency is the monetary unit used when recording ...
  5. Parallel Loan

    A parallel loan is a four-party agreement to where parent companies ...
  6. Reassessment

    A reassessment is a process through which a local government ...
Related Articles
  1. Trading

    Dollarization Explained

    Find out how fledgling economies can find some stability in their currency and attract foreign investment.
  2. Managing Wealth

    8 Ways To Donate Locally

    Donating locally is a great way to both support and get involved with your own community.
  3. Financial Advisor

    Targeting the Ideal Client for Your Practice

    Expand your definition of a lucrative client and uncover a new demographic for building your book of business.
  4. Small Business

    Financial Professionals: The Benefits Of Joining An Association

    Make a name for yourself among your industry peers by joining a professional association.
  5. Personal Finance

    25 Ways To Impress Your Date On A Dime

    If the recession has put a damper on your disposable income don't despair - it needn't take the fun out of your love life.
  6. Insights

    What Happens to the Economy If China Deleverages

    Attempts to deleverage and institute reforms that will foster more sustainable growth could exacerbate an already slowing Chinese economy.
  7. Trading

    6 top-traded currencies and why they're so popular

    Every currency has specific features that affect its underlying value and price movements in the forex market. Learn why these currencies are especially popular for trading.
  8. Insights

    Exploring the Current Account in the Balance of Payments

    Learn how a country's current account balance reflects the country's economic health.
  9. Trading

    Currency fluctuations: How they effect the economy

    Currency fluctuations are a natural outcome of the floating exchange rate system that is the norm for most major economies. Read on for what effects these changes can have.
  10. Trading

    U.S. Travelers: Book That Trip Abroad Now

    Appreciation of the U.S dollar against the euro and other currencies is making travel abroad cheaper. Here's how to benefit.
RELATED FAQS
  1. What is foreign exchange?

    Foreign exchange is the conversion of a country's currency into another. In a free economy, a country's currency is valued ... Read Answer >>
  2. Why is the U.S. dollar shown on the top of some currency pairs and on the bottom ...

    All currencies are traded in pairs. The first currency in the pair is called the base currency while the second is called ... Read Answer >>
  3. Trading hours of world's major stock exchanges

    Learn about stock exchange trading hours, the opening and closing times of some major global stock market exchanges, and ... Read Answer >>
Trading Center