Cities revisit local currencies to reboot their economies

In March last year, the technology publication Wired declared the dream of local city currencies like the Bristol Pound to be “over”. But with COVID-19 battering city economies and accelerating the shift to cashless transactions, new models are emerging, from a local payment platform to city-branded cryptocurrencies.

A local currency scheme was launched in the UK city of Bristol in 2012, following in the footsteps of towns such as Lewes and Totnes.

The Bristol Pound was set up by a group of campaigners and financial activists in response to the 2008 financial crisis, and enabled people and businesses to trade digital and paper currency. The sterling alternative could be used on buses and trains, to pay for groceries and even for council tax bills. Bristol’s former mayor, George Ferguson, reportedly took his salary in Bristol Pounds.

The founders had noble ideas about keeping money circulating locally and protecting the area from wider financial shifts and shocks, as well as shortening supply chains and reducing emissions.

At first, the currency’s rise was impressive, garnering around 1,500 individual members and 650 businesses by 2015. At its peak, hundreds of transactions were made with Bristol Pounds every week, amounting to over £1 million (US$1.38 million) per year and over £6 million in total.

Hopes were high that this offered a real future for the local economy. But then, usage started to level off before heading downhill. The organisation fought to revive the ‘town pound’ but found in the end that the scheme needed to be fundamentally rethought amid a funding crisis.

The digital currency ran until July 2020 and paper Bristol Pounds will expire in September this year.

Lessons learned

While the idea may be down, it isn’t quite out. The Bristol Pound is being reinvented as Bristol Pay – a city-focused alternative to online payments. The local payment platform would capture transaction fees – which would typically go to the likes of PayPal, Apple Pay, Mastercard and Visa – and plough them back into local social and environmental projects.

Diana Finch, who joined the non-profit Bristol Pound community interest company as managing director in 2018, is frank about what went wrong the first time around.

“I can understand that it looked like an elitist club of woke people,” she said, noting that the level of uptake in a city of almost 500,000 people failed to drive significant new revenue to businesses.

Big businesses and people who didn’t always have the time and money to ‘shop local’ were excluded from the scheme, which created an ‘us and them’ atmosphere and appeared judgemental. Further, the user experience was clunky, and expecting businesses to change their suppliers and book-keeping methods turned out to be unrealistic.

The new vision for Bristol Pay will still seek to keep money local, and in many ways its sights are set even higher.

It is estimated that around £60 million a year leaves Bristol in third-party charges when people pay for goods by card or online.

Bristol Pay would cut out the middlemen through a peer-to-peer network. The not-for-profit would use low-percentage transaction fees to fund community projects in Bristol.

The team estimates that with the right level of uptake, over time this could potentially add up to several million pounds a year for programmes which help to meet goals within Bristol City Council’s One City Plan.

The platform aims to be more inclusive to businesses of all sizes and would also look to make digital payments available for more citizens, such as the unbanked.

If it works, Finch has ambitions to offer ‘City Pay’ infrastructure for other cities globally to replicate the scheme.

Alongside carrying sterling transactions, the platform will also support badges and tokens to engage people in behaviour change and what Finch calls the “community economy”.

This taps into trends seen elsewhere such as Belfast’s Civic Dollars scheme which incentivises people to visit green spaces and US cities such as Boston and Akron which have launched rewards programmes to encourage spending with local businesses.

Bristol Pay is looking to get started with digital tokens as it works behind the scenes to make way for payments too.

For example, businesses could earn digital badges that recognise their efforts around paying the living wage, reducing landfill or cutting carbon emissions. These could be used on their website, social media and Bristol Pay profiles.

“It’s a way of people starting to engage their moral values when they are engaging with the market economy,” said Finch.

Residents could earn tokens for behaviours such as reducing water use, volunteering or cycling rather than driving. The tokens could be bartered or exchanged for goods and services, used to support a scheme such as a local youth club or entered into a lottery for a larger prize. There could even be a token-based version of guaranteed income for those that need support the most but aren’t necessarily in a position to put into the system.

“By counting how many badges of each type have been earned across the city, we can create a picture of the overall impact of all those individual commitments, so that we can see how well we’re doing at bringing the One City Plan to life,” Finch said.

The team has selected a technical partner as well as a token platform and is undertaking a ‘discovery phase’ over the summer to create a specification for a minimum viable product to be developed by the end of the year. They are also investigating solutions for point of sale purchases in shops and online, as well as an app, APIs and a card.

Funding is a challenge but grants and possibly private investment are being explored.

“I am hoping that with our revised strategy, we will find a way through,” said Finch.

City coins

While Bristol’s scheme is pivoting, some believe that the original vision for local currencies still has legs thanks to new technologies.

This was one of the proposals put forward in a new report from the Center for an Urban Future which offers 250 ideas to revive New York City’s economy and build a more equitable city. The non-profit surveyed 175 New Yorkers for ideas, including executives, activists, restaurateurs, architects and politicians. Fred Wilson, founder of Union Square Ventures, proposed NYC Coin: a local currency for the city’s five boroughs.

Wilson writes: “Increased local spending, especially at New Yorker-owned and operated retailers and restaurants, will be critical to creating an economic recovery that includes and sustains the small businesses across the five boroughs that have been devastated by the pandemic. One innovative way to encourage New Yorkers to spend within the city is by creating a local currency: NYC Coin. Local currencies keep money circulating within the community, strengthening the local economy.”

He said the emergence of cryptocurrency and the widespread use of digital wallets and contactless payment would make NYC Coin relatively easy to implement.

“NYC Coin could provide benefits for vendors and consumers through sales tax exemptions, discounts, or other mechanisms, all while showing NYC pride and ensuring the money spent stays within the five boroughs,” Wilson said.

Another idea is focused on allowing people to invest in cities via cryptocurrencies.

Last month, Patrick Stanley, founder of cryptocurrency community development company Freehold, announced CityCoins, pitched as “a new way for you to build municipal equity in your favourite city while earning for yourself”.

Following a delay to the launch, the first CityCoin, $MIA, is scheduled for rollout next month in Miami. Choosing Miami as the pilot location is unsurprising given Mayor Suarez’s much-publicised goal of making the city a cryptocurrency hub but there are plans to launch CityCoins in more US cities and beyond, based on community demand.

The Miami city government has not officially partnered with CityCoins but Suarez tweeted enthusiastically about it. His office didn’t respond to a request for comment on the launch.

Risks and rewards

For crypto-newbies, the mechanics of CityCoins could be bewildering but the overarching idea is intriguing.

CityCoins are powered by Stacks (STX), a protocol that enables smart contracts on the Bitcoin network. Coins like $MIA are mined by forwarding Stacks tokens (STX) into a CityCoins smart contract. They can also be bought on an exchange.

Thirty percent of the STX forwarded by miners goes into a special wallet reserved for the city to use – if the mayor chooses to claim it. They could use it to improve public spaces or invest in infrastructure, for example. The remaining 70 percent of STX goes to the CityCoin holders who choose to ‘stack’ their CityCoins. Stacking requires that holders lock their CityCoins for a certain time to earn their STX rewards. Holders can then further stack that STX to generate Bitcoin rewards for themselves.

CityCoins “offer the ability for people to support a city and become stakeholders in the success of that city,” whether they live there or not, Stanley says.

He envisions that cities could use the wallet to fund programmes such as guaranteed income, which is another growing trend in the US. The tokens will also be programmable, meaning developers could create apps based on them.

Some might argue that we already pay taxes for our city services but Stanley says this gives individuals more leverage as well as a potential return.

“People can negotiate with the city in the future if they want to,” he said, claiming that GameStop and AMC were “early harbingers of this concept of outsider trading”. People could invest in one city over another through CityCoins to support – or reject – policies, Stanley said.

While a handful of mayors, like Suarez and others, are beginning to explore the role of cryptocurrencies in their local economy, others will undoubtedly be wary of its unregulated nature and volatility, and reluctant to wade into waters that are uncharted for local government. However, if programmes like CityCoins take off in a major way – and it’s a big if – mayors could find themselves with no choice but to engage.

At a certain point, mayors would have a “fiduciary duty” to claim a significant wallet, Stanley said.

Cities that opt into cryptocurrencies will also need to square concerns about energy consumption with environmental commitments amid a climate crisis.

Stanley says he is an environmentalist and claims CityCoins are “environmentally friendly” because Stacks recycles bitcoin’s proof of work, which is the most energy-intensive aspect of the process.

Ian McKenzie, an international blockchain advisor at law firm Osborne Clarke said CityCoins is “certainly a novel concept”.

“I’m not aware of another token that promises to deliver benefits to a city in such a direct way,” he said: “Whether it’s significant or not remains to be seen – as with any new token, the question will be whether the crypto market, and more generally the relevant city dwellers, see the benefit. Clearly, there will need to be a critical mass of participants to deliver meaningful benefits to cities, especially ones the size of Miami.”

How easy it will be for cities to spend the STX they accrue is another big question, according to McKenzie.

However, he said: “I’d love to see it work out, as I think it’s a fantastic idea.”

Microbonds

Taking a different approach again, some cities themselves are looking at ways to enable citizens to invest through alternatives to traditional municipal bonds.

Municipal bonds are typically bought by investment banks which then resell them to institutional and retail clients. The City of Berkeley in California is pursuing the idea of ‘microbonds’ which would allow individuals to invest much smaller amounts, with the administration of the scheme managed via blockchain.

A second request for proposals (RFP) recently closed after the original process was delayed due to the pandemic, and the city is in the process of selecting a vendor.

It is working to identify upcoming large equipment purchases that would be appropriate for this type of financing with a view to launching a pilot project later this year or by early 2022.

The payoff

The initiatives on the table reflect several underlying trends – from encouraging greater participation in city decision-making and an ecosystem approach to tackling social issues to the rise of cryptocurrencies and the ongoing challenge facing local government budgets.

The COVID-19 crisis has forced cities to do things differently, rethink norms and take chances. If these schemes can help bring in local investment and create more equity in communities – rather than being seen as elitist or for those fortunate enough to have funds to invest – then they may form part of a stronger movement coming out of the pandemic. Whether they will be adopted on a meaningful scale remains to be seen.