This is my first post, so let's get right to the substance.  I just received an email asking me what I thought about this article:  http://www.guardian.co.uk/commentisfree/2009/jan/20/george-monbiot-recession-currencies 

The author proposes allowing local communities to issue their own currencies, rather than have the federal government go deep into debt to stimulate the economy. To encourage spending, the community could impose a fee, called demurrage, for holding the money.

The idea of privatizing money is not particularly extreme to me-- the author gives several instances in which it has been done-- but can it do anything to end a recession that current fiscal and monetary policy can't? Issuing local script could increase money supply, but the Fed can do that with monetary policy now.  Issuing local script might allow local governments to increase spending without issuing debt, which sounds great, but is problematic.  Funding governments by printing lots of paper money tends to be an unsuccessful strategy (ask Zimbabwe!-- and by the way, that source of funding isn't really tax free; consumers pay the "tax" in the form of inflation), and anyway, if we really wanted to go down that road, the Fed and Federal Government could do it too.  The demurrage fee doesn't give much advantage either, since inflation acheives the same result (it makes your money lose value, penalizing you for holding it), although a demurrage fee is more direct and might be a more effective option if we get into a deflation situation.

The main benefit would appear to be that the community could choose its own monetary policy.  There would be benefits to this.  Communities with weaker economies, like Detroit, could have looser monetary policy than communities with stronger economies.

There are definate disadvantages to localized monetary policy too.  People would have to convert their currencies more often. Also, local currencies would likely trade at a discount, since they would be less liquid and people would probably have less faith in them.  Keeping track of exchange rates could be confusing. Lastly, moving towards many local currencies might erode faith in the U.S. dollar.  Faith in the dollar has attracted investors looking for a safe haven.  Were that not the case, we could be facing a full-fledged flight of capital and currency crisis. 

In conclusion, I'd like to register my vote of confidence in the Fed.  The idea of local currencies is worth discussing, though, because it helps identify what monetary and fiscal options might be helpful in our recession.