Ithaca Hours

The idea was started by a local activist, Paul Glover, who wanted to strengthen the local economy by encouraging people to spend within it. Money spent at a distant chain store tends to leave the area, while money spent locally can circulate several times.

A local currency tries to make that effect stronger. Paper notes were printed and issued to participants, who could spend them at businesses that agreed to accept them.

Because the notes were only useful locally, their holders had a reason to spend them with other participants. Unlike government money, they were not backed by a central bank but by the trust of the community.

The unit was linked to time rather than to a metal or to the dollar. One Hour was set at roughly the equivalent of ten dollars, with fractional notes for smaller amounts.

This link made it easy to price services, because an hour of work was worth about one note. For a finance reader, the concept highlights what money needs in order to work.

It must be accepted by others, hold its value long enough to be useful and be convenient to use. Local currencies often struggle with the last point, since a small network of accepting merchants limits how widely the notes can be spent.

Tax is a practical consideration. Tax authorities generally treat income received in a local currency or barter as taxable at its dollar value, so businesses accepting such notes still have to record the transaction and report the income.

The accounting is the same as for any barter exchange. Interest in the idea has had cycles, and use of the original notes has faded over the years.

Even so, the model inspired many similar schemes around the world, and the principles are often discussed in debates about community finance and digital local currencies.