What is a Community Currency? Advantages and Disadvantages?

What is a Community Currency? Advantages and Disadvantages?

Why were Community Currencies created even though we already have Fiat Currencies?

Here I explain the purposes and advantages of using Community Currencies.



What is a Community Currency?

A Community Currency is not a Fiat Currency like yen or dollar, it is a currency that only has value within a specific region or community. Basically, it cannot be exchanged to a Fiat Currency.

In the first place, currency was unified in the beginning of the 19th century, Community Currencies were not special before that.

Although there is not an accurate record of the origin of Community Currencies, the “Labour Note” which was used at “the National Equitable Labour Exchange” established by Robert Owen in 1832 is famous as a Community Currency in recent years. It was a system that people can exchange their own products with “Labour Note” at the National Equitable Labour Exchange. They were able to exchange the Labour Note they received with other people’s products.


A German social activist and theoretical economist, Silvio Gesell proposed a system of stamped money, which depreciates as time passes. In 1932, this money was issued and circulated in Austria. This money reversed the idea that the value of money never changes and was accepted by the people of that time. It contributed a lot to the recovery of economic stagnation.



Why was a Community Currency Created?

The reason why Community Currencies were created is that the stagnation of the regional economy occurred at the time. For example, in current Japan, the stagnation of the local economy is occurring because the population is concentrated in urban areas and the provincial population is decreasing due to the declining birthrate. Community Currencies have been created to revitalize provincial areas.



Systems of Community Currencies

・Centralized Control System

The centralized control system is that a Value Issuer issues the currency. Same as a bank, the central controller manages the currency. This is an easy system, but if the controller fails to manage the currency properly, it may lead to inflation or deflation.

Community Currency_Centralized Control System


・Mutual Credit Issuance System

The mutual credit issuance system is that individuals determine the value of a service and participants issue value each other. It is based on the centralized control of the transaction history recorded on passbook or on the internet.

Transactions can be done without paper money, but it takes time and effort to enter all transactions.

Community Currency_Mutual Credit Issuance System


Types of Community Currencies

・Money-Issuing Type

A unique currency (paper money or coins) for the community/region is issued and circulated.

Since anyone can issue the money easily, there is a risk of counterfeiting.


・Transactions Record Type

The issuer and the receiver of the value record the transaction details (“When”, “with Whom”, “What”, and “How much”) on their passbooks and update the balances.

It takes a little time when trading because it needs the book entry.


・Cheque Type

A cheque is printed and issued, and the user signs his/her name on the back of the cheque upon trading so that the user can be specified.


・IC Card Type

IC Cards are issued for trading, instead of paper money.

It is easy to collect data and highly convenient for users, but it needs system construction such as card reading equipment and installation of it at places of use.


・Electronic Community Currency Type

Blockchain based Community Currency (Cryptocurrency). Basically, users exchange Fiat Currency (yen, dollar etc.) to Cryptocurrency, and use it for payment.

The cost of issuance and management is cheaper than that of paper money or normal electronic money. And since it is on a Blockchain, which is a decentralized system, it is highly secure.



Advantages and Disadvantages of Community Currencies

Advantages of Community Currencies

・The Circulation of Regional Economy can be Expected

Different from a Fiat Currency, a Community Currency can be used in a limited community and it doesn’t flow out from the community. If more people in the community/region use the currency, it circulates well within the community.


・More People Contribute to Regional Economy

As you can pay the money to your favorite local shops and local people, using Community Currency will increase your awareness of being directly contributing to the area.


・Community Network will be Strengthened

It can be used for services that cannot be paid in Fiat Currency. For example, same as LETS (Local Exchange Trading System), you can find requests for assistance from the local community and discuss with the user about fees before trading. Through those procedure, you can use it as a tool to know people’s needs and problems so that people in the community cooperate each other.


Disadvantages of Community Currencies

・Few Places are Available for Use

Although it is available in a limited area so that it circulates within the area, most Community Currency cannot be used in all occasions. Therefore, if the users cannot use it when they want to, they feel inconvenient, and the Community Currency often comes to an end without being established.


・It Costs a Lot to Introduce and Operate

Community Currencies of Transaction record type, Cheque type and IC card type etc. are costly for safe storage, issuance and operation. On the other side, Electronic type does not cost those kind of expenses as it is operated on the Blockchain.

Since there will be operation costs after introduction, it should be considered whether the currency has more advantages than its cost.


・People Outside of the Area cannot Use it

For foreigners who do not have Community Currency, it is inconvenient to trade with communities which use other currencies. For example, in areas where many tourists come, the Community Currency should be used by foreigners. Otherwise, the local economy will be limited and hard to grow.




Numerous Community Currencies have been issued so far, and Japan alone already has over 600 regional currencies.

It is interesting for you to deepen your understanding of the Community Currency with reference to past Community Currency examples from failed currencies to successful currencies.