When Buying and Selling in "Local Currency" Takes on a New Meaning

When we usually think of buying in local currencies, most procurement and finance minds think about denominating contracts in local currencies (e.g., RMB) rather than in the dollar or Euro. But the concept of local currency takes on an entirely different meaning when the financial instrument is one that's not exactly traded on the open, global market. I recently read on my iPhone an article on FoxBusiness that I found so fascinating, I book-marked it to write about when I got back to the office. The article examines the growth of "local, hours-based 'currencies' that are growing in popularity nationwide." The article suggests that "today, there are close to 100 types of local currencies operating in the United States … While some currencies are true to their name and are backed by federal dollars, others are simply a record of hours worked by contributing 'time bank' members."

If it seems like a walk in the currency park to launch a new form of tender, I'd suggest further examination. Moreover, if for some reason a form of barter (common in Russia and other countries that like to avoid the tax authorities) is appealing, or if you're thinking of buying and selling in a new, unique, currency with your supply chain partners (or your friends and family) think again if you're based in a locale where tax collectors aren't on the take. These things have traditionally taken shape as a grassroots form of exchange, one step up from basic bartering (which allows not only more participants but also allows the government to have some way to track exchanges for tax purposes).

There are also some nuances to doing it, especially in the US. Here, for example, coins are not allowed. Specifically, "Although local currencies are legal as long as there is an exchange rate with federal dollars so transactions can be recorded for tax purposes, coins are not allowed because they involve processing precious metals." Having read this, let me suggest with a bit of irony that it sounds to me that there's not a whole lot of difference between "local currencies" such as the one a neighborhood or co-op may opt to institute and "local currencies" such as the RMB, neither of which are free-floating. Moreover, both are controlled and governed by centralized authorities who define a set exchange rate. Heading further down the irony path, at least one difference between the RMB and the 100 local currencies in circulation in the US is that participants in the exchange of the latter have complete, censor-free access to Google and Gmail to debate the merits of their open market system, and to exchange documents, invoices, and POs without knowing the government is looking over their back at every move.

Jason Busch

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