Healthy Money Healthy Planet - library.uniteddiversity.coop

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such systems inflation is therefore much easier to monitor and control.
Mutual credit schemes such as the green dollar create exactly the right
amount of money for the transactions that take place. Theoretically, unless too
many interest­free loans are issued, there can be no inflation in a mutual credit
scheme because the sum of all members’ balances at any time is zero. Thus the
money supply expands and contracts according to the volume of trade and is
always sufficient for the level of exchanges taking place. Following on from this
reasoning, it makes sense that there will be no inflation in a system if there is the
right amount of money for all the trading that takes place. If complementary
currencies use up only the excess capacity of local businesses, they won’t be
inflationary.
When currencies have a circulation incentive, the challenge for the organisers
is to issue the correct amount of money and to adjust the level in circulation
quickly to avoid inflation. With the Wörgl scheme in Austria in 1932, for example,
an average of 5000 local schillings were circulating more than 400 times a year,
creating 2 million schillings worth of goods and services. The sheer speed of
circulation surprised the organisers, as originally 32,000 schillings had been issued
and money had to be withdrawn quickly for fear of inflation. Many notes were
also taken away as souvenirs. 8
Obviously, the smaller the area of a fiat currency’s circulation, the easier it is
to monitor. The money supply needed for transactions in a large economy like
Europe or the US will therefore be considerably harder to estimate than that for a
small town like Ithaca. In his book Funny Money, David Boyle noted that Ithaca
HOURs creator Paul Glover had to cycle round the town to check that there was
the right amount of currency in circulation! 9 Unlike the case of Ithaca, there is no
way a central bank can know what individuals really want to do in the way of