Home / Payments / Do recessions make banks redundant?

Do recessions make banks redundant?

In times of crisis, there is danger and opportunity, and this is no truer than when there is a recession, stagflation or war.

In the 1920’s for example, during the runaway hyperinflationary times of the Weimar Republic, Germans started to create alternative economies using local currencies.
This is because the national currency was effectively worthless and the
national economy was out of control, so citizens turned to local focus
to survive.

Similar trends have been seen with Zimbabwe
more recently, and are now appearing in other parts of the USA and
Europe as the credit crisis tightens.  Should such systems really take
off then Bankers, we have a problem.  The problem is that these systems
are locally focused and usually operate outside the banking system.

Luckily this is not a major concern as most local currencies, also
known as complementary or community currencies, appear during the
crisis and then disappear afterwards, with only Switzerland's WIR
surviving long-term.  The WIR was created in the 1930’s, has its own WIR Bank, and is used by 1 in 6 Swiss businesses for commerce and trade today.

Maybe this might be changing though as, taking my own locality of the
UK, there have been two significant examples of local currencies
launched in the past year.

The first was the “Totnes Pound”.

Launched in March 2007, the Totnes Pound aims to encourage local
spending on local produce by local people to the benefit of the Totnes
locality. These local currencies are often outside the banking system,
and intended to be inflation-proofed by not being tied to external
commerce, but to local community interests.

As the Totnes (a town in Devon) website states:

“The benefits of the Totnes Pound are to: 
• build resilience in the local economy by keeping money circulating in the community and building new relationships
• get people thinking and talking about how they spend their money
• encourage more local trade and thus reduce food and trade miles
• encourage tourists to use local businesses.”

So I was intrigued to hear over the weekend of the launch of the “Lewes Pound”.

Lewes is another town in Britain, launching their own currency on September 9th.

As the founder of the Lewes Pound, Oliver Dudok van Heel, states:
“studies show if there is more than 12 per cent unemployment in a
community these systems become very popular”. With growth slowing,
unemployment and inflation rising, and credit about as easy to find as
Gordon Brown’s personality, times are hard. Hence, the launch of local
currency schemes.

However, when times are good again, these schemes could just as quickly
disappear for, no matter how many of these schemes are created –
reports of over 9,000 such local currencies exist arond the world – the
difficulty is that those who travel outside the locality, as many of us
do these days, cannot take the currency with them. It is useless
currency, unless it is used in Lewes or Totnes. So a Lewes Pound cannot
be used in Totnes and vice versa.

This is why so many local currency schemes close down when times are
good again,and why they are usually of little interest to us commercial

But all of this could be about to change as Barclays Bank are involved
in the Lewes scheme, and will accept Lewes Pounds into accounts for

This could be very significant as a friend of mine, Bernard Lietaer,
has been trying to create a way to organise a global local currency for
years*. The idea would be that, in a similar system to Airmiles, you
could bank your local community activity in an online system and
exchange it for value elsewhere.

So I bank a few hours of work on my neighbour’s lawn as being worth the
value of 5 Lewes Pounds to the local community. I could spend that
locally, but I want to buy a few hours’ worth of time in Totnes, where
my mother lives, to have someone mow her lawn.

Via Barclays Bank, if they supported the Totnes scheme as well, then I might be able to do this.

Why is this important?

Because you could see the emergence of a dual system: a commercial
system that operates in commercial currencies for commercial trade and
activity; and a local system that operates in local currencies for
local trade and activity. The former is subject to all of the economic
turmoil of the world, the latter to the economic turmoil of the town.

And banks could play a key role in enabling this to become a global
system, by recognising and possibly even issuing, local notes for local
trade, alongside commercial notes for commercial trade. The exchange
system guaranteed by a bank, purely means that those who want to
support localities can do so through a system of trust in the same way
as we do through commercial systems.

The result is a whole new way of looking at finance and trade.

It just leaves me wondering whether the creation of the world’s local
currency infrastructure should be by the world’s local bank?

* Bernard works with other leaders in this field, such as Margrit Kennedy

About Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

Check Also

What does cashless really mean?

As we move from cash to cashless, turbo-charged by the pandemic, there is a fundamental …