Friday, February 19, 2010

Support for local currencies?

What follows is something I posted today on the Transition Horsham Forum.

I often get the feeling that mainstream economists are living on a different planet from the ecologically-aware thinkers who inspire the Transition Movement. However, occasionally one sees signs of convergence and there is one, very faint sign in today's FT.

I reckon that Sam Brittan is about our most respected economics columnist. His column today is entitled Greek light on an over hasty project. It is about the way the financial crisis in Greece (too much debt) suggests that the euro was launched prematurely - perhaps 20 or 30 years ahead of its time. Now Greece's participation in the euro is restricting its ability to find a way out of the financial mess that it's in. Italy, Portugal and Spain have similar difficulties and if Greece fails to find a way out of its difficulties, there could be a domino effect that forces a messy demise of the euro and a return to national currencies.

When a country with its own national currency finds itself with too much debt, it has a couple of safety valves. It can print money and so inflate some of the debt away. It can also devalue its currency and so make its exports cheaper and its imports more expensive - so stimulating local production. With a common currency like the euro, it can't do this. In order to remain creditworthy it has to go for more painful and politically difficult measures, such as increased taxes and major cuts in public expenditure - measures which could simply lead to an uncontrolled spiral of economic decline leading to social breakdown. This is the prospect that Greece faces.

At the end of the article Brittan writes:-

Countries in the Middle Ages often operated with two or more currencies: an international one such as the ducat or florin, and local currencies with more restricted use. Could not such a local currency, whether or not called the drachma, emerge in this way with or without the sanction of the Greek government? It would surely be better than being crucified by the international financiers.

This, of course, is an idea that Transitioners in Totnes, Lewes and Brixton have already put into practice, except that they are operating on a more local level than a country the size of Greece. Moreover, the local currencies launched by Transitioners are aimed at making local economies more self-contained - in effect, de-globalising. De-globalisation is not yet a project dear to the hearts of mainstream economists, who have yet to grasp that resilience is at least as important as efficiency. Nevertheless, it is good to see even faint signs that others will eventually follow where Transitioners lead.