Bankruptcy

Local Currencies

By Bob Lawless

One moment that everyone seems to remember from The Office television show is the creation of Schrute Bucks, a motivational tool created by Dwight Schrute in his few moments of power as office manager. Any worker who accumulate 1,000 Schrute Bucks was entitled to five extra minutes of lunch break.

In the most recent issue of American Banker, Sara Lepro has a fascinating article on the grown of local currencies. Hardly worthless Schrute bucks, these currencies generally allow local residents to purchase them at a discount and then redeem them for full face value at local merchants. The idea is that local currencies promote local commerce, but Lepro points out their use has been growing in today's climate of mistrust against large financial institutions. The article will interest many Credit Slips visitors.

A question probably occurs to most everyone: is this legal? Yep, in most circumstances, a local currency would be legal. It is a crime to make, utter, or pass "any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design." (18 U.S.C. § 486). The statute only mentions coins, making one wonder whether it could be applied to paper currency, but the statute's vintage suggests it is intended to reach any sort of substitute money. Rather, the key question would seem to be whether the currency is intended for use as "current money."

Obviously, the phrase "current money" does not readily admit of a definition, but consider two extremes. At one extreme, a charity sells coupons redeemable for twice face value at a local restaurant. At the other extreme might be an organization that creates a separate currency system intended to compete with and be a substitute nationally for U.S. currency (readers may know the liberty dollar controversy). The coupon is clearly not intended as "current money," while the latter example most likely is. In between these two extreme situations is a vast gray area, but the extremes help us understand how the statute might apply to a local currency. A local currency intended only to circulate among local merchants is the nature of scrip, much more like the clearly lawful coupons than a national currency substitute.

This statutory analysis also suggests a limit to local currencies. If a particular local currency became very popular and widespread, then it would be more likely to be intended for use as "current money," that is as a full substitute for U.S. currency. In these circumstances, it might attract the attention of law enforcement and Treasury officials. But, that analysis is very hypothetical. The local currencies described in the American Banker fall far short of the sort of widespread use that would raise legal concerns under the current statute.

Full post as published by Credit Slips on July 20, 2010 (boomark / email).