City Currency — An exciting initiative, based on an old idea…
There are hundreds of community and city-based currencies in circulation around the world, operating alongside and complementing national currency. They are often considered to be a recent development. Yet, multi-currency monetary systems have been commonplace throughout history. There have been many types, and often have gone unnoticed by economic historiographers, despite evidence that they were stable and functional. In fact, uni-monetary systems only began to predominate worldwide after the establishment of nation-states, and were not consolidated until well into the twentieth century.
Multi-currency systems, although typically less efficient due to their additional accounting complexity, are more resilient and sustainable because they provide alternatives when one of the currencies falls into trouble. So, in the past, gold coins were used for international trade and to treasure savings. Alongside them, silver coins were used for regional trade. And bronze, copper, or coins of less precious metals, were used for local daily purchases. For starters, in such multi-currency systems, the economy did not dramatically slow down because of a lack of liquidity when foreign trade deficits drained gold reserves.
Prominent academics support the thesis that multi-currency systems work. In The Denationalisation of Money (1976), Hayek already argued that a market system of competing monies would be better than a national currency monopoly. Similarly, Lietaer (2010) affirmed that ecosystems of complementary currencies are more resilient and sustainable than a monetary monoculture, which tends to be more fragile.
And yet despite their usefulness, community currencies have often been too easily discarded or forgotten. None more so perhaps, than the case of Wörgl (Austria, 1932–33). The Mayor of Wörgl issued labour certificate notes (stamp scripts), based on the ideas of Silvio Gesell in The Natural Economic Order (1919). Keynes dedicated a section in General Theory of Employment, Interest and Money (1936) to this “unduly neglected prophet”, where he said that “the future will learn more from the spirit of Gesell than from that of Marx”.
The municipal currency of Wörgl was backed 1 to 1 by Austrian shillings deposited in a local savings bank. The local council put it in circulation as part of its public spending, to pay salaries and procurement, and accepted it when collecting taxes. It could also be redeemed for conventional currency, with a 5% commission. This local currency introduced Gesell’s Hoarding tax proposal, which depreciated its value by 1% monthly, to prevent hoarding and encourage rapid expenditure. Remarkably, the circulation velocity of Wörgl’s local currency multiplied by fourteen times the rate of Austrian shillings, greatly stimulating local trade and economic activity.
Amid the Great Depression, Wörgl had a very high unemployment rate and many households suffered from extreme poverty. The local currency reactivated internal production and demand, which resulted in a spectacular recovery of jobs and public finances. All of this at a time when the rest of the country and the continent continued to fall into recession.
The “Wörgl miracle” was a resounding success in economic terms. More than two hundred nearby towns prepared to replicate it, and even French Prime Minister Edouard Daladier traveled there to see what was happening.
However, within less than two years the national government, the central bank and the supreme court ended up banning it for political reasons. Without its fast-circulating local currency, the Great Depression returned to Wörgl, and with it the breeding ground to the darkest period in Austria’s history.
The story of Wörgl fascinated Irving Fisher, a professor at Yale and father of modern economic theory. In his book Booms and Depressions (1932) he added an annex with Gesell’s theories, and later published the book Stamp Script (1933) on the same topic. Fisher disseminated these ideas around the United States, where, between 1932 and 1934, city councils, chambers of commerce, cooperatives and others, issued more than three hundred similar scripts or local currency notes. As an adviser to Roosevelt, Fisher enthusiastically proposed a public policy based on this decentralised monetary system, assuring that its correct implementation would rapidly solve the crisis in the US. Unfortunately the President did not follow his advice, because of strong opposition from the banking lobbies. The potential impact of complementary, local currencies had been dealt a blow.
Nonetheless, the idea itself of these currencies never went away. Which leads us to today, where local currencies are enjoying a resurgence. As a result, here at Colu we are delighted to be working with municipalities and other city-wide partners to make our City Currency a reality, helping drive real economic and social progress. Wörgl does not have to be a detail consigned to the history books. The very next Wörgl-style ‘miracle’ might be just around the corner.
