Historically in the United States and elsewhere, local currencies are known to stabilize local economies when national currencies are troubled, such as bouts of hyper inflation or deflation and joblessness. This works because those accepting local money are also likely to seek out others who accept it too, creating a social dynamic that forms new, local economic associations. As these strengthen, the flow of local money picks up and work can get done even in the face of economic disaster outside the community. Because they can only be spent locally, profits on economic transactions done with a local currency remain in the community and spur more local investment. Local governments, regional business associations, community banks, and worker cooperatives are examples of the kinds of institutions who tend to successfully issue local currency. They have the social capital to be broadly accepted, and the capacity to manage the task of issuing and redeeming money.

We have discussed linking complementary currencies to energy on this blog, but Jason Bradford of Willits, California, is working on a different linkage:

“Mendo Credits are backed by a tangible asset. In other words, Mendo Credits are a “reserve currency” as opposed to a “fiat currency” like Federal Reserve dollars. Many people are familiar with money backed by gold, which was once the case with U.S. dollars, but Mendo Credits are backed by reserves of stored food. Our reserve currency has a number of desirable properties at this time in history.

The asset value of Mendo Credits remains stable over a significant time period because we lock in an exchange rate for specific quantities of food for one year from the date of issue. Whereas gold and silver are inedible, Mendo Credits can be redeemed for the sustenance of life. When you hold a Mendo Credit note, you know it represents the quantity of food printed on its face and, if you want or need to, you can actually get that food.

Mendo Credits help with our goal of greater community self-reliance by directing investment towards essential long-term capital. For example, if a small grain silo costs $5000 to build, credits can be issued with prices that reflect both the cost of grain and storage. Eventually, local farmers could be contracted to supply grains and dry beans to our silos. Our land base would then have higher value and be able to support more jobs.”

Jason alerts us that this experiment is not unique:

“A Honduran food and farmer cooperative, COMAL, issues its own local currency called the UDIS for many of the same reasons we started Mendo Credits.”

Here’s the more in-depth explanation of why this linkage is important:

“Most institutions, such as food aid NGOs or the US Department of Agriculture, express concern about food security in terms of the ability for low income people to purchase adequate food. This is a valid way to think of food security. If food prices are high relative to income, or if other compelling expenses such as housing, health care and transportation also require a large portion of income, then securing adequate food on an individual or family level will be problematic. Programs that disperse food to the needy, redistribute income through tax policies, assist with the high costs of non-food expenses, guarantee a living wage, etc. all address distribution inequity and are laudable.

But the question I want to ask is whether they are now sufficient? Two unspoken assumptions underpinning the framing food security narrowly as an “income problem” require rethinking.

The first assumption is that enough food can actually be grown and delivered to wherever it needs to go. A study of the intersection of supply limits to water, energy and topsoil combined with climate change should dispel the notion that food abundance can simply be taken for granted. Over 90% of transportation relies on oil, and extraction of oil appears to be entering a permanent global decline. The fuel cost spike of 2008 severely hampered food distribution in some parts of the world. Cheap transportation, which permits food to be grown thousands of miles from where it is eaten, stored in centralized facilities, and delivered daily to where we live, shouldn’t be taken for granted either.

The second assumption is that the money we have now will remain a reliable medium of exchange that enables a smooth flow of production and distribution. Few people realize that most money comes into existence through bank credit that is backed by the borrower’s debt and any collateral. Banks don’t actually have money to lend, they simply decide who is “credit worthy,” and for how much. After a borrower signs the loan documents the bank creates the corresponding money in electronic accounts, such as a checking account. Credit and debt are therefore “flip sides of a coin.” People receiving bank credit are in debt to banks, but, correspondingly, banks are in debt to people for all the deposits on hand. When too many loans default, banks are at risk of defaulting on their own promise to maintain the savings of depositors. This is why credit dries up as debts go bad: As debts are cancelled through bankruptcy then a corresponding level of credit must disappear also. In the present banking system it is mathematically impossible for all loans to return their principal plus interest without a constant expansion of debt/credit. But a system that depends upon unending growth eventually ends. The actions of the Federal Reserve to re-inflate the reserves of the banking system are a desperate attempt to fix something that is permanently broken. Unfortunately, the systemic problems are deeper than the surface actions currently being taken by the Federal Reserve, The U.S. Treasury and the U.S. Government. When I think of the global financial system nowadays what comes to mind is the “Humpty Dumpty” rhyme. Knowing that the debt-based money system we currently rely on is failing, we created Mendo Credits to function without debt or interest.

The money I had printed was created with all the above-mentioned issues in mind: wide income disparity, lack of practical self-reliance, unsustainable agriculture, resource depletion, climate change, a fragile just-in-time delivery system, a failing money system, and rising unemployment.

When I said that “Ben Bernanke doesn’t make money as good as this” I meant that today’s dominant money actually creates or exacerbates those troubles, whereas Mendo Credits can be part of their solution.

Along with several other people, I am working with Patty Bruder and Cyndee Logan of a local non-profit called North Coast Opportunities (NCO). NCO mainly provides social services, such as running preschools, senior support, and managing community gardens. Mendo Credits is a new food-backed local currency project partly funded by a grant from the California Endowment. The overall goals of the project are to improve community health, economic vitality and environmental sustainability through local food system development. For as long as I have known Patty and Cyndee they have been thinking about the importance of system change and practical self-reliance. They’d prefer to develop a community garden where low income families can grow their own food rather than hand out meal money.”