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One of the weaknesses of local currencies is their general lack of convertibility to
the national currency. To enhance their acceptability, local currencies should be
redeemable for a national currency. In 1932, the mayor of Wörgl, Austria, bought
20,000 Austrian schillings and used them as backing for the 20,000 local schillings
he issued (see page 000). As a result, any citizen could redeem the local money for
national money if necessary. In contrast, some of the US emergency scrips issued
during the Depression were not backed by the national currency, making
convertibility impossible and thus reducing their acceptability.
Complementary currencies must also be able to talk to one another; that is, they
must be easily convertible one to the other. While money should be easily
redeemable for other currencies, this redeemability should not be a source of profit
for individuals or private firms. The complementary currency can, however, be
designed so that there is a disincentive to redeem it for national currency, as in the
case of Germany’s chiemgauer (see page 000).
If the value of a complementary currency is linked to the national currency,
its value will rise and fall with that of the national currency. The Wörgl schilling
was backed by the Austrian schilling and was redeemable for par minus 2 per cent.
Had the Austrian schilling dropped in value, the Wörgl schilling would have
dropped also.
Likewise, if a currency is backed by a commodity, its value will fall if the value of
the commodity falls and rise if the price of the commodity rises. During the 1990s,
the value of many commodities fell almost 20 per cent. 6
Commodity­backed currencies work in the same way as warehouse receipts