Tuesday, November 01, 2005

Local Currency




The following guest editorial just appeared in the local paper:

Bay Bucks is one truly bad idea

By WARREN CLINE
In the Record Eagle's Oct. 16 edition, the community was introduced to the concept of "Bay Bucks." The idea of Bay Bucks is to circulate a local currency in competition with the U.S. dollar that is only accepted by local merchants and force the holders of Bay Bucks to buy locally. While encouraging local citizens to buy from local merchants is a great goal, using Bay Bucks is a bad idea.

The United States government and the U.S. Department of Treasury devote considerable efforts to fight the counterfeiting of the U.S. dollar.
Hold up a $20 bill to the light and notice all of the measures used to fight counterfeiting. U.S. Treasury agents hunt down counterfeiters and throw them in jail. Any high school student with a color copier can counterfeit Bay Bucks! Will any law enforcement agency stop the counterfeiting of Bay Bucks?

As a consumer, if you own Bay Bucks you cannot use them to pay federal taxes, Michigan taxes or local property taxes. You can't pay mortgage payments, car payments, credit card payments, insurance payments, utility bills or rent payments. No major grocery store or gas station accepts Bay Bucks, so you can't buy groceries or gasoline. You can't deposit Bay Bucks into your checking account.

Bay Bucks will be a burden, not a benefit, to local merchants. The accounting systems of local merchants are not designed to process an alternative currency.
The typical local merchant deposits his currency receipts into his bank account every day. Then the merchant uses his bank account to pay employees, suppliers, landlords, etc.

Any local business collecting Bay Bucks will have to set aside that currency and then look for suppliers who are willing to accept the Bay Bucks currency. Warning: If you own a local business, don't agree to accept Bay Bucks until after you speak to your CPA or accountant about the cost and risk of accepting Bay Bucks.

If a local currency helped local businesses, every state in the union would issue its own currency. All of us in America benefit from having one currency, protected by the power of the United States of America.

None of the respected local institutions have endorsed Bay Bucks. There is no regulation by local government. There is no endorsement by the Chamber of Commerce. There is no clearinghouse by local banks.

The promoters of Bay Bucks will go into our community and sell these nearly useless pieces of paper to our citizens in exchange for real U.S. currency. What a deal! What are they going to do with the real money?

If we want to support local merchants (and we should) then we should buy their products and services with real U.S. dollars and we should give the waiters and waitresses real money, not pretend money, when we leave a tip.
Bay Bucks is a bad idea.


Now, I am far from thinking that Bay Bucks are going to have a huge positive impact on Northern Michigan, but Cline really ought to get his facts straight before sounding off on Bay Bucks.

For one thing: US currency has, up until very recently been widely reputed to be the most easily counterfeited in the world. I have both a ten and a twenty in my pocket right now that have zero security measures visible when I hold them up to the light.

Can any high school student make a color copy of a Bay Buck? Sure. But that student can just as well make a copy of a US twenty. And have just as much chance of getting away with passing it.

Bay Bucks DO include a number of security provisions, including being made of high quality paper, being difficult for color copiers to scan, and having a watermark. One wonders if Mr. Cline actually looked at a Bay Buck before writing his screed.

As for local businesses accepting the currency: there are, of course, considerations and provisions to be made in accepting an alternative currency. No one says otherwise.

As far as "respected local institutions go." Well, all local business are free to choose whether they want to take on the second currency in order to help out a local initiative. And Oryana Food Coop has chosen to do so. And amongst the folks likely to be interested in Bay Bucks, there's probably no more respected and heavily patronized business than that. I don't think anyone really cares whether Mr. Cline thinks the Bay Bucks buyers and sellers are a bunch of rabble. If Cline doesn't like Bay Bucks, he can decline to accept them and continue to congratulate himself on his irreproachable respectability.

Is a local currency a miracle cure for all of your local economic problems? Of course not: unless you are an economic crackpot, you see that there are benefits and drawbacks to local currencies (some have been pointed out by some economic heavies like Bernard Lietaer, former high official with the Belgian Central Bank. (Whom I do not agree with on many things, but the point is local currency is a matter on which intelligent people can disagree, rather than one on which ignorant people may scoff.)

As Mr. Lietaer points out, ALL money is "pretend money." The only thing that makes a little piece of ugly green paper with a plastic strip in it from the US government worth something is that most everyone has agreed that to pretend it is. It's all based on human opinion, as the founding fathers of economics tirelessly pointed out many many years ago.

Mr. Cline really ought to read some Adam Smith before waxing philosophic.

Here's a wikipedia article on "complementary currencies"

OPK