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You are here: Home >> Economy & Law >> Written by Tristan Hugo-Webb and first published by the Payments Journal
10.01.2013 Written by Tristan Hugo-Webb and first published by the Payments Journal
Alternative currencies rise in Europe in the response to its financial crisis
(TPJ) – As poor economic conditions persist across Europe, more and more local communities are embracing alternative currencies as a major secondary payment options, if not the preferred currency overall. From Germany to Spain to Greece, the austerity measures implemented by governments have hit Europeans hard, Greeks in particular, losing up to 40 percent of their disposable income as cuts take effect. While alternative currencies are not a new phenomenon, the economic struggles of Eurozone members have given rise to a number of different payment substitutes as well as growing popularity among alternative currency initiatives.
In Germany, a currency that was once a school project has quickly become one of the world’s most successful alternative currency solutions. Although the traditional payment substitute predates Europe’s recent economic woes, the "chiemgauer" (as it is referred to by the locals) has seen use and turnover grow rapidly in recent years. From 130 individuals and turnover of $99,300 in 2003, the alternative currency has grown to nearly 2,500 individuals and turnover of some $8 million in 2011. Fixed at a conversion rate of 1:1 to the Euro, the chiemgauer is only valid for three months once gained, encouraging holders to spend rather than save the novel currency. Furthermore, the currency has become so popular in the region that chiemgauer users can pay for goods and services through their debit card.
In Spain, the economic crisis has led to a proliferation of so-called “time banks,” which allows customers to barter services by the hour. According to Vivir Sin Empleo, the number of time banks has jumped to nearly 300 with membership ranging from a few dozen to several thousand in the larger cities. José Luis Álvarez Arce, director of the economics department at the University of Navarra, says that these time banks and alternative currencies are a force of good, "people who can't find work, these kinds of possibilities of exchanges and mutual help can help make bearable a situation that otherwise would be unsustainable." Many of the time banks operate like their more traditional counterparts with individual accounts, ledgers, and checkbooks and, in some cases, auditors that ensure the activities are being monitored. However, not everyone is enamored. José García Montalvo, an economics professor at the University of Pompeu Fabra in Barcelona, believes these new payment solutions hurt Spain. "It's a step backward not only for a euro country, but also for a developed country," he says.
Lastly, in Greece, one of the Eurozone members most affected by the economic downturn, the city of Volos has witnessed the rapid growth of the local alternative currency, Tem. Users are able to exchange goods and services in the same manner of traditional payment options, but no money ever exchanges hands. The currency’s success is evident in its growing membership numbers. In the past two years, users have grown from a few hundred to well over a 1,000. Yiannis Grigoriou, one of the network’s founders, says the Tem is about more than just money. "For many it plays a double role of supplementing lost income and creating a protective web at this particularly difficult moment in their lives,” he said.
While the alternative currencies developed in Europe are not aiming to remove the Euro from circulation entirely, but rather support local communities and the business within them, the real question is will these alternative currencies maintain support when economic conditions improve. The mayor of Volos, Panos Skotiniotis, believes the Tem is sustainable and that it does more for the community than the Euro. "It won't ever replace the euro but it is really helping weaker members of our society. In all the social and cultural activities of the municipality, we are encouraging the Tem to be used,” he says.
Alternative currencies have a history of failure and mediocre success. While none of the solutions mentioned here or around the world will likely challenge mainstream payments, traditional financial institutions and larger merchants can still benefit from supporting initiatives like the chiemgauer or Tem. Alternative currencies help communities increase opportunities to reach underbanked or unbanked populations more effectively. If the alternative currency fails, the aforementioned populations are more likely turn to traditional banking options.
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