One particularly interesting alternative to conventional banks is the “commercial credit clearing exchange” or “local exchange trading system.” Merchants in an area create a virtual local currency for doing business with each other by accepting payment in multilateral credit accounts. An example is Sardex. In 2008 when the ripple effect of the global financial crisis hit Italy, banks in Sardinia stopped making loans and local businesses began closing. A group of young Sardinians formed a bank of sorts using a local currency which existed only as bookkeeping entries for transactions between members of the exchange. The currency was not exchangeable with Euros and was meant to be complementary to it. The original members of the exchange all started with a zero balance and agreed to extend credit to others. When a transaction was recorded, the credit balance in an account could be used to settle debts with any member of the exchange. It took a while to get the ball rolling, but by 2105 the exchange had about 3,000 members, and it was expected that it would facilitate about 50 million Euros worth of transactions. Eventually they began charging annual membership fees and an initiation fee, but none of the loans involve interest. The effect was virtually to pull at least part of the local economy up by its own bootstraps. In his article about Sardex, Edward Posnett quotes one owner of a small business: 

The owner of a local store showed me her online Sardex account, indicating her balance and all the firms with whom she could potentially transact. She had sold lingerie to companies in the network, earning Sardex, which she then used to pay her accountant. “It’s ingenious,” she said. “It makes the money circulate here [and] doesn’t allow it to leave the island. It creates a connection.” [see The Sardex Factor]

This is by no means an oddball experiment. The idea of using a local currency to insulate an economy from global finance was first implemented in Switzerland in 1934 with the Swiss WIR, which is still being used by 45,000 members. There are some 300 local currencies or local exchange trading systems (LETS) all over the world, including many in the US. [see Complementary Currency]

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