March 6, 2007

German Local Currencies Bypass Euro

The conversion of Europe to the multinational Euro currency appears to have created a black market in local currencies, at least in Germany. Carlos, Urstromtalers, Kann Wasses, and Nahgolds have pushed out the continental stanard in twenty-two areas of Germany as a form of barter, and thirty-one more may follow:

The system works like this. Pietsch uses Urstromtaler to pay for her purchases at, say, the health food shop. Its owners then use the same bills to pay the local cheese-makers, who pass those same bills along to the carpenter who repaired their goat stable. The ideal scenario is that a closed loop develops, boosting the regional economy and preventing money from being drained from the area.

Twenty-two such regional currencies are already in use in Germany, and 31 more are in preparation. They're called "Kann Was" ("Can Do"), "Nahgold" ("Near Gold"), "Carlo" or "Volmetaler" -- and their transactions are eligible for tax just like euros. Frank Jansky -- who also directs Regiogeld, the umbrella association for the currencies -- was even recently visited by a BBC reporter who asked him to explain Germany's wondrous proliferation of currencies.

The "Chiemgauer" currency (named for the Bavarian region of Chiemgau) is the most successful to date. The project was started by Christian Gelleri, a Waldorf school teacher, and six of his students in Bavaria in 2002. The regional currency's annual turnover climbed to an impressive €1.5 million ($2 million) last year. About 90,000 Chiemgauers are currently in circulation. Unlike the Urstromtalers, they can be converted back into euro for a fee. "Our currency circulates three times more rapidly than the euro," says Gelleri. But in order to achieve this, the system puts pressures on currency holders to spend: The Chiemgauer loses two percent of its value every three months and has to be "topped up" by purchasing a coupon.

In its way, this proves the theorem of America's founders. People want control over their government as close as possible. The farther power moves from the people, the more the people agitate to return it.

Currency policy has always been tied to sovereignty, until the European Union experiment with a shared currency. Monetary policy now transcends national sovereignty, and individuals within the EU have less power to demand change. Some will benefit from this union of interests, with Ireland being one of the biggest winners of the process. Some, however, will find themselves shortchanged, or perceive that they have lost -- and will take action to correct the situation.

Barter guilds exist here in the US, too, but they generally don't issue their own currency. American law prevents it, and it would be difficult to see why anyone would want to trade the US dollar for homemade scrip. The push to develop local currencies shows a decline of confidence in the euro as well as a rejection of the trade policies of the EU. It creates, as Der Spiegel notes, a closed economic system that discourages outside trade in all forms. That might work in small, isolated communities where the global economy has had a detrimental effect, but only for a short period; it practically guarantees that global investment will continue to bypass them.

As Der Spiegel points out, scrip usually costs the consumer more than trade in the official currency. The Cheimgauer, which is one of the few with an "official" exchange policy for the euro, winds up costing its holders an additional 15% in deflation and fees for its use. Ironically, the man behind the Cheimgauer puts these proceeds into svaings accounts, which flies in the face of the stated goal of the local currency movement -- to keep circulation high and force people to spend their scrip.

German politicians and other European leaders should consider the message these regional currencies communicate. Their constituencies have seem little benefit from surrendering control of their monetary policies to a supra-national bureaucracy that mostly is irrelevant to their local needs.


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