Utopian ideals of a sustainable and environmentally friendly local economy inspire us to think of a world where the goods consumed in an area are created in that same place, using local resources and labour. Monetary systems seem to have a growing influence in helping this dream become a reality, with local currencies just like the Bristol Pound popping up all over the world. In the second of a series of articles on ‘Cool Currencies’ Kester McLennan, UoB Geography student and Bristol Pound Intern takes a look at the Chiemgauer (pronounced “cheem-gower”).
It all started when Christian Gelleri conducted a practical classroom project, in an attempt to get his students to understand the role of the local economy in more depth. 8 years on, the Chiemgauer attracts over 600 businesses and 3000 users, turning over 5 million per year. And this is only the start. Its whopping growth of over 100% per annum means its significance is only likely to grow in the near future. Gelleri isn’t shy about his ambitions and theories that the currency could finance 50% of the regional economy in the coming decades.
So, what has made it so successful? Although like many local currencies it’s tied to its national counterpart on a one to one scale (in this case the euro), people may have enjoyed using it as a way of getting away from the euro. The euro has fallen nearly 25% against the dollar over the last 3 years and touched a 14 year low in January. Angela Merkel said in a press conference that “of course there is a problem with the value of the euro”, as Germany’s involvement is, according to Merkel, propping up the less productive countries in the EU – something that was highlighted in the Eurozone debt crisis that led to the Greek bailouts. However, Germany is also said to have benefited from the euro in many ways, for example, the fixed exchange rate that the Euro effectively secures between itself and its major European markets means Germany’s export boom was not offset by a rise in its own currency. The fact that lots of other EU nations are so poor is arguably why Germany has secured such a strong economy today.
Many nationals have had enough of Germany’s complicated relationship with the euro, with recent polls by a german institute showing that more than half of all Germans still want a return to their old currency*. The local currency trend in the region plays into german nostalgia for the Deutsche mark, the national currency which replaced the euro. Although the Chiemgauer is fundamentally linked to the euro, the fact that one can survive for months on end in Prien am Chiemsee without spending any euros gives the locals increased independence and reminds them of simpler times. However, despite these ties to eurosceptics, its founder Gelleri does not see alternative local schemes as a threat to the future of the single European currency, stating that “regional currencies are based on the euro and complement it. There is a place and a need for both within the current system.
So, what else explains its success?
What’s really cool with the Chiemgauer is how fast the money changes hands. This is something called the velocity of money and is another reason the currency is doing so well. It’s described as the frequency at which one unit of currency is used to purchase domestically produced goods and services within a given time period. If the velocity is increasing, then more transactions are occurring between individuals in an economy, stimulating growth.
Although it’s slowly rising, Money velocity in the euro area is currently less than 1, which means that on average, money that’s being printed isn’t even circulating once a year. This implies that consumer confidence for spending isn’t particularly high and that people aren’t borrowing that much money either. More concerningly perhaps is the British pound which is also below one but is on the decline!
Compared to the relatively slow velocities of the pound and the euro, the Chiemgauer circulates around 2.5 times faster. This is even faster than our Bristol Pound, which is about 1.55 or twice that of the £. The key principle through which this speedy money velocity is achieved if through a process called oxidation, a kind of tax that promotes people to spend and circulate their currency.
Here’s how it works.
Cheimgauer’s can only be spent in a three month window, after which they become invalid. If the notes aren’t spent they can be renewed at a cost of 2% of their face value. This acts as a negative interest rate as over the course of a year unspent notes will depreciate by 8%. It’s this mechanism that keeps the money ticking over so quickly and its why (despite having the same value) the Chiemgauer is so much more powerful in the local economy. While spending in Chiemgauer currently comprises just 0.2% of the local area’s GDP, the money’s working much harder and doing much more for the economy.
If Guelle’s ambitious goals to grow the Chiemgauer at such pace are to be met, it would catalyse a major assault on the euro’s current monopoly over both Germany and the European Union more widely, allowing us to see the tangible difference in how using money differently can benefit our society. Local currencies like the Cheimgeuger allow us to realise how much power money has in deciding the way we live our lives and inspire as to how things may change in the future.
If there is one single instrument that can improve all the areas we need to improve to save humanity, then it’s the monetary system
Bernard lietaer (economist, author and professor)