Bay Bucks Bonanza: Why Local Economy Can Survive

While the economy continues to sputter along, producing mediocre growth prospects for scores of aspiring entrepreneurs and developing businesses, a potential solution emerges.

A pair of unlikely innovators- a human rights activist and a medical researcher with a background in public health and HIV prevention- decided at some point within the last year, why not create our own economy?

The result is a concept called “Bay Bucks,” which debuted in December.

“I was originally interested in sustainability issues,” confessed Kendra Shanley, one of the organization’s co-founders and a public health expert, who was ultimately led “to looking at the way the financial system works and how the current system is really driving the exploitation of our natural resources.”

The result, Bay Bucks, is a network of businesses that pool or trade their unused resources and skills in exchange for credit, or currency, that can be used for anything else available in the network. For now, no physical money or banknotes ever change hands.

The parameters are explained on the group’s web site, “It helps lift up local businesses, and it will impact the community,” Shanley said. “We really believe that this is something that every business in the Bay Area would like to be part of, if they really understood how it works.”

Shanley’s confidence prompts a basic question: Can an alternative economy, one that doesn’t use dollars and or even allow for the conversion of dollars, really operate within the broader economic system? Moreover, will a program like Bay Bucks ‘lift up’ local businesses?

“Having local alternatives to conventional currency can actually keep the wealth at home,” noted Kenn Burrows, a health education professor at San Francisco State University who has studied alternative economies. “There have been alternatives historically that have worked pretty well,” said Burrows, “and yet we’ve somehow forgotten those in our history.”

When asked if a concept like Bay Bucks could have staying power operating within a larger economy, Burrows said it’s quite plausible. “That’s why they’re often called complementary currencies,” he said. “They’re not there to replace the system, but rather to be a complement to the system and its own established value.”

Within the Bay Bucks network, goods and services are valued in the same way they would be with dollars, with one Bay Buck serving as the equivalent of one dollar.

“We do that for two reasons,” explained Dr. Chong Kee Tan, a Bay Bucks co-founder and Asian democracy advocate for more than a decade. “One reasons is taxes, tax-wise it’s easy to compute. And also, intuitively, when you price things in Bay Bucks the same way you price them in cash, it’s very simple.”

Barter exchanges are subject to federal taxation just like any other commercial hub, as the result of a 1982 law signed by President Reagan called TEFRA.

“Every year we file 1099-B [forms] on behalf of our member businesses,” Tan said.

He also emphasized that services exchanged through Bay Bucks are not always done in a direct, one-to-one fashion. Of the 50 or so businesses already operating within the network, there are jewelers, bookkeepers, web developers, internet service providers and coffee makers. One company’s skill set or services may benefit another company, but not necessarily vice-versa.

“It not limited to what you have,” said Tan. “If you farm chicken, you’re not limited to trading with people who will only have or accept chicken.”

For example, a law firm may provide legal consultation to another company and earn a certain number of Bay Bucks. The firm, in turn, could use those earned Bay Bucks to buy its employees coffee from another network member.

“What we are doing is taking a problem and turning it into an asset,” said Tan. “So businesses can now leverage excess inventory and use that to purchase the kind of stuff, the things they need, for their business to keep going.”

Eventually, the idea is for Bay Bucks to expand from strictly business-to-business trading into an exchange for individuals and employees, as well.

Companies could distribute their Bay Bucks to workers to spend at local businesses, or there will be ways for people to ‘earn’ Bay Bucks through community projects, Shanley said.

Dr. Benjamin Cohen, a professor of international political economy at the University of California, Santa Barbara, has written more than a dozen books on currency issues, and explains that typically these kinds of barter-based exchanges have a natural limit to their growth.

“The model is one that has existed successfully for at least 25 years,” Cohen said. “But they’re usually very limited in terms of the number of people of transactions and people involved. They’re usually no more than a few hundred people, generally offering specialized services like nursing, babysitting, carpentry, plumbing and those kinds of things.”

The reason Cohen cites for why these exchanges haven’t grown larger: Trust. When the currency can’t be converted into dollars or other widely-held, globally-used forms of money, then members must take a leap of faith, he said.

“No one’s going to want to take the currency as a form of payment or wages unless they know there are others out there who will accept it from them,” Cohen said. “It’s all based on trust, and it’s a matter of social psychology.”

Yet the fact that Bay Bucks can’t be converted into other kinds of currency serves a distinct purpose for the exchange, Cohen observed, which is to generate commerce and activity exclusively for local businesses.

“There are tons of alternative currency and barter exchanges popping up all over the world,” Tan explained. “But this one we feel is much more powerful because 100 percent of Bay Bucks activity that’s generated within our network recirculates in the community, and the multiplier effect of it is so much bigger.”

Tan also points out that it behooves businesses to trade over an exchange like Bay Bucks, when possible, because the services and products acquired are at retail value, before the markup of profit margin.

“That’s true, it’s a modest discount,” Professor Burrow said. “Yet, you’re also really reinforcing relationships that are local, that bring all sorts of other factors in that you couldn’t have imagined.”

It’s the social and relationship-building aspect that really appeals to one of the founding member companies, Nomadic Ground, which distributes its coffee to about 30 locations in San Francisco.

“I think it’s going to connect us to a lot of people from the Bay Area that we wouldn’t have met any other way,” said Jorge Garcia, the company’s communications manager. “It’s sort of a social network, and what you’re giving is your time. And you’re giving it not necessarily free of charge, because at the end of the day you still get the connection.”

Shanley and Tan say there aren’t any limits for how large Bay Bucks might grow.

“We want to eventually have thousands of businesses in our network,” Tan declared, “so you can get practically anything you need for your business, and for your personal use, within Bay Bucks.”

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