Valuable Local Currency, VLC
The Valuable Local Currency method activates the unemployed and the unused capacities in local businesses by the introduction of a stable local means of exchange that induces extra economic activities in the community.
Debts to promote local growth
Interest-bearing debts are the
motor for economic innovation and a dynamic force behind economic
activity. However, this dynamic has one important negative side-effect:
interest payments function as a pump that continuously drains poor
communities of its wealth.
In a VLC, the repayments and interest paid on debts stay in the community, so that these debts should be seen as an investment in the capacity of local companies and producers to grow. The VLC does so by granting credit beyond the initial proceeds of the business, beyond their initial credit capacity, but based on their ability to grow into a viable and competitive company, with higher revenues. By doing so at the aggregate level of the community, the system ensures that the local economy, as a whole, does in fact grow to activate all its talents and resources.
This dynamic will, in turn, result in an increased capacity of businesses to pay back the loans they were granted.
Start of the programme
A VLC programme starts off with loans to entrepreneurs in national currency, with interest payable in local currency. When enterprises have to pay their interest in local currency, they are offered (partial) refinancing these local currency debts. This leads to the increase of the local currency debts in return leading to an increase of spending abilities of the local currency, and an increase in the demand for (low-cost) loans in local currency. The interest payments create a scarcity of local currency that results, for those who have debts, in a pressure to obtain it. Scarcity is, therefore, what makes the local currency “valuable” and equally as attractive as national currency.
In a VLC system the local currency is non-convertible with national currency.
Community fund
This programme can be strongly enforced by marking the interest-payments as investments shares in a community fund. Social control between entrepreneurs and consumer-involvement (if buying local also leads to obtaining shares) will stimulate the local orientation and local expenditures as well as mutual help.
Financial institution
The VLC method demands professional expertise to manage both demand and supply of the Local Currency, as well as the regular activities of management of credit portfolios. For this reason, the participation of a formal financial institution is required.
Bonus method
When the VLC is still in the phase of "accumulation", it is
possible and even necessary to introduce liquidity in the system by
spending in public programs through the Bonus method.
VLC in practice
In Honduras a project is running in which the local currency is in
circulation permanently. COMAL, the local partner of STRO in Honduras, is a
co-operative that buys products from farmers and distributes them to
over 400 small member-shops. Credits are given in a mix of national and
local currency to several agro-industrial projects, representing a
value of approximately €13.000. The local currency can be spent among
others at the shops; the shops pay COMAL with it for the products they
supply. COMAL, in turn, pays the farmers partly in local currency who
can spend them again at the local shops. More info...
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