Buy Local Loyality Card

Local currency for local development - why promoting local economic development using the national currency is an oxymoron, and how to design an alternative that works.

It has long been known that money is inclined to leave small regions and find its way to the big cities of the world and the pockets of shareholders of the larger multinational corporations. Many, like Richard Douthwaite (Short Circuit) and Paul Glover of Ithaca Hours have said that a local currency keeps money from leaving the district and counters the trend for concentration of wealth in the larger cities of the western world. But how? What sort of currencies are needed, viable and legal?

Schemes to persuade customers to 'Buy Local' have been in operation now for many years, but the effect has been minimal. The rhetoric always appeals but it is not generally matched by a change in behaviour. Those who practise choosing a local retailer over a multinational are largely confined to a small group with strong principles. Let's face it, when push comes to shove most of us head for the nearest Warehouse or Two Dollar Shop and we will drive miles for a bargain. Darfield people drive to Christchurch to a cheaper supermarket and Eltham citizens drive to Hawera rather than the local superette.

When the topic of local currencies arises, most people say, "Does that mean Green Dollars?" Green Dollar systems have had minimal impact on the local economy; they only work well when they have active brokers and a membership whose skills and products are balanced, and so on. They are essentially small. Ithaca Hours, a currency in upstate New York, in operation since the early nineties take the form of paper notes, but the highest denomination is Two Hours, or the equivalent of $20. And we'd never pay for footpaths or sewerage systems with that.

An advance on Ithaca Hours is Saltspring Island $$s. This is a paper currency designed to favour local retailers on an island near Vancouver. The notes are beautifully designed by local artists and some of the local banks will accept them without converting them to Canadian dollars. But again it is small. If proposed for New Zealand they could be vulnerable to challenge from the Reserve Bank.

This brings us to a proposal of the New Zealand Democrats, a party in existence for fifty years. It was once called Social Credit. They want local councils to get interest free loans from the Reserve Bank for essential infrastructure. They point out that rates are excessively high because the commercial banks charge interest on the money they create, and citizens have the right to create their own money interest free. The agency to do this, they say, is the Reserve Bank. A fine idea, and the Governor of the Reserve Bank actually has the power to do this. But will he? The odds are so low given this globalised economy I am not willing to spend any energy on it. The theory is right, but the CEO of any local authority has to obey the law and the council solicitor would probably advise against it. The idea is dead before it gets off the ground. While it would reduce local body rates, it would not help develop the local economy to favour Buy Local.

So who will create a local currency if it is not the Reserve Bank, or a Green Dollar scheme? Any thought of the Council creating money by paying wages of its workers in a local currency can probably be equally easily dismissed. Nice idea, but corporate globalisation is too advanced.

What form will a local currency take? Will it be coins? A small intentional community in Italy has used its own coins for thirty years but that will never make a major economic impact, only an emotional one. Pretty notes are attractive, but will not amount to much in changing local spending habits. Moreover the Reserve Bank would be down on it like a ton of bricks. To mark the year 2000 the Chatham Island Note Corporation, a private company, issued beautiful notes and the locals loved them so much they decided to accept them for payments. The notes were widely used and even accepted by the Council to pay dog licences. But when eighteen months later a new issue was proposed, the Reserve Bank refused permission and threatened legal action. The tiny Chatham Island Note Corporation could not compete, so hey withdrew their website and stopped the plan.

There is no choice but an electronic currency. New Zealanders adopted Eftpos eagerly and we were ahead of many European countries and USA. The habit of paying by eftpos card is now well established. Why carry notes and coins when you can swipe a card?

And what else is in our wallets and purses? Why a FlyBuys card, and an AA reward card. We go to certain retail outlets, and when our eftpos card is also swiped, we earn 'points'. These are loyalty points, rewards for using the retailer like Dick Smiths or BP or New World.

What actually happens when the FlyBuys card is swiped? In one action 'points' are created and banked in our personal FlyBuys account. Statements are sent to members regularly and when we have enough points we can spend them. They are in fact a currency. They encourage us to patronise certain big retail outlets. They are designed to encourage further loyalty to those retailers. And they are designed to be used.

FlyBuy points must be spent within three years of receiving them or they drop off.

FlyBuys have already designed their currency to encourage spending in chains or large stores. So if we had a local scheme, local points would encourage local spending.

Westpac bank invites its customers to use their Hotpoints card. Customers earn hotpoints each time they use their credit card. They can spend their Hotpoints by nominating an outlet, and a voucher is sent for them to spend at that outlet.

Maybe all local retailers and wholesalers need is a slight modification of their
equipment. Retailers could then swipe our local loyalty cards on eftpos machines, so that a central office knows how many electronic points each of us has at any particular time. We will never see this local currency, except on our statement.

The local business association, keen to promote loyalty to <i>their</i> members, could model a scheme on Fly Buys or Air New Zealand with its air points, AA or Westpac Hotpoints. They could set up a database of all the cardholders and keep a tally of each customer's <i>Buy Local Points</i>. It is a local loyalty card. The business association loyalty office would issue the cards and design a currency to encourage <i>Buy Local</i> behaviour. The
potential of the scheme would be greatly enhanced if the District Council joined in, and as far as I can see, no legal obstacles are in its way.

Just like FlyBuy points, local loyalty points could have an expiry date, creating an incentive to use them, and giving <i>Buy Local points</i> a slight advantage over national currency. Clever computer programmers could developing the systems maybe in cooperation with other 'Buy Local' or 'Mainstreet' or 'Buy in the Bay' organisations. Perhaps if local credits aren't spent in a month they could depreciate by 1% or 2%, whatever percentage is needed to encourage circulation. Or they could drop off after a year - whatever works.

Now the scheme is getting viable. We just have another card in our wallet or purse to have swiped when we purchase something. And whenever locals want to spend their points, hopefully often, they can do so, but <i>locally</i>.

What could be the effect of such a scheme? If successful, the shopping mall, full of national and Australasian chains, would be competing on a more even footing with locally owned and operated shops. The local hardware store would find that locals wanted somewhere to spend their local points other than in the national chains. The supermarket selling fruits and vegetables imported from overseas and from distant NZ places would start to experience a smidgeon of competition from a local fruit and vegetable outlet selling locally grown produce.

Retailers and customers alike would become more and more aware of the local content of products and services. Supermarkets may be forced by customer demand to stock locally grown fruit and vegetables. Local craft sales and local clothing, (or what there is left of it in this globalised economy), would be at an advantage. People would want to spend their local points. They probably wouldn't have to travel far. Weekend town markets would thrive if they could adapt and have eftpos outlets where cards could be swiped. A struggling local business selling soil and bark for landscaping
would be delighted when gardeners came in to spend their 'Buy Local Points'. When local businesses saw the potential of the scheme, they would soon become its ardent advocates; they would work to see the incentives were adequate and the operating costs low. To reduce operating expenditure, various local regions might share software and join together for better buying power, while keeping their separate identities. Local members earn local points to be spent at local outlets.

New technology would develop as a result of new pressures. Transport patterns would change, as people from small towns would feel less inclined to travel to the cheaper supermarket 30 km away. But most importantly the local council would contract to accept local credits as part of their rates or their user pays services. Overdue library books, dog licences, developers' fees all could be paid partly in local currency. Local builders and carpet layers and kitchen suppliers could be paid partly in local loyalty points.

The nature of possible change in economic development is beginning to emerge. It is the type advocated by all Main Street development groups, local councils, environmentalists and so on, but which so far has been little more than rhetoric. A community with an established local loyalty points system would be less favoured by supermall or Red Barn promoters, and would get behind local businesses to help resist any unwelcome proposals.

A local currency is the only way that locals can genuinely promote <i>Buy Local</i>.

All we need is another FlyBuy scheme, this time run and operated by a local business association. They need to establish a local card, local database and employ staff to operate a local loyalty scheme. The need for public education cannot be overlooked. The more people understand the flow-on effect of their spending decisions, the greater the chance of developing their loyalty. How big would this scheme be? It is hard to say, but for a start it would be small. It should exist in parallel with other complementary currencies like commercial trade barter between smaller businesses (one example is Bartercard), and Time Dollars to encourage volunteerism. Perhaps it is only when we have a myriad of smaller complementary currencies that we can genuinely have local economic development of an organic nature.


Deirdre Kent
August 2004
deirdrek@xtra.co.nz

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