Tenino, Washington is like many small towns across the country. It only has a couple thousand residents, and its small businesses downtown are suffering from the pandemic and economic shutdown. As residents buy more from online sources, the local companies are left out, which makes things worse.
As the town gradually reopened, Mayor Wayne Fournier had an idea. Why not create their own money, which could only be used at local establishments? The town did the same thing in the 1930s, so they decided to do it again, right down to printing on wood.
The town set aside $10,000 to help low-income families, each of which can pick up six $25 wooden “notes.” The notes can be used only at businesses in town that have agreed to accept them, and then the businesses can redeem them with the city for actual cash.
Because the notes can be used only in town, Tenino can be sure that the original $10,000 is spent locally. Whether or not that’s the best idea is up for debate.
By requiring that consumers spend the extra $300 locally, the town is putting limits on how they can spend the funds, which might not meet their needs as well as spending money elsewhere, which could drive them to misallocate. If you can’t send $300 in wooden notes to Ford Motor Credit, you might as well go out to eat at a local burger joint. That’s not the best use of scarce resources.
Creating local cash is the same as countries having different currencies. It creates friction in trade, which lowers overall standards of living.
Then again, if Tenino could people outside the city to buy the notes as a novelty, then it would increase the funds available for distribution locally, and would change the entire thing.