Odd Lots - What the Berkshires Learned by Launching its Own Currency

Episode Date: March 24, 2017

"Buy local" is a mantra that has appeal across the political spectrum. Small communities have preached this gospel for a long time. Our current president advocates a version on a national scale. So how do you put it into practice? One experiment has been taking place in the Berkshires -- a region in the U.S. state of Massachusetts -- that has its own currency called Berkshares. On this week's Odd Lots podcast, we speak with Alice Maggio, the executive director of the currency, about how a regional currency works, what it accomplishes, and what they've learned from it.See omnystudio.com/listener for privacy information.

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Hello and welcome to another episode of the Oddlots podcast. I'm Joe Wisenthall. And I'm Tracy Allaway. So Tracy, one of the big themes in economics this year has been this idea of sort of, you know, you see it at the national level, sort of local reliance. Or the president talks about buying American and how that's a value. But it's kind of interesting because this. idea of like buying local or buying American, it's an idea that sort of transcends traditional sort of a political viewpoint. Yeah, that's right. So everyone wants, well, it feels like everyone

kind of wants to look inward right now, at least economically. And when we think about that, I guess on a global basis, a lot of people tend to get outraged, you know, the end of globalization, less free trade. But it's funny because when you look at it on a smaller basis, the idea of buy local is kind of a cuddly concept, right? Yeah, it seems like buying local is one of those things that economists who teach or academic economists say, oh, it's a bad idea. And free trade is what's most wealth maximizing. And it really shouldn't matter where you get it from as long as the cheapest and best quality. But it feels like people always have this sort of intuition about it. And some level of another, whether it's sort of more protectionist,

more right wing, whether it's more left wing, sort of buy from the local farmer. There's a lot of people seem to have some sort of moral intuition relating to buying local that sort of conflicts a little bit with what the, you know, the proper economics literature would say. Yeah, it's a really funny tension in economics, isn't it? Why are we talking about this? I'm glad you asked. Because today we're going to combine this topic of sort of buying local with another favorite

topic of the Odd Lots podcast, which is sort of alternative currencies and the nature of money and stuff like that. Because we're going to be talking about something called Berkshairs. Berkshairs. Do you know what that? Berkshires. Like Berkshire's? Exactly right. It's the local currency or it's a local currency that was launched in the Berkshires, which is a sort of well-known region in Western Massachusetts. And it's a local currency. currency for a specific region in a specific state. It's super local. Exactly right. A hyper local currency. It's been around a little over 10 years, I think. And today on the show we have Alice Maggio. I'm just going to call her. She's sort of like the Federal Reserve Chair,

the Janet Yellen of Berkshares. So there's this currency, Bergshare's. She's the executive director of it. She's also at the Center for New Economics. And she's going to join us, And we're going to talk about what she and others have learned in launching the sort of how it works, this own regional currency. All right. I guess we'll have to ask her about the elusive wage growth in the Berkshires as well. Let's get right to it. Alice, thank you very much for joining us. Thanks for having me. So let's just answer the first obvious question for people.

What are Berkshares? Well, you've described it pretty well. Berkshairs are a local currency that are only used in the Berkshire region of Massachusetts. And their paper currency, they have really beautiful design by John Isaacs that features local heroes on the front and local artwork on the back. So we celebrate people who are associated with the Berkshires in some way who have done important things, including Norman Rockwell and Herman Melville and W.E.B. Du Bois. but also a Stockbridge Mohican and Robin Van N., who started the first CSA in the country.

Now, I want to talk about the economics and all that and the monetary policy of Berkshares. But before I do, I don't want to forget another question because it's something we overlook a lot. It's interesting that you immediately talked about the designs on the money, because when people talk about money from a sort of economic or monetary policy standpoint, But no one really ever talks about the designs on money. But it's always there. Every country has always put a lot of pride into honoring people on their money, money, and no country has ever just had like a sort of blank token that doesn't represent anything. Part of what makes a currency work is sort of this sort of mythical way, you know, we imprint on it important symbols. Yeah, it's a symbol. And it's something that you have in your hand every day. So why not make it mean something. that you care about. And so we took very good care to make sure that Berkshares were beautiful

and would be something that people could take pride in using and also just be intrigued by and attracted to. And so I think that we were, I'm really glad that they are so beautiful because it makes it so much easier to talk about. And I think it's something that we've always done. But I think it's also in a longer, tradition of of local currencies in this country. We've actually had local currencies before, and that's why we have such things as bank notes. That's why we know them as bank notes,

because banks used to issue their own currencies. And they often had symbols on them of the local industry or locally significant people. So we're kind of touching on a long history here. So I'm going to ask the basic question then. Walk us. through exactly what the thinking was behind launching this beautifully designed currency and how exactly it works. Because, I mean, I know there's a long history of local currencies in the U.S., but there aren't that many around nowadays. Right. Well, we'll start with how it works. So you can go to any of 16 branches of four different banks in this area, all the way from Sheffield and Great Barrington, Massachusetts,

up to North Adams in Williamstown, Massachusetts, which is from the south to the north of Berkshire County. And you can walk into one of these banks. They're all community banks, so they're pretty small, and they're focused on this area. And you can change your dollar into Berkshares. So 95 cents will get you one Berkshire. And then you can take that Berkshire and spend it in the local economy. there are 400 participating businesses throughout the region, so you can spend your berkshares with any of those businesses as if they were dollars, which means that if you're the one who

goes to the bank to get berkshares, then you are getting a 5% discount when you spend them. And then it's on the other end, if you wanted to take your berkshares back to the bank, you could. You would only get 95 cents per burq share. So it's a disincentive for leaving the system and an incentive for starting to use Berkshairs. And I think there's an example on your website that makes it very clear, but let's say I know I want to go out and have a nice dinner that's going to cost me $100. I buy $100 worth of Berkshares for $95. I go out and buy the $100 dinner. The participating businesses commit to accepting them at a one-to-one

exchange rate, and then they can then recycle them back into normal U.S. dollars. But in the sense, it's a way for them to give a 5% discount to people who have, you know, committed to shopping and eating and doing business locally. Yeah, it is. And then if they wanted to, they could keep spending their berkshares. That's actually the ideal situation where they would take the 100 berkshares that you spent with them, and they would turn around to their suppliers and spend some berkshares with them so that it keeps the money circulating in this area with other local suppliers. And it's already been shown that locally owned businesses actually choose to spend their money with other locally owned businesses much more than any kind of chain or corporate box store would. So this is kind of reinforcing that what people call the local multiplier effect and making it even stronger.

Already, if you're just dealing with dollars, your $1 that you spend in a locally owned retail store is going to, circulate four times more in the local economy than your $1 spent in a chain store. So already with dollars, you can make a big difference spending locally, but with Berkshares, we try to go to the next level and also build in a whole educational and symbolic element to it. So we kind of touched on this in the intro, but the idea here is to amplify that local multiplier effect and get more money circulating around your particular region. But do you ever get, like, it sounds really great. You're boosting local businesses,

but do you ever get people, say, in the next state over, complaining about the local currency and the fact that they, you know, can't get in on it or it's limiting business in some way? Oh, I don't think so. Because we don't really limit Berkshares to state lines. Our banks right now are all in Massachusetts. but we have businesses over in New York State and Columbia County and a little bit into

maybe into Vermont, but probably not that much, but a little bit into Connecticut. So we kind of want it to be more organic and follow the lines of the Berkshire economy. And the Berkshire economy doesn't follow necessarily state lines. So if you have business with somebody across the state, across the line in New York, state and they want to take burkshares from you, then that's fine with us. We don't get involved. We think that you should just do what makes sense for your business. All right. I want to really get into the nitty gritty about the mechanics of this. So one of one question I have is how do you guarantee that there's always the money to redeem your burq shares

for 95 cents on the dollar? I mean, what is the institutional setup you have in place to guarantee that the amount of money available for redemption is always perfectly matched with the amount of Burke shares out in circulation? So 10 years ago, when we started Burke shares, we actually, we turned to the bank branch managers to help us figure out those mechanics because we're not community bankers, but we really wanted to work with our community banks, and we didn't want to create a local currency that cut them out of the picture because they are just. as important as the locally owned businesses in our local economy.

So we turn to them, and we actually have a long history, the Schumacher Center for New Economics, has kind of fostered local economy projects, local currencies in this region, and there have been experiments here over the course of the last 35-plus years. And that's kind of what led up to Berkshares, as they are now. But when we started Berkshares, we turned to those branch managers, and we said, how would it work for you?

What would be the best system? And they came up with a system we have, which is that Berkshares Incorporated has a checking account with each different branch that has Berkshares for exchange, available for exchange. And when you go with your $95 to get your 100 Berkshares, those $95 go into that checking account owned by Berkshares Inc, and they sit there and they're backing the 100 Berkshares

that come out. And that happens at any of the branches that are involved. And we just keep an eye on those balances because we own all of them. So we get regular checking account statements every month. And we have online banking. And we can check those accounts and make sure that none of them fall too low or anything. But generally, they serve as the – they basically are allowing for liquidity so that you could go back. and get your change your berkshares back into dollars at any of those branches.

So Joe joked that you were kind of like the Janet Yellen for burke shares. Is that true? Like to what extent does this currency mimic an actual currency like the U.S. dollar? And I know it's pegged at the moment, 95 to 100. Have you ever, for instance, consider depegging it? No, it's a good question. We have, so kind of the way that Berkshares differs from a national currency is exactly the way we want to differ. We want to be a local, place-based, non-profit issuer of currency with an open membership and democratic governance.

So anybody who lives here can become a member of Berkshares for 25 Berkshares or $25 a year. Those membership dues will give you a right to vote at the annual meeting, and you could run for the board or you could vote for the board. So the board of directors is chosen from among residents of the Berkshires by residents of the Berkshires. The board of directors then gets to make decisions about the currency. Of course, the Federal Reserve and the national currency is meant to be in some respect governed by the people of the United States, but it's definitely far beyond our reach to make very many decisions about our currency or about monetary policy. So we're trying to create another system, another layer that isn't going to ever replace the dollar, but that's going to be a currency where we have a lot more say at the local level,

and we can create a currency that will respond to local conditions in a more agile way and basically fill in gaps in the local economy and use local knowledge to do that. So that's what the structure of Berkshares looks like. And so I work with the Board of Directors of Berkshares, and the Board of Directors is elected by the members of the organization. And so I guess that's kind of how it works structurally. And then what else? What was your other part of your question?

I was asking, have you ever considered depegging it, you know, in times of economic crises or something? Yeah. Well, that is what we're kind of, we're trying to create another level of, like, what you guys were saying earlier, resilience at the local level. So that we have a tool. We think of Berkshares as a tool for community self-reliance. And that way, the board of directors could, working with our partner, banks and business. make a decision to change the exchange rate. And we actually have done that. We started off with 90 cents to the dollar, to the Berkshire, and now it's 95 to the Berkshire. That was a big deal

to change it. But the board of directors decided to do that based on feedback we got. And so we could, in the long run, decide to unpeg from the dollar if we wanted to. And that would actually be going more in the direction of those local currencies we were talking about before, because those local currencies weren't really tied to other currencies. They were kind of based on, they were issued based on productive loans that the banks would make to local businesses. So the amount of money going out into the local community from the bank would be based on the need for that capital by local businesses. And the basically, would be backed by the future production of those local businesses.

So the money they were issuing was backed by future production of goods and services in the local economy. And if we were to move in that direction, which we actually aspire to do, then we would be moving towards a currency that was not backed so much by the dollar, but backed by production of goods and services in the local economy here. That's cool. All right, here's a cynical question. There's a five, so at one point there was a 10 cent spread between the amount that it cost to buy them and the amount that it cost to redeem them. Has anyone ever tried to game it by, say, you know, offering bank, offering establishments 91 cents for their Burke shares or 96 cents or anything like that, an attempt to profit or arbitrage way that, that bid ask spread?

Joe, you're always looking for the arbitrage. I mean, you know everyone was thinking it who's listening to this. Yeah. We do. So we have agreements with our banks about the way that the exchange takes place. So the banks all know that the exchange rate is 95 cents per Berkshire. And that's kind of baked in. And when we changed that, we had to do it in secret.

So it had to be an overnight shift where we created all new publicity materials and everything. and we trained the bank tellers and everything had to happen in secret so that people couldn't try to profit off of that. So it is a big, that would be a big deal to change the exchange rate and it was. But so far, nobody can really do that because the bank tellers know that at the bank, the exchange rate is 95 cents per Berkshire. What people do on their own is not our business. Like, I've gone to Europe and people have traded me euros for Berkshares.

And it's definitely been in my favor. And I was happy to do that. So whatever, that's kind of nobody really knows how it's basically up to the value that you place on the Berkshares. I have a similar question, I guess. But has anyone ever tried to counterfeit Berkshares? Do you get the same sorts of? sorts of issues that we see in national currencies? Well, actually, we have had, we're kind of proud to say that we had one attempt at counterfeit

because we think that's the highest form of flattery. We don't want it to happen again. But it is really hard to counterfeit Berkshares because they are, they're printed on extremely high quality currency paper with high quality printing done by Excelsior printing in North Adams. and with very intricate design. So it would be very hard to successfully counterfeit a Berkshire. And we have, we've trained the cashiers at some of the bigger establishments that take Berkshares to check for real Berkshares.

And it's pretty easy to spot a fake one, and we've only had it happen once, one bill. And it's such a small community, really, that it would be, It would be pretty silly to try to counterfeit a Berkshire because if you got caught, your name would be mud. So it's been around. You launched it in 2006. So what are the big lessons you've learned? What are some of the takeaways that you've seen in terms of how this affects the local economy? If, say, there are two competing family restaurants and one accepts Berkshares and the other one doesn't, do you notice, do they know. notice a difference in their, you know, how they do business-wise? Like, what are some of the, you know, the big results and takeaways you've seen from this project?

Well, I think that the educational value is not to be understated because we just, it gets people thinking about the local economy and local businesses in a way that we don't really do very often normally because we just kind of. of look for the most convenient way or we look for the cheapest solution to what we need. And we don't always take into account the more human aspect and the effects on our environment of our spending choices. So Berkshares are a tool that can be in everybody's wallet and that are very kind of flashy. And they've been a great way to get conversations going. And so we've built out just in the last year, we've been. built out, or the last two years, we've built out an educational program for young people

that helps them write business plans. We brought in mentors for that program. And Berkshares are kind of like the little tool that gets people in the door and kind of flips the switch to get them thinking about these things. And so I think that we always need to remember that, that it's not just a monetary tool. but that it's an educational tool. So we have to think of ourselves as educators. And then I think beyond that, it's a way of kind of seeing our region and giving ourselves an identity that has to do with the economy. And to think about a regional economy is something that Jane Jacobs called for and that Schumacher talked about.

but it's not in our general economics textbooks necessarily. It's not in the mainstream way of thinking. And I think it's kind of necessary now. So it has sparked really good conversations at our regional economic development organizations. And I think that's really valuable. And then the other aspect of it is that, it's something that everybody could have in their pocket. So it's not something that only the people that know about economics can have their hands on. It's something that middle schoolers can

look at and use. It's something that retirees can use. It's people who, of all different types, who can then have a say in the local economy so that we're not leaving it up to the experts. We're kind of all becoming economists. So that's the thing that, really gets me most excited about Berkshares. And I think it's something that we kind of need because we don't want to just leave it up to the experts because it's not necessarily working for all of us. So to take it back and kind of have our hands on it and have a say is really important at this point. And I think that goes to the Buddhist economics conversation. As you were saying that, I was thinking about exactly that our recent episode on Buddhist economics and the sort of other values that we don't traditionally talk about in economics conversations, but that I think, as we were saying in the beginning, people have some sort of intuitive sense that they're important.

Yeah, the idea that morals have a place in economics is, I think, a really important. concept, but it's not something that's generally talked about. So I think that thinking about how the economy is not something that just happens to us. It's something that we should be shaping in the way that aligns with our values. And if our values are to take care of each other, take care of ourselves and have livelihoods that are really fulfilling and trying to find ways that more people can have those livelihoods, then we need to take control because really, and that kind of goes back to just the most basic understanding of Berkshares is that they're a way of spending your money with locally owned businesses. And the key there is locally owned. So who owns the business

and who's benefiting from the wealth of that business or the money that you're spending with that business. Real quickly, do you have a public figure on the number of BRC shares currently in circulation? Yeah, because we have all those bank accounts, the checking accounts that serve as exchange accounts, we can tell exactly how many BRC shares are out there. And there are about 140,000 BRC shares out of the banks in a region of a business. in a region of about 130,000 people. So everyone, on average, everyone has about one.

At least one. But that's kind of, we've only just recently reached into the northern part of Berkshire County because for a long time all of the participating banks were in southern Berkshire County, which is a region of about 20,000 people. All right. Alice Maggio from the Schumacher Center of New Economics and the Executive Director of Berkshares really appreciate you coming on, fascinating conversation. Thanks so much for having me.

Tracy, I really enjoyed that conversation because I love especially that last answer about sort of taking these abstract concepts that we have in economics and markets and then doing a project or an experiment that actually makes it real and tangible and sort of de-abstracts it, so to speak. Yeah, and I liked her point about shaping the economy. towards our values as well, because you do often get the sense that the economy is just something that exists and we have no control over it. But that said, like, there are a couple things here that kind of not concern me, but I wonder about. Like, one is what would happen if everyone

started their own local currencies? And, like, two, how granular does monetary policy actually have to be. Like, I know we talked about the Eurozone a lot and the idea that a one-size-fits-all currency doesn't necessarily work for a place like Greece. But, like, if Greece got the jacma, would you have to have then a separate currency for Athens and a separate currency for like mechino's? I just wonder, like, where do you stop? Well, one thing that sort of intrigues me about this experiment is that these sort of questions of free trade are obviously very divisive. And what seems nice about Berkshares is that it's totally voluntary. If you value this idea of buying local and you want to explicitly support local businesses, you can, but of course nobody is

compelled to and anyone can use normal dollars. And so as long as people trust that the currency will hold its value and that it's not going to collapse. that it'll be roughly equally exchangeable with real dollars. Then I think it sort of provides a nice way of some people expressing their values towards one thing without hurting the people who don't really care about that. Yeah, you're exactly right. People can use it the way they kind of want to. It's a nice option to have.

So I wonder, do you think there's a market to be made and speculating on the future direction of bark shares? If you had a mole inside the board of directors for the next. next time they repriced Burke shares, you could probably make a lot of money. But I would probably feel guilty about doing that, to be honest. Yeah, I think I would.

I would not encourage anyone to pursue that. Right. We do not recommend that path. All right. No insider trading on small regional currencies in Western Massachusetts place. Okay.

That was it for this edition of the Odd Lots podcast. I'm Tracy Allowway. you can follow me on Twitter at Tracy Alloway. And I'm Jill Wisenthall. You can follow me on Twitter at the stalwart. And you can follow Berkshires on Twitter at Berkshires. June Grasso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world.

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