This seems a bad idea. The mere existence of an exchange rate brings with it costs. These are not just the inconvenience of exchanging money. There’s evidence that the mere existence of exchange rates causes big and inefficient price variations (say, between Canada and the US) and can hugely retard (pdf) trade.
So what are the offsetting advantages to a local currency? The theory of optimum currency areas suggests that it would work if five criteria are met*:
1. Are prices and wages inflexible in Brixton, relative to the rest of the UK? If so, a local currency can do the job that wage and price moves don’t. For example, if weak demand in Brixton causes unemployment to rise there, a fall in the exchange rate can offset this, by making Brixton workers and goods cheaper, relative to the rest of the UK’s.
2. Is there factor immobility within Brixton? A fall in demand for labour in Brixton would be a big problem if workers were stuck in Brixton, but less of a problem if they could find jobs in Peckham.
3. Is there goods market integration within Brixton, so Brixtonians trade heavily among themselves and little with non-Brixtonians? If this is the case, the costs of an exchange rate - the hampering of cross-border trade - are low.
4. Is the Brixton economy subject to idiosyncratic shocks not felt by the rest of the UK? If the answer’s yes, a local exchange rate is a good idea, as it can fall in response to a fall in demand in Brixton relative to the rest of the country.
5. Does Brixton have a fiscal authority, which can transfer income within Brixton, thus ensuring that some Brixtonians won’t be better off breaking away if they suffer problems not felt in the rest of the borough?
Now, the answer to all five if these questions is, I suspect, a definite no. So it seems that a Brixton currency is, well, a barking mad idea. I fear its authors are unfamiliar with optimum currency theory - and, I suspect, with Ealing comedies too.
Paradoxically, the argument for the Brixton pound is what most economists regard precisely as an argument against such currencies - that it would retard cross-border trade, by keeping money within Brixton.
This is, of course silly. As Luis says, if people want to help local businesses, they can do so with English pounds. The only argument for a Brixton pound is, as Luis says, a way for weak-willed Brixtonians to tie themselves to the mast. Maybe some would like to help local businesses, but they just can’t resist nipping into Greggs or Primark. If they held Brixton pounds instead of English ones, their temptation to do so might be limited.
But even this is a weak argument. It requires that people hold lots of Brixton pounds. But this brings with it other inefficiencies, albeit ones that are smaller when interest rates are as low as they are now.
And of course, you don’t need a local currency to help local traders. Up here in less barbarous areas, a simpler scheme is being launched.
You might wonder why I’m labouring all this. I do so to show that there’s a vast gulf between conventional economics and some popular ideas. And with conventional economics discredited (perhaps wrongly) by the crash, anti-economic ideas are gaining support. To paraphrase G.K. Chesterton, when people stop believing in economics, they’ll believe anything.
* I'm assuming the Brixton pound would eventually float. Fixed exchange rates are a bad idea; they give us the costs of local currencies with fewer of the benefits.