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Do we need our own Brummie money?

By Stuart Pemble on May 14, 08 06:52 PM in Law

Clare Short has suggested that Brum becomes a transition city.

The transition town movement has been set up to meet the challenges of climate change and the high cost of oil. One of the suggestions being considered by some towns - Totnes in Devon was the first with Lewes in Sussex recently deciding to follow suit - is that transition towns create their own currencies; there is now a Totnes pound. The idea is that the local currency will only be available to purchase locally-produced goods and services which will encourage local commerce and reduce Totnes's and Lewes's reliance on goods brought in from elsewhere, the amount of oil they consume and their carbon footprints.

If Brum were to accept Ms Short's recommendation, we too could see ourselves spending the Brum pound (although hopefully we might come up with a better name). And, with apologies for the legal-anorak nature of what follows, this raises a very interesting legal conundrum.

This is because the money we use now isn't actually worth anything. It's what lawyers call a bill of exchange, which is a posh way of describing an IOU. It's a promise to pay; if you think about it, that's what the words actually say on the notes produced by the Bank of England. The only way that money works is because it's backed up by assets at the Bank of England (or the lending banks in Scotland and Northern Ireland which can also issue their own currency). In practice, we never bother to call in on the asset held by the bank - we just treat the money as if it were as good as the asset. The system works fine unless we think that the bank doesn't have sufficient assets to support the money in circulation. When that happens, at the very least you get runaway inflation of the kind seen recently in Zimbabwe. The worst case scenario is a financial crisis of truly horrible proportions.

So here's the problem. What will the Brum (or indeed Totnes or Lewes) pound actually be? Well, they can only themselves be bills of exchange which will, I assume, have to be swapped at some stage in the future for other bills of exchange in the form of proper money. On the one hand, this makes me wonder whether the whole idea is going to be unnecessarily complicated. Why not just be an "informed" consumer and try to buy locally in any event if that's what you want to do? On the other hand, a little bit of me can't help but think that it might be fun trying. What do people think?

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