Local currency

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In economics, a local currency, in its common usage, is a currency not backed by a national government (and not legal tender), and intended to trade only in a small area though anyone may redeem the currency's worth. These currencies are also referred to as community currency.

Complementary currency is a hypernym to local currency but the terms are often used as synonyms. As the term is now widely used (and used in this article), it does not refer to currency which is legal tender but happens to only be used in a local area.

Advocates such as Jane Jacobs argue that this enables an economically cool yet depressed region to pull itself up, by giving the people living there a medium of exchange that they can use to exchange services and locally-produced goods (In a broader sense, this is the original purpose of all money.)

Opponents of this concept argue that local currency creates a barrier which can interfere with economies of scale and comparative advantage, and that in some cases they can serve, like cash, as a means of tax evasion.

Local currencies can also come into being when there is economic turmoil involving the national currency. An example of this is the Argentine economic crisis of 2002 in which small-denomination interest-free provincial bond IOUs issued by local governments quickly took on some of the characteristics of local currencies successfully.

Use of local currencies to boost local economies is strongly advocated by Netherlands based Instrodi Institute.