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Local Liquidity: From Ineffective Demand to Community Currencies

The report includes an authoritative account of the different types of local money that are in circulation across the world from Germany's hugely successful Chiemgauer to the currency issued by Banco Palmas in Brazil and Rotterdam's Nu-Spaarpas.

All across the world local communities, like Bristol in the UK, are starting their own currencies to counter the problems caused by the financial crisis and the misallocation of money towards the gambling circuits of the casino economy and away from local economies. Molly Scott Cato frames the post-2008 financial crisis in terms of the failure of effective demand. Quantitative Easing has not only increased inequality, as indicated recently by the Bank of England, but has also created only ineffective demand.

Since the failure of the global financial system in 2008, attempts to restart economic growth have been unsuccessful and are likely to remain so until the debt overhang has been resolved.

This has been exacerbated in the case of local economies by the large -scale withdrawal of liquidity that the public spending cuts represent, especially in peripheral economies that rely heavily on the public sector for the existence of well -paid high -skilled employment.

The flourishing of local currencies across the world represents a different type of liquidity, but one that has suffered from lack of credibility and from an absence of political support.

Local authorities could generate truly 'effective demand' in their communities by introducing local currencies into their fiscal administration on a staged basis, beginning with local services, as partial payment of local tax, and eventually for the payment of staff.

Examples from Japan's lost decade demonstrate how local currencies can help to replace the national currency and soften the blow of jobs losses and the inability to pay for local services.

Local currencies tend to be counter - cyclical, as shown by the historic flourishing of scrip in the US Midwest during the Great Depression and similar schemes in Germany.

The government's creation of money through its quantitative easing programme has only created 'ineffective demand' because it has been sucked into banking debts; by contrast money spent into the local economy as a local currency could help to revive local economies and build resilient communities and thus constitute genuinely 'effective demand'.

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