, a local currency
is a currency not backed by a national government, and intended to trade only in a small area. Advocates such as Jane Jacobs
argue that this enables an economically depressed region to pull itself up, by giving the people living there a medium of exchange that they can use to exchange services and locally-produced goods (In a broader sense, this is the original purpose of all money
.) Opponents of this concept argue that local currency creates a barrier which can interfere with economies of scale
and comparative advantage
, and that in some cases they can serve as a means of tax evasion.
Local currencies can also come into being when there is economic turmoil involving the national currency. An example of this is the Argentine economic crisis of 2002 in which IOUs issued by local governments quickly took on some of the characteristics of local currencies.
See also: currency