Local clearing unions as stabilizers of local economic systems: a stock flow consistent perspective

Various examples of complementary currencies have recently emerged in Europe in response to the impact of the 2007 financial crisis. They have been variously labelled as social, local and alternative money but their economic meaning has still to be discussed. On the one hand, they have been hailed as innovative tools for socio-territorial policies with a focus on localist, anti-globalist and anti-capitalist values. On the other, the emphasis on the value of currencies as instruments of alternative territorial development runs the risk of overshadowing issues concerning the specific features of such projects. The first part of this paper puts forward an interpretation of the current situation as a crisis of the liquidity principle and suggests that the principle of clearing instead represents the primary point of reference for any institutional arrangement aimed at restoring a balanced relationship between lenders and borrowers. A critical review of known European complementary monetary circuits is followed by examination of the Sardex clearing system. The paper then goes on to argue by means of a stock-flow consistent model that complementary monetary circuits can serve to stabilise local economic systems. In particular, a local clearing union for local exchanges has the effect of stabilising the profits of firms while attenuating the impact of the credit crunch at same time.