1. Introduction

Tailored to specific geographic areas, local community currencies are alternative monetary systems designed to empower local businesses and foster engagement while promoting a greater sense of unity of a place. Although these community currencies have never become mainstream practice throughout history, they have repeatedly risen in popularity during times of economic crisis or instability. In the wake of the pandemic, a resurgent interest in community currencies—now powered by blockchain and Web3 technologies—is reshaping the way cities approach local financing and engagement of their constituents. Over the last two years, mayors from major U.S. cities such as New York City, Jackson, Tampa Bay, Miami, and Austin made headlines by openly endorsing cryptocurrencies and embracing the idea of city-branded tokens in hopes of unlocking alternative ways of fundraising and boosting local economic growth during the crypto market’s heyday. With a rich history rooted in times of economic turmoil, community currencies offer both inspiring success stories and cautionary tales of the challenges that lie ahead as cities navigate the evolving financial landscape. As we consider the possibilities of community currencies powered by crypto, we ask: Are they just a temporary fad that poses potential risks and little value, or do they hold the potential to truly offer a synergistic solution to the problems facing cities today? Could they digitally revolutionize the age-old practice of local community currency and elevate public purpose value and social impact?

In this paper, we will survey the recent landscape of community currencies powered by cryptocurrency and Web3 technologies. Our investigation and evaluation will delve into cases that represent both top-down and community-oriented approaches, uncovering the potential benefits and pitfalls of combining Web3 technologies with the time-honored custom of community currency as place-based solutions to address urban challenges concerning public financing, local economic stimulation, and community engagement. Indeed, while some of these “crypto-native” projects that lack intrinsic value and use could reiterate or even exacerbate the same systemic inequities cities are trying to address, other more nascent and less well-known attempts that adopt a community-centered approach suggest alternative paths forward that could more thoughtfully tackle urban challenges through technology.

Drawing from a combination of gray literature review, archival analysis, semi-structured interviews with founding teams of some selected projects, and digital ethnography of online activities, we have mapped a landscape of current projects in this field. While the surveyed projects do not encompass a comprehensive overview of the entire landscape, they represent a diverse array of examples with different scales and approaches, illuminating what has been successful and what has fallen short on delivering their intended impacts. In the remainder of the paper, we will first delve into a brief history of community currency, followed by an overview and analysis of a selection of recent case studies that employ Web3 tools. Finally, we will conclude by highlighting key takeaways from these experiences that cities, communities, and anyone interested in this topic can learn from. (Disclaimer: The authors of this paper are academic researchers who have no financial interest or stake in the cases presented in this work. The content of this post is for informational purposes only and does not constitute legal or financial advice.)

Key Takeaways

• Decentralized technologies can potentially address challenges faced by traditional community currencies, but they require careful design with appropriate social and governance goals.

• Digital community currencies should avoid volatile cryptocurrencies and explore fiat-backed or asset-backed stablecoins.

• Digital community currencies should emphasize community-first adoption over endorsements from city figureheads.

• Permissionless participation in digital community currency can lead to speculation; incorporating an identification layer is preferred and recommended.

• Community digital currencies should prioritize local residents over crypto-native users.

• Current token-based on-chain voting leads to plutocracy. Alternative forms of voting that integrate locality and equity should be prioritized.

• A city-branded stablecoin can help create a sense of community and identity, thereby encouraging local spending and local value capture.

• Regulatory risks like stablecoin bans create challenges for innovations, requiring cautious evaluation from policymakers.

2. History of Local Community Currencies

The concept of community currencies (also referred to as local currencies or complementary currencies) can be traced back to ancient civilizations, such as the Egyptian grain banks or the barter systems of early agrarian societies. This system allows a specific geographical locality to circulate and spend their own currency on goods and services primarily provided by locally owned businesses. In more recent history, the economic crises of the 1920s and 1930s saw the emergence of functional community currencies in response to the bank runs that resulted in the collapse of banks and traditional finance systems. To address shortages in currency, numerous cities and towns across the US and Europe created their own local currencies to stimulate economic activity and alleviate financial hardships. These local currencies function as complementary currencies to the national currency, but with the added benefits of promoting local spending and capturing value within the community.

One of the best-known applications of local currency during this time was in Wörgl, Austria. The small village of Wörgl drew inspiration from the success of the Wära experiments in Germany, which had a community currency backed by extracted coal in the small town of Schwanenkirchen (the value of coal was less volatile than the German currency at that time).1 Sensing the grave economic conditions that his town faced, the mayor of Wörgl realized there were numerous public works projects that required completion and reduced unemployment, but the town had limited funds to pay workers. To address this issue, the mayor deposited the town’s 40,000 Austrian schillings in a local savings bank as a guarantee for issuing the equivalent of the town’s own stamp scrip.

The town’s own local currency to paid employees for projects such as repaving the streets, rebuilding the water system and other public infrastructure projects.2 Workers who received payment in this form were compelled to spend it quickly due to demurrage, an anti-hoarding concept that features a negative interest rate, which increased the velocity of money, allowed for more jobs to be created, and ensured that value remained within the locality. This ultimately generated high levels of economic activity and attracted interest from neighboring communities, but was eventually shut down by the Austrian Central Bank due to its perceived threat to the Central Bank’s monetary authority and control over the nation’s currency.3

However, the Wörgl experiment proved contagious for other communities around the world. Famed economist Irving Fisher devoted his book Stamp Scrip (1933)4 to discuss the application of local currencies as a potential temporary cure for the Great Depression. Around 30 communities in Iowa adopted a form of local currency that provided temporary, emergency relief in small towns, but their benefits tapered off due to lukewarm support and poor implementation.5

Of the community currencies launched during the Depression era, the WIR franc (Wirtschaftsring-Genossenschaft) in Switzerland remains the largest alternative currency still in operation today, with an annual turnover of $7 billion.6 Founded in 1934, users of this currency—primarily small and medium-sized enterprises (SMEs) referred to as “members”—obtain WIR by selling goods or services to other businesses in the closed network or by obtaining WIR credit from a coordinating center.7 The primary goal of the WIR Franc is to stimulate local economic activity by encouraging businesses within the network to trade with each other and providing an affordable alternative to business loans denominated by Swiss francs, thereby promoting local supply chains, increasing liquidity, and supporting SMEs. The WIR Franc is asset-backed with its value pegged to the Swiss franc. It circulates in a closed-loop system and its usage is limited to the

2 Lietaer, B. (2013). The future of money. Random House. Available at: https://library.uniteddiversity.coop/Money_and_ Economics/The_Future_of_Money-Bernard_Lietaer.pdf businesses within the WIR network, helping to retain the currency’s stable value within the local economy.

3 Adriano, Andreas. (2021). New Old Idea: Technological innovation is fueling the resurgence of community currencies. International Monetary Fund.

4 Fisher, I., & Cohrssen, H. R. (1933). Stamp Scrip. New York: Adelphi.

5 Warner, J. (2012). Iowa stamp scrip: Economic experimentation in Iowa communities during the Great Depression. The Annals of Iowa, 71(1).

6 Adriano, Andreas. (2021). New Old Idea: Technological innovation is fueling the resurgence of community currencies. International Monetary Fund.

7 Lietaer, B. (2013). The future of money. Random House.

During the late 20th century, local currency systems such as LETS (Local Exchange Trading Systems) and Time Banks emerged as alternative models for exchanging goods and services within communities. In the US, the most prominent example of community currencies is BerkShares, which is circulated in Berkshire, Massachusetts. Established in 2006 in Berkshire, Massachusetts, BerkShares was designed to support local businesses. Residents can acquire BerkShares from four participating local banks at a rate of 95 cents USD per BerkShare and spend them at more than 400 participating locally-owned businesses. As of 2020, over 10 million BerkShares have been issued, reflecting the success of the currency.

More community currencies fail than those that succeed due to reasons such as limited circulation, lack of acceptance, inadequate technological infrastructure, insufficient marketing, inability to scale, and absence of long-term vision and support. However, those that remain relevant and contribute to regional economic growth share several common features. These successful community currencies generate a high level of trust, which in turn fosters buy-in from both consumers and businesses. They are dedicated to serving the community, amplifying the multiplier effect of the community currency without competing with the national currency, which can still be used for non-local purchases.8 Importantly, while these currencies possess real-world value (or currency-equivalent value), they may not necessarily appreciate like an asset, and converting them to real-world values could incur a small cost.9

The number of locality-based complementary currencies has ballooned over the last several years with estimates reaching over several thousand systems in existence today.10 The advent of digital technology has further facilitated the development of digital local currencies, many of which are powered by blockchain technology, offering faster settlement and cheaper transactions. In spring 2022,

8 Demeulenaere, S. (2000). A Pictorial History of Community Currency Systems. Available at: base. socioeco. org/docs/ pictorial_history_of_ccs. pdf; accessed 7th February 2015.

9 BerkShares, for example, can be converted from dollars freely, yet charges a 1.5% fee to convert to dollars. There is no incentive to hold on to BerkShares since there is no profit to be made relative to the dollar.

10 Deighton, Ben. 2017. Alternative currencies in rapid growth phase – researchers. Horizon: The European Research and Innovation Magazine. European Commission. Available at: https://ec.europa.eu/research-and-innovation/en/horizonmagazine/alternative-currencies-rapid-growth-phase-researchers the aforementioned BerkShares transitioned from paper currency to Digital BerkShares. This change was made possible through a collaboration between New York-based social enterprise Humanity Cash and Berkshire’s Schumacher Center for a New Economics, leveraging Celo Foundation’s carbon-negative blockchain platform to power the currency.

Increasingly, more cities and social entrepreneurs are exploring the adoption of blockchain as the foundational infrastructure for their digital community currencies, such as the LVGA stablecoin of Lugano, Switzerland, and Bristol Pound in the UK. Many projects have also started to explore new modes of governance and innovative concepts, like quadratic funding and backing assets with natural resources, to achieve sustainable urban economic development goals. Consequently, several questions emerge: Can technological tools like blockchain help integrate digital community currencies into the mainstream financial system? How can these new sociotechnical systems do more than merely facilitate transactions, but also assist cities in achieving environmental and social sustainability objectives? In the following section, we discuss case studies of projects that have not only created new digital community currencies, but are also experimenting with governance and other intriguing forms of Web3-related innovations.