Chris Dillow has launched into Brixton‘s wrong-headed attempt to solve environmental issues by producing its own currency (trackback URL). He points out that the very reason Brixton want their currency ‘is what most economists regard precisely as an argument against such currencies – that it would retard cross-border trade, by keeping money within Brixton’.
By definition, the Brixton pound must be worth less than a normal one, because its range of use is less, it is less liquid, you can’t pledge it as security, and there is a risk of the new monetary authority doing something daft with it.
Coincidentally, I wrote at greater length but with less economy on Iceland’s Littleness, imagining a situation where Lambeth went further, and issued its own currency for fiscal purposes, with no UK central banking. But it concerned areas only lightly alluded to by Chris: such as the extent to which the central authority intends to use the currency to borrow, or raise cash fiscally – a problem for Iceland but not yet for Brixton.
But I don’t read anywhere about what limits will be made on the production of this currency. If Brixton’s trade turns down, will Transition Town Brixton produce loads more of it, hoping to boost demand? In fact, is this one reason for the idea in the first place: “My local area is suffering – maybe this is a tight money problem – let’s produce more money”. What happens if people start trying to exchange it for real money? Or for more goods than Brixton can support? Will its value be eroded as everyone rushes for the doors (of the businesses promising to accept it), driving the good money away (Gresham’s law)? This last scenario raises the possibility that the currency would appear very popular shortly before going up in smoke . . .
I suspect they have rules to prevent this: a one-for-one backing with real pounds. But it this still produces an expansion of the money supply – the exchanged money will no doubt get out there somehow. Do you have the right to exchange them back for normal sterling? In which case, its fungibility will undermine its free-trade-undermining characteristics.
Unfortunately, the Liberal Conspiracy blog announcing this spends more time on the irrelevant question of who appears on the notes, like some sterling-fixated Tory. As if putting Van Gogh on there makes up for it being a ropey atavistic idea.
No surprises that this is an idea supported by NEF – which immediately throws it out of that group of ideas marked “sensible” or “practical”. Even commenters on Lib Con are anti, like Kate who calls it ‘xenophobic‘, and Denim Justice who asks
“Why are these middle class white lefties (and I’ve been to Transition meetings, they are full of middle class white lefties) asking hard off, working class black people in Brixton to need another currency just to buy their basics?”
A classic example of anti-globalisation hurting the poor.
In other news, I notice that the Adam Smith blog thinks that cutting spending is easy – or achieving nominal cuts is not impressive.
Look at this in cash terms though, and it just means departmental spending is going to fall from £390.5bn in 2010-11 to £386.3bn in 2013-14. And that’s difficult to get excited about.
Perhaps they would like to post a list of those years in which any UK government Tory or Labour has achieved nominal spending cuts.