11
Aug
09

The Resurgence Of Scrip

monopolymoneyThe United States owes a great deal of its economic power (and vulnerability)  to the monetary policies of the twentieth century.  These policies take the position that liquidity – access to dollars –  is the inalienable birthright of American business.

So seriously is this premise taken that vast sums of dollars are willed into being when needed. Many are not aware that a dollar’s existence does not need to be the result of acquisition or saving.   The US banking industry is allowed – indeed, encouraged – to create dollars out of thin air for circulation as loans.  Some banks are allowed to lend a sum that is nine times greater than the sum the bank actually has on hand.  The practice of fractional-reserve lending has been compared to massive legal counterfeiting by some economists and writers, and some observers of the recent Wall Street meltdown from backwaters to Beijing  to  have begun to look at the dollar itself as funny money.

The rise of local currencies, or scrip, is one reaction to these recent events.  They’re actions not taken as the result of sweeping analysis of the global financial system of dollars, but more as a move by local communities and regions toward economic self-defense. Popular during the 1930s depression, scrip is making a comeback.

In today’s LA Times piece “Local Currencies Cash In On Recession” Nicholas Riccardi writes about a group of communities, both urban and small-town who are minting their own money as a way of preserving patronage of local businesses in the economic downturn. New currencies, backed by local merchants for use at local merchants.  No fractional reserves, no counterfeiting, no global monetary policy concerns.

Is scrip legal?  Short answer: looks like it.  According to the research of GWU Law professor Lewis D. Solomon in his 1996 book Rethinking Our Centralized Monetary System (PDF follows the jump) contains numerous court cases on the subject and draws the general conclusion that scrip is not illegal as long as it doesn’t directly compete with the dollar, or issue in coins.

(If such a scheme were to be launched in my neighborhood of Bridgeport on the South Side of Chicago, let me be the first to suggest the new currency be called the “Jimmy”. It should bear the picture of Mr. Jimmy Sabbia, a gentleman well known in this area for his shirtless strutting on the streets while howling deranged epithets at passers-by. Local color, right?)

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