Global Localist Currency – Iran vs Totnes

Posted on December 5, 2012

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Could Bitcoin have any impact on the world of Local Currencies? I keep asking myself this – I had an interest in “alternative economics” before Bitcoin came along, but I’ve been trying to figure out the link between the two since it did.

I figure it’s actually an unanswerable question because it depends on the definition of “local”. Take these two stories from this week, for instance:

Iranians using Bitcoin to get around dollar sanctions

and

Bristol Pound, and whether local currencies can work

Around the Radar

In one sense, Bitcoins have become (or have the potential to be, with caveats) an unofficial “local” currency (at a national scale) for Iranians. The strength, the draw of Bitcoins (aside from untraceability, but this is a necessity too) is that they don’t have any intrinsic value other than their “usefulness”. This lack of rigidity makes Bitcoin almost a “meta currency” – for the Iranians, the value is in being able to swap it for other currencies, such as Dollars.

The combination of vague anonymity, network protocols, and floating value make Bitcoins much more resilient against measures such as sanctions. It becomes clear that it is a currency that works against economic lock-in/out (at least under existing financial models, but it’s a cat-and-mouse game). Interestingly, Turkey and Iran are doing similar things with Gold as a workaround.

Local Money for Local People

Meanwhile in Bristol, and other places such as Lewes and possibly Totnes, local currencies are designed to prevent money leaving the system – or in other words, to stop people from swapping them. In this case, the local network realises that it has an intrinsic value which others desire, and seeks to retain (or bolster) that value.

This is, IMHO, the same model that store giftcards and vouchers use, ie. “Looking to restrict someone’s spending? Buy them this intermediate, domain-specific currency.” This is not always a bad thing, per se, but it is a thing that is difficult to sustain.

This is clearly a different definition of “local” – namely, is a community looking to import value, or export it?

What’s absolutely fascinating is the clash of market forces involved – should money follow philosophy and integrate the structures its users demand (such as only being spendable in certain places), or does it need to be free-flowing and philosophically agnostic in order to be successful?

How does a community decide that its strengths are being exploited, to the extent that it thinks a different currency would help? And more importantly, are these strengths (such as uniqueness) a result of the shared free-flow of money (ie. are they strong because of availability and network externalities), and would moving away from this flexibility actually undermine these strengths or not?

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Posted in: Opinion