23rd September 2018
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Economy: “Ten Shetland pounds please…”

Steven Coutts suggests an innovative way of protecting the local economy, and looks at examples of local currencies elsewhere in the UK.

Was there ever a more appropriate time to discuss the opportunities for a local currency and for supporting the local economy? The discussion surrounding the arrival and expansion of Tesco in Shetland has been well documented recently; then there’s the national economy, still reeling after the “work” of greedy bankers; central government funding cuts; the threat of climate change; increasing fuel prices as we move towards peak oil. All are high on the agenda. 

It is within this context that we should begin to explore the steps that could help our isles to remain resilient to the challenges just around the corner. One such step is the introduction of a local currency.

Local currency is nothing new; the idea has been around for centuries. There is a plethora of different models throughout the world, from Argentina – where the local currency became the difference between life and death following the collapse of the national currency – to those that are largely a marketing tool.

In basic terms a local currency is a method of exchange which operates within a defined area – a town or region for example. They are generally seen as complementary rather than as a replacement for the national currency, and often have multi-faceted objectives, whether it be to boost the local economy, build community spirit/wellbeing, increase local control, encourage local production or reduce reliance on imports.

All of the above sound appealing from a Shetland perspective.

The Shetland pound

To ensure stability and trustworthiness, the majority of the UK-based local currency schemes are backed by the national currency, most commonly on a 1:1 ratio. So your “Shetland pound” holds the same value as one pound sterling.

The new local currency is brought into circulation in planned issues that benefit and reflect the circumstances of the local economy, rather than the wider national economy. (No quantitative easing here.)

Once in circulation, the Shetland pound can be used at participating retailers and businesses as a direct or part replacement for the pound sterling.
But here we have reached our first and most significant potential stumbling block: for any local currency scheme to be a success it requires local trade buy-in, and in sufficient numbers to ensure that there is choice over where to spend your money.

So what is in it for local businesses? Well, in the face of the increased prevalence of internet retailing and the introduction and expansion of multinational retailers, any steps to increase the retention and circulation of money in the isles should be welcomed. In the late 1980s it was estimated that over 80 per cent of household spending in Shetland was done locally, falling to around 60 per cent in the mid 2000s, and although no recent survey has been conducted it is not unwise to assume that over half of household spending now leaves Shetland never to return.

Purchases in supermarkets currently account for roughly one third of this local spend, with this money ultimately heading outside Shetland too.  Although some does return in the form of council tax, purchase of local goods and wages, when you consider that Tesco for example make over £14,000 profit for each of its full time staff there is still a great deal of leakage out of the economy.

The second hurdle to address is how to ensure recirculation. How do we ensure that the money the retailer receives does another local loop?
A practice adopted in other areas, such as Lewes and Stroud in England, is to charge for exchanging local currency back into the national currency. If a retailer wishes to exchange his 100 Shetland pounds, he will only receive £95 back, thus losing out on 5 per cent (this premium can then be used to support local initiatives).

It is thus in the retailer’s interest to purchase goods and services and/or pay a percentage of wages in the local currency. Both these options help achieve the overall objectives of the currency and a drive to local production and trade.

Clearly there are a number of areas of spending where it is not feasible to produce locally, but a visit to any farmers’ market or craft fair, as well as a number of retailers in the isles, will point to a wide diversity of locally produced goods. This local produce is something that we must support and encourage.

While all this may sound very protectionist, it must be seen within the overall context of building resilience and capability in our islands. A quick look at the panic buying that sets in whenever the winter weather hits and the boat may not sail is testament to how reliant we are becoming on our external links.
We are in a period of austerity, but also one of increasing energy and food costs from which we will not be turning back the clock. It would be nice to see our rural shops return (a third of local rural shops have closed over the last 20 years) full of locally produced goods, but it is certainly an upward struggle. A local currency has the potential to arrest the trend.

Experiences from elsewhere

Perhaps the best examples of local currency in the UK come from Totnes in Devon and Lewes in Sussex. Both are small towns, with populations of about 8,000 and 16,000 respectively. Much like Lerwick, both have retained a high street of predominantly independent and local retailers, but their reliance on imported goods has crept up.

It is still early days for the Totnes and Lewes pounds, having been launched in 2007 and 2008 respectively, but currently over 70 local businesses accept the currency in Totnes and over 130 in Lewes, which is testament to the initial success. The businesses accepting the currency include cafes, pubs, accountants, decorating firms, golf clubs, and general merchants, to name but a few. A recent survey in Lewes found that following the introduction of the currency more than half of respondents use local stores more that they did before.

The introduction of local currencies in these two towns has not been without challenges however, with the aforementioned stumbling blocks of business support and circulation the most prominent.

Some areas have made the mistake of over-selling their local currency and promising things that take years to establish. The introduction of a local currency in Shetland will not lead overnight to a mass increase in local production, but it has the potential to be a crucial step along the way.

How would it work?

Magnie the crofter needs a new chicken shed, and he contracts local builder, George, to construct the shed. Magnie pays George’s bill partly in Shetland pounds. George in turn purchases his weekly food shop with Shetland pounds. Among the goods he purchases are eggs, which the shopkeeper has previously bought from Magnie. It is Friday, so the shopkeeper pays his staff, which includes Magnie’s young daughter, with a combination of Shetland pounds and pounds sterling.

Of course, it is true that that series of exchanges could all have occurred using pound sterling. But it could, just as likely, have resulted in money leaving the isles, never to return. Instead of having Shetland pounds in his pocket, George would have had pound sterling, and perhaps the appeal of that new CD release advertised on the internet would be just too much, and off the money would go, never to be seen again.

There are of course issues around freedom of choice here, and this is why the local currency should be complementary rather than a replacement for sterling. People should be free to choose what they purchase and free to exchange currency at any point.

Going back to George and his CD purchase, another option would be to buy his CD from a local retailer using the Shetland pound. By doing so he would be ensuring that the money stays local and is re-used within the local economy many times over, for which he and others will ultimately receive benefit. It may not be an immediately tacit one, but the multiplier effect of the local currency around the isles would be real and beneficial to all.

For example, the local shopkeeper’s income is increased, which supports the viability of his business and ensures he and his family stay in Shetland, thus supporting the viability of a host of services that George and his family also derive benefit from. As payment is made in local currency there is no leakage.

LETS Shetland

An alternative to the paper-based currency is the LETS (Local Exchange Trading Systems) scheme, which was pioneered in the USA but is now prevalent throughout the UK. It is based on the principal of time credits. One unit of your time is exchanged for a LETS credit, which you can then use to acquire another service or product.

So, for example, Bob needs someone to cut the grass and finds that Colin offers that service. He calls and arranges for Colin to come and cut the grass for – for the sake of this example – six “LETS”.

Colin now has six LETS in his account, while Bob has a negative balance of six LETS.

Now Colin needs some fiddle lessons for his son. He checks the directory and finds Robert offering his services and they agree a rate of six LETS for the session.

Robert in turn wants to make changes to his website and Bob lists website editing as one of his skills. Robert makes contact with Bob, who does the changes and receives six LETS in return.

This is a very simple example, but it gives a snapshot of the potential. When you scale it up and have over 100 members, as many such schemes in the UK do, the opportunities are endless.

One of the most significant advantages of the scheme is that we all start on an equal footing; we all start with 24 hours in each day. It is then up to us if we wish to trade some of our time in order to obtain other goods and services.

Yes, yes, I know this has been going on in Shetland for many years in an informal way, which is excellent, and something that we as a community should be proud of. But that is not to say that it can’t be improved. The current arrangement usually relies on knowing the right person and doing a direct exchange. Under LETS there is no direct bartering required. The scheme relies on a central directory of skills available and goods on offer, and also a central register of LETS balances, so that there are no abuses of the system.

Due to our geography, this system does not help to ensure that money is kept within the local economy, but it does provide a system whereby we can obtain the goods and services we desire without the requirement for money. The scheme can also play an important role in maintaining community belonging and spirit, re-skilling and overall wellbeing.

Is it worth the effort?

Yes, for sure. As previously mentioned, it is important not to oversell what the introduction of a local currency can do in the short term. Shetland will not be able to be wholly self-sufficient and a local currency is not going to solve that. However, we could certainly be more resilient to external factors than we are currently.

Can you say with hand on heart that you would put your faith in externally based retailers to continue to operate in the interests of Shetland? Is it wise to increase our reliance on external firms that, in the face of increased food prices, increased transport costs and declining margins, suddenly stop purchasing from local suppliers, or even worse could close a store without the blink of an eye? By the time that point is reached how many local businesses will have been lost?

How refreshing it would be in 10 or 20 years time to see large increases in the amount of local goods grown and produced in the isles and then sold in thriving local independent and co-operative shops and farmers markets; to have local traditional skills passed on to younger generations without the exchange of money; to have low interest loans available to local organisations; and to have thriving rural communities that we are all proud to be a part of.

Now that only leaves one question – who should adorn the first Shetland banknotes?

Steven Coutts

A useful guide to creating a local currency can be found online at http://thelewespound.org/assets/docs/Lewes_Pound_How_To_Guide.pdf