ChiemgauerFrustrated with free trade and price dumping? Create your own currency!
Regional currencies can support the local economy, break the price monopolies held by international corporations, and prevent commodities speculation. These might seem like very lofty and unattainable goals, but a handful of high school students has made it work, offering irrefutable proof of concept. Read More
With the introduction of the euro in 2002, it seemed a single currency had conquered all of Europe. Well, almost all of Europe. One small region in Upper Bavaria at the foothills of the Alps saw the limitations of just one dominant currency, and decided to create an alternative.
Back then six high school students and one teacher set themselves a goal: to turn the financial system on its head. They mapped out plans for a currency that would be valid throughout the region around Lake Chiemsee in Germany, a depreciating currency subject to a negative interest rate. Kicked off in 2002, their brainchild, the chiemgauer, has achieved a turnover of 8 million euros by 2015, making it Germany’s most successful alternative currency.
The mission of the chiemgauer project is to promote the local economy and counteract the negative impact of free trade and price dumping. It also supports local non-profits and social charities. In 2015 around 600 companies in the region participated in the program and the chiemgauer non-profit organization was backed by around 3,000 members. So how does it work?
Money to counteract international free trade
The idea behind the chiemgauer is fairly simple: the baker, the butcher and every other small, locally owned business or manufacturer in a region join forces and pay their employees in the regional currency. This regional money can be spent where ever it is accepted – at participating businesses in the same area. Every business that is up to supporting a local non-profit or charity is allowed to participate. This promotes a local trade-based economy: if you give me five rolls, I’ll give you a meatloaf in exchange.
This basic principle – that the chiemgauer is only valid in one single region – was initially the subject of a great deal of vociferous criticism from economists. In our globalized world, free international trade is held up as the ideal, as evidenced by the growing number of free trade agreements. In the world of economics, it comes down to a simple equation: A large chain that make the breads and cakes we eat in a huge factory is so much more efficient, since much larger quantities can be made in the same amount of time. These large batches have to be transported much further, of course, which negatively impacts the environment. But Mother Nature does not charge for the services she provides and therefore does not get her own column on the economic balance sheet – at least not yet. Price wars determine the victor, and the chain bakery wins easily.
A regional currency counteracts free trade. It cuts the large bakery chain right out of the business cycle.
A regional currency, however, counteracts free trade. It cuts the large bakery chain right out of the business cycle, which is how the chiemgauer strengthens smaller local businesses and drives the regional economy. It gives the traditional, local master baker an advantage to the detriment of the large bakery chains with their 800+ shops who have already put 800 local bakers out of business by undercutting their prices. Regional business cycles develop as more and more people and businesses get involved.
The chiemgauer is backed by the euro and can be exchanged at any time for a 1:1 rate. Anyone who wants to start using the chiemgauer for their daily purchases has to first join the Chiemgauer e.V., a non-profit organization. Membership is free and each new member names a non-profit or project they want to support. Participating vendors then donate three percent of a total purchase made in chiemgauer to the selected charity. In 2015, the chiemgauer supported around 260 charities to the tune of 66,000 chiemgauer/euros.
Change begins in the mind – and the heart
While setting up a regional currency may sound fairly simple, it is not all that easy. Perhaps the baker’s apprentice needs some euros as well because he wants to shop at one of the large discount grocery stores. The sales person at the butcher’s shop insists on using euros because she prefers the inexpensive bread from the large chain stores. Convincing people that spending a bit more is sometimes the best way to go can be very challenging.
Change begins in the mind, in people’s attitudes. Do unto others as you would have them do unto you, a central tenet of Kant’s moral philosophy, is the basic principle. If I sell meat at the local butcher’s and want a living wage, the prices for the products I sell have to be fair. In turn I have to be willing to pay a fair price for the bread made at the bakery down the street. And if I want the baker’s apprentice to stock his fridge at my shop, I need to frequent his bakery.
The heart is just as important as the mind in this transformation. People have to decide what is most important, what sort of working environment they value most. Whether they want to join 500 other employees making the daily 80 kilometer trek to the nearest baking factory, or whether they want to work with 10 or so others at the local bakery right next door. Products are important too, and our quality expectations. How should the bread we eat taste and smell? Are we willing to settle for bread made using the latest genetically modified “super” flour from the USA? Or do we want to pay a bit more for local flour, grown and ground by local farmers?
“People have to decide whether they want to join 500 other employees making the daily 80 kilometer trek to the nearest baking factory, or whether they want to work with 10 or so others at the local bakery right next door.”
A regional currency gives consumers the power to shape both the present and the future of the private sector. By paying with chiemgauer at the bakery, I ask the baker to source his materials as close to home as possible, because this is where he can spend the money he earned from me. I encourage my local grocer to sell local, seasonal foods, because she would otherwise need to pay exchange fees to get euros. This creates new supplier chains between local retailers and small producers. The apple juice on the shelves was pressed just 30 kilometers outside of town instead of 600 kilometers away. The cheese counter suddenly features 30 regional cheeses because the local cheese dairy accepts the regional currency.
Negative interest rate
Independent currencies are confronted by a whole host of laws designed to limit competition with the euro. There are still some niches though in which operating a regional currency is allowed under the auspices of freedom of contract. The chiemgauer accounts are managed by regional cooperative and mutual savings banks. The basic rules governing its management are:
1. Exchange fee: Customers are charged a fee for exchanging chiemgauer back into euros, most of which goes to non-profits in the region. Association members – the same people who exchanged their euros for chiemgauer in the first place – decide which non-profits get this money. The distribution of funds is therefore democratic.
2. Negative interest rate: To increase circulation velocity, the chiemgauer was designed as a depreciative currency. This means anyone with chiemgauer has 90 days in which to spend them before they begin to lose value. A high circulation velocity contributes to economic stability. A slow down can increases unemployment and reduce the tax income received by the government. After 90 days, people can purchase a stamp for 2% to retain the value. The negative interest rate for the chiemgauer started out at 8% per annum. Interest is charged daily. After 13 years in which this practice proved effective, the reins were loosed a bit and the interest rate was dropped to 6% per annum.
This negative interest rate concept came under fierce fire in a report issued by the Deutsche Bundesbank in 2006: “The Germany economy [would] incur losses of around 130 billion € if the cash in circulation and demand deposits in German banks were switched to depreciative currency.”
But since 2014 even the European Central Bank has started introducing negative interest rates. This encourages investors and banks to put their money into real projects, which can help prevent capital flight at the first hint of a crisis. This concept could have been the salvation of a number of countries, such as Greece, where GDP dropped by more than a third.
If there were political will to actively promote regional currencies, economies that have bottomed out could quickly regain lost ground.
Unemployment continues to set record highs in Southern Europe and the economy has hit rock bottom in countries like Brazil, Ukraine and Russia. On the other end, “financial havens” like Switzerland, Denmark and Sweden have begun charging fee of up to 1.1% per annum for safeguarding money.
For years now experts have pointed to the chiemgauer as an example of how to boost the business cycle. The circulation velocity of the chiemgauer is three times that of the euro. What kind of impact could this have in countries like Ukraine and Greece? If there were political will to actively promote and support regional currencies, economies that have bottomed out could quickly regain lost ground. Regions in crisis have therefore invited the chiemgauer experts to come and share their experience. For instance, the Taxpayers Association of Ukraine and the German consul general in Greece have invited them.
Currencies of the future
The German-speaking world has seen other examples in the past – such as the Wörgl in Austria in times of the Great Depression – and there are some ongoing regional currency projects in Kenya and Brazil that show how effectively this instrument can be employed. In Sardinia a regional currency was established fairly quickly and has achieved 50 million euros in turnover, for example.
Turnover in the billions is even possible for alternative currencies, as the WIR Bank in Switzerland with its network of over 30,000 companies has shown. The “WIR franks” it issues have since been included in the international list of currencies under the abbreviation CHW.
The chiemgauer has been honored in a different way: In London the British Museum exhibits the chiemgauer next to the euro. And understanding is slowly growing that a multiplicity of currencies can help people learn how to develop monetary systems that better serve our needs. The currencies of the future will be designed to ensure that exchange is fair and that the few cannot take over and exclusively control a single currency.
At the end of the day the real question is: Which currency is contributing the most to building peace in the world?
The positive effects of this system of mutual support become obvious when an entrepreneur who was not approved for a loan at a bank in Chiemgau received a micro-credit from the regional currency association because it trusts her to recoup the loan amount via income from the local network.
And while a mother in Nairobi who can earn a living thanks to Gatina pesas, income she uses to send her children to school, paying teacher who also spends her salary in the regional currency at the owner-operated businesses in the area, might be less relevant in overall economic terms than a consignment of 100,000 weapons sent to Kenya – at the end of the day the real question is: Which currency is contributing the most to building peace in the world?