Most of the time, people who use the term "local currency" are travelling overseas. But there is currency that is truly local: specific to a town, county, or similarly small-scale area. This is not a metaphor -- it's real money, and completely legal. A number of towns scattered around the US and Canada (and the UK, Australia, Italy, Japan, and Germany, not to mention others) are using it.

Local currency has a strong connection to fair trade, and local fair trade in particular. By definition, it must circulate locally. It cannot be taken out of the community, and there isn't much point to hoarding it. It is money that only becomes wealth when it is shared.

There are two basic kinds of local currencies. One is currency that is backed by national currency. If you can find a stable exchange rate to dollars (or whatever the national currency is), then it is backed.

One of the most recent examples of this kind is BerkShares, in Berkshire, Massachusetts. The administrator is Susan Witt, who is also the Executive Director of the E. F. Schumacher Society, named for the visionary author of Small is Beautiful: Economics as if People Mattered. This book is basically a blueprint for fair trade, even though it was written 35 years ago, and the Society is a co-sponsor of the BerkShares project. Other examples of convertible local currency include North Country Notes, Humboldt Community Currency, Burlington Currency ("bread"), and Bay Bucks.

The other kind of local currency is one that is entirely autonomous from the national currency, and is backed by the labor of those who exchange it -- which is why it is commonly referred to as "hours." The best-known example is Ithaca Hours, but there is also Madison Hours, Anacostia Hours, River Hours, Green Mountain Hours, the hOURS system of Philadelphia and Boston, and the international time bank system.