A growing number of cities are experimenting with printing up their own local currencies as a way to cope with the recession. Detroit is among the cities, having created a bill called the “scrip” that can only be used at participating.
Normally, you’d think that merely creating currency wouldn’t do much good. After all, physical currency isn’t wealth.
But local currencies might actually make sense. Think about them as occupying a middle ground between official, national currency and barter. In places where money is low, people may still have skills or resources of value. Individuals might still benefit from trade — exchanging some form of work for someone else’s goods or services.
But pure barter is a horrendously inefficient form of exchange, for obvious reasons. Sure, the Detroit scrips won’t be accepted anywhere outside the city — it’s not going to make anyone wealthy. But if it facilitates more transactions between people with different skills or goods, while allowing people to save cash, that could be useful.
Plus, we can think of a couple of other benefits: We have to imagine it’s much easier to evade taxes when conducting business in scrips, and when hyperinflation hits, scrips will be king.