Totnes Pound, Brixton Brick Challenge U.K. Sterling

By Shelley Smith

Sept. 9 (Bloomberg) -- Residents of Totnes, a town of about 8,000 people in southwest England, are so worried about the economy's future that they've created their own currency.

``When times have got difficult in the past, local currencies have been one of the tools communities have used to get out of trouble,'' said Robert Jackson, 58, a member of the Totnes pound project.

As U.K. inflation accelerates at the fastest pace since 1991 and the pound trades near a record low against the euro, Totnes is leading a drive among communities to create alternatives to sterling. Supporters say the currencies will keep money in local economies and bolster stores' sales.

The Totnes pound started circulating last year. The town of Lewes, in southeast England, will introduce the Lewes pound today. London's suburb of Brixton has used the ``Brixton brick'' on a trial basis and plans full implementation of the currency in 2009.

``A local currency can foster better trading locally and possibly create a better sense of community and belonging in terms of a local economy,'' said Daragh Maher, deputy head of currency strategy at Calyon, in London. ``If it's taken up in a bigger way locally it could have a significant local influence but on a national level it will remain relatively small.''

While the currencies aren't legal tender, they also aren't prohibited as a system of payment. In England and Wales, only Bank of England notes are legal tender, according to the Bank of England's Web site.

`Transition Towns'

``The term legal tender does not in itself govern the acceptability of banknotes in transactions,'' the Web site says. ``Whether or not notes have legal tender status, their acceptability as a means of payment is essentially a matter for agreement between the parties involved.''

The local currency notes are banned from carrying a picture of the monarch, who appears on all sterling notes and coins. The national currency was first introduced in England by the Normans in the eleventh century.

Totnes and other towns with local currencies are members of the ``Transition Towns'' network, which was started in 2007 to boost local economies and raise awareness about sustainable living. There are now 100 ``Transition Towns'' worldwide, including Totnes, Lewes and Brixton, the group's Web site says.

Backed by Sterling

``It's fantastic to have more communities creating local currencies as we enter rapidly into the unfolding credit crunch and in terms of localizing our economies,'' said Rob Hopkins, the group's founder, in an interview.

In Totnes, there are about 5,000 notes in circulation. Each Totnes pound note is about the size of a U.K. 5-pound note, and bears images of the town and the words ``redeemable for goods and services at designated businesses.''

The currency is backed by the equivalent in sterling, kept in a town bank account. The exchange rate is one for one. Shoppers can buy and sell Totnes pounds at five local stores and use them in about 65 shops and restaurants.

Lee Hardman, a currency strategist in London at Bank of Tokyo-Mitsubishi Ltd. said the idea won't spread widely.

``For a currency to enter widespread circulation, it has to have the confidence of an extensive number of people,'' Hardman said. ``So it is unlikely to have anything other than a novelty value.''

Record Low

The pound fell to a record low against the euro last week after Chancellor of the Exchequer Alistair Darling said Britain faces ``arguably the worst'' economic conditions since World War II.

The Totnes pound has been ``fantastic,'' said Julie Hore, 51, the manager of the Greenlife food store, which accepts the currency. ``It creates communication between all the shops in the town and it adds to that community feel.''

Because the local currencies are backed by sterling, they can't escape fluctuations in the pound.

``It was only ever intended as an experiment,'' Jackson said. ``The next step is to find a way to back the currency with something other rather than pound sterling.'' Both Jackson and Oliver Dudok van Heel, one of the organizers of the Lewes pound, plan to choose another asset to support the currency.

``That would create a parallel economy,'' said Dudok van Heel. In Totnes and Lewes, organizers are trying to figure out how to back the notes with a local product people always need.

Jackson said Totnes was investigating ways to generate its own energy. ``One unit of Totnes currency could be backed by one unit of energy,'' he said.

Austrian Town

A U.K. treasury spokeswoman, who wouldn't be identified, citing policy, declined to comment on the local currencies.

``It's a brilliant idea,'' said Mike Sealey, 51, owner of Totnes Pet and Garden Stop. ``It's used sometimes as an inter- trader currency. If one trader can't get rid of them they will go to another knowing that they will accept them. We all know that lots of places will accept them.''

Complementary currencies are features of crises, according to Josh Ryan-Collins, a member of the Brixton currency team and researcher at the London-based New Economics Foundation.

In 1932, the Austrian town of Worgl introduced an emergency local currency as money shortages and unemployment ravaged the national economy. A year later, unemployment had fallen by 25 percent in the town while other areas continued to suffer, according to a translated and abridged version of ``The Experiment in Worgl'' by Fritz Schwarz.

Sterling was adopted as the Royal Chartered Bank of England's currency in 1694, according to financial data provider ADVFN Plc.

Safety Deposit Box

Lewes plans to print 10,000 notes and issue about 5,000 today, said Dudok van Heel. The notes also will be backed by sterling, which will be stored in a safety deposit box. People will be able to buy and sell the Lewes pounds at three points in the town including a Barclays Plc branch. They can use them in at least 40 locations in the town.

Brixton plans to have its currency fully circulating by the end of next year, said Ryan-Collins, a member of a community project currency team in the inner London suburb.

``If we go into a recession I think we are going to see a lot of this going on,'' said David Boyle, a fellow of the New Economics Foundation. ``People need money and they will use whatever is close to hand.''

In Totnes, Jackson is looking at what the town can do next with the currency. His team is considering a credit card.

``Part of the idea behind the Totnes pound is to demonstrate that it can work before we need it,'' Jackson said. ``We've proved we can.''

To contact the reporter on this story: Shelley Smith in London at ssmith118@bloomberg.net