Solve local councils infrastructure problem – let councils create their own money

In the news every day is the struggle of local councils to pay for their necessary infrastructure, especially after floods and cyclones. This article describes how councils can create their own money. Read what has been done before in Guernsey, Europe, Egypt with great results.

Back in 1997 I edited a national newsletter called The Indicator. One day I reviewed a book by ecological economist, Richard Douthwaite called The Growth Illusion: How Economic Growth Enriched the Few, Impoverished the Many and Endangered the Planet.  He had also written  Short Circuit: Strengthening Local Economics for Security in an Unstable World, 1996) which gives dozens of examples of currency, banking, energy and food production systems that communities can use to make themselves less dependent on an increasingly unstable world economy.

It wasn’t long before I was in contact with Richard and he agreed to come to New Zealand to promote his books. I drove him around New Zealand and recall visiting the then Green Party co-leader Jeanette Fitzsimons. We had many conversations in the car and I recall him saying that if a community wanted more self-sufficiency, then it needed both a community currency and a community bank.

So hold that thought.

Let’s ask the question: What was the problem that Three Waters tried to solve?

Answer: Local authorities couldn’t afford the necessary expenditure on the unsexy topic of maintaining or upgrading their underground pipes. Depending on the degree of debt the Council already had, they could or couldn’t borrow enough to do it and the ratepayers wouldn’t appreciate it enough when it came to the ballot box.

Councils have the ability to borrow at interest, or to raise rates or fees. The issue of funding councils has been a focus for many years with many suggestions being raised e.g. let councils have their GST back etc.

Guernsey issued its own currency in 1817

Okay then. Is there another way of paying for this? Yes of course there is. Let’s talk about what happened in Guernsey Island  when their infrastructure was in dire straits, and their debt was high after the Napoleonic Wars. The island had used British pounds as currency exclusively, but, by a quirk of history had been granted the right to issue its own currency way back in 1690.

By 1916 its infrastructure was falling apart. The sea was encroaching on the land due to the bad state of its dykes. The roads were narrow and unsealed. It had a low income, high debt and they struggled to pay the interest on the debt. After a year’s deliberation they decided to issue their own notes and spend them into existence. With it they built a thriving market near the port.

Despite opposition from commercial banks over the years, the Guernsey pound is still used today in conjunction with the British pound. Taxes are low and so is unemployment. According to a 2017 study of a Hungarian PhD student, “Whereas money supply in most countries consists primarily of privately issued bank-debt money (about 95%), Guernsey (States of Guernsey) finance its public spending via quasi-state-issued money since 1817.”

Hamilton Mayor wanted council-created money in 1976

So if we gave Councils the power to issue money, what would that look like? It could be in the form of a rates voucher, good for the payment of rates to that Council. The former leader of the Social Credit Party Bruce Beetham when he was Mayor of Hamilton in 1976 proposed financing municipal projects with “rates vouchers”.

Polls at the time showed the public was getting behind the idea when the council’s lawyer advised it was illegal, and it never got any further. The big advantage of the scheme was that the rates would not rise so much, surely an ongoing issue with every council today. The lawyer advised that three laws would need amending: The Banking Act 1908, the Municipal Corporations Act 1954 and the Local Authorities Loans Act 1956.

How would rates vouchers come into existence?

It would come into existence when Council paid employees partly in rates vouchers. Preparation beforehand would entail persuading local retailers to accept the currency where applicable. Locally grown food retailers at the Famers Market would be more likely to accept local money than those who import goods from China, for example.

Plenty of cases in history of dual currencies that work well, especially those with a circulation incentive

My book Healthy Money Healthy Planet –Developing Sustainability through New Money Systems gives many examples of the existence of two or more currencies working well together.  There were two long periods.

It happened in Europe from about 1150-1300 when there were silver bracteates issued by nobles. It also happened in the Ptolemaic period in Egypt when there was a pottery token called ostraca issued (as a receipt for corn to be stored), as well as gold for currencies.

Both of these currencies had a circulation incentive built in. The European period was when the cathedrals were built and the Egyptian period was when there was a flourishing of science, agriculture and mathematics. According to author Bernard Lietaer, both were periods when ordinary people enjoyed great prosperity.

There are two caveats:

1. Local inflation needs to be managed. There should be a local committee monitoring inflation so that adjustments in the money supply can be made if it occurs.
2. There needs to be a community bank that accepts the rates vouchers.

We simply must come to terms with the fact that if sovereign governments can create money, so should local governments.

 

I notice I have written that councils need to create their own money twice before. Once in May 2020 when it became clear that Auckland Council was in dire straits financially and once in early March 2023 after a Kapiti Coast Council meeting had discussed its inability to employ more staff when they were discussing the district-wide climate action policy. Cyclone Gabrielle was in everyone’s minds at the time.