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The recent boom in community “currencies” — a virtual form of payment being used to promote exchanges of goodwill and business — seems to have reached a turning point.

Although municipalities, nonprofit organizations and local businesses throughout the country have launched some 140 kinds of community currencies since 1999, few seem to have achieved the dual objectives. Indeed, organizers of community currencies have been struggling to link the virtual cash with real business, since the currencies themselves have little economic value among businesses.

In a typical community currency system, volunteers in municipality- or NPO-organized projects for cleaning up local roads and rivers receive the virtual cash as “tokens of gratitude.”

Local retailers and restaurants may accept virtual money, but they do so out of “goodwill.” In a business sense, the money does not count, though it may help attract customers.

And this is the issue over which local governments and businesses disagree — how alternative money should used to revitalize their communities.

While municipalities attach importance to encouraging volunteer activities, local businesses struggling amid the economic slump want to spur spending.

“Our primary focus is to promote real business, although it is difficult to design a system that works,” said Mutsuharu Sakai, a manager of a local sporting goods shop in Yamato, Kanagawa Prefecture.

On Feb. 25, the Yamato Municipal Government launched a community currency system dubbed the “Local Value Exchange System,” or “LOVES.”

Under the system, the nation’s largest, about 90,000 people, or 40 percent of residents, receive an integrated circuit card that stores electromagnetic points, or “love,” that serve as virtual money.

Card readers to record point transactions are set up at 1,100 locations in the city, including public facilities and local shopping malls. Sakai’s shop is a member of LOVES.

Sakai, however, said none of the local shops have so far accepted payments in points, as local businesses have yet to reconcile conflicting views over how to treat the token of gratitude.

“Some have clearly expressed objections to absorbing the expense themselves, given their bad business situation,” Sakai said. “Others want to promote the use of such points, hoping the new system will attract more customers.”

Although the shopping mall Sakai’s store belongs to is considering allowing 10 percent of payments to be made in the so-called love points, further discussion is necessary and any new service is unlikely to begin until September, Sakai said.

Yamato municipal officials, however, view LOVES — a 700 million yen public works project funded by information-technology budget outlays from the national government — from a different perspective.

“The system aims to encourage residents’ participation in community activities,” said Takashi Kobayashi, deputy chief of the city government’s information policy division. “Our role is to provide the infrastructure. We leave business matters to the business side.”

While acknowledging that local business promotion is an “indispensable part” of community revitalization, Kobayashi stressed that the local economy can regain strength if communication among local residents is revived through the system.

Local businesses, however, are desperately seeking immediate results and more customers, Sakai argues. “Many shops in this area have suffered nearly a 10 percent annual sales drop in the last five years or so. That’s why we are counting on LOVES.”

While Yamato’s case illuminates limitations of community currencies for business promotion, another experiment launched in Tokyo’s central commercial district of Shibuya to integrate the tokens of goodwill into real business claims success.

The Earthday Money Association, a Tokyo-based NPO, started a virtual-money project last October designed to promote volunteer environmental activities and serve as a marketing tool for businesses in the area.

Paper money with the currency unit “r” is offered to volunteers who join projects such as collecting litter on the roads in the area. One ‘r’ is has a value of 1 yen and can be used for certain percentages of payments at 34 member cafes and restaurants.

Like other systems, member businesses accept the virtual money at their own expense, but the organizer is confident that the Shibuya project has a positive impact on business.

Ikuma Saga, who plays a central organizational role in the project, said that unlike a typical community currency system targeting a small local customer base, the Shibuya project focuses on a wider range of potential customers who might be attracted by its concept.

“Some members say new kinds of customers have visited their places since the launch of the project,” Saga said. “We believe our efforts have been working for the promotion of local businesses.”

Nonetheless, the project still remains at an experimental stage. So far, the NPO has issued only 550,000 r in total — worth 550,000 yen — of which just 65,000 r have been used.

“We plan to increase the membership to 100 (businesses) by targeting neighboring commercial districts like Ebisu and Harajuku,” Saga said. “We hope to find more businesses that appreciate the concept of our project.”

Even if community currencies do not work perfectly, efforts to establish a link between goodwill and business do have significance, says Hisamichi Takeyama, an expert on the issue at the Japan Research Institute, an economic think tank.

“A community currency is a tool to convey communities’ messages, rather than a boost to business,” Takeyama said, pointing out that many of those currencies are tied to the promotion of volunteer spirit and environmental preservation.

“After all, it is difficult in Japan to expect the virtual money to supplement the local economy,” as in the case of Argentina where the national currency system is seriously troubled.”

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