Local currency one answer to Detroit's problems?

As Detroit makes unhappy history by becoming the biggest city in American history to file for Chapter 9 bankruptcy protection, the focus has been on money and how the city doesn't have enough of it to meet its crushing obligations.

There are financial experts who believe the troubles facing Detroit and many other cities and states is a warning, a warning that we as a society need to rethink our monetary system and look at the advantages of a local currency.

What's wrong with our current money system? And how would local currencies help solve many problems?

We turned to the co-author of the book "Rethinking Money: How New Currencies Turn Scarcity Into Prosperity" for answers. Jacqui Dunne is a currency expert and a journalist.

According to Dunne, our current money system is not serving us, we’re serving it.

“There isn’t sufficient money to go around, and there couldn’t be because it is bank debt based. Money is created when somebody goes in for a loan . . . and it has to remain scarce in order for it to maintain its value,” she explained. “If they printed sufficient money for everyone to take care of their needs...there would be hyperinflation and the currency would be useless.”

Some solutions for scarcity of money are austerity measures, cutbacks, and privatizations. We are likely to see these enacted in Detroit. But Dunne believes that this is the wrong medicine.

“By creating other currencies, it is possible for people to have sufficiency,” she said.

If states or cities were to develop their own currencies to work in tandem with the U.S. and give them a negative interest rate, it would encourage people to spend that currency on local businesses.

“They have shown that with a local currency with a negative interest rate that money circulates as much as twenty times faster than the regular dollar or an ordinary currency.”

There are a number of successful examples of local currencies including Switzerland, which has had a system of complimentary business-to-business currency in place for over 80 years. In the U.S., 14 states have taken action to create their own currency. Still, people are hesitant.

“I think as people realize that there are other monetary agreements possible and they can see how well they function, I think more people will get on board. But I think people have had to feel the pinch,” said Dunne.

-Michelle Nelson, Michigan Radio Newsroom

Listen to the full interview above.