(Photo credit:   Jonathan Combe)

On currency, the vibrant Scottish independence debate has got stuck in a rut. Whether or not Britain will share the sterling is an emotive subject. But it also begs the question of why – in a creative, digitally advanced and regionally diverse society – the strength of an economy should depend on just one currency.

Over the next few weeks NEF will be blogging about what Scotland could do to build an economic system that really works for people and businesses.

Today’s question: how could currency innovation help small and medium-sized businesses (SMEs) in Scotland boost regional economic diversity?

Even a small country like Scotland contains a range of different regional economies, from industrial Glasgow to rural Highlands, from shipbuilding to crofting. But it doesn’t have the financial institutions and tools to match.

Made up of a handful of big commercial banks, the UK’s London focused financial sector is out of touch with many of the productive industries and SMEs powering our regional economies. This was proven yet again today by the Bank of England reporting a further drop in banks’ lending to small businesses.

Whether independent or devolved, Scotland should build a diverse financial system that caters to the unique needs of its regions. Here are some examples from around Europe that it could learn from.

1. Financial support for SMEs

The strength of the German economy rests neither in Berlin nor with large multinationals. Both its exporting prowess and technological edge rest on small and medium sized companies (SMEs), whose names and products are unknown to the general public, often nestled in rural valleys.

In Germany, as anywhere else, large commercial banks do not consider small-scale loans to SMEs to be good business. But German SMEs (unlike their counterparts in the UK) have a better option anyway. Rather than rely on scarce and expensive loans from big banks, they have Germany’s Sparkassen – a multi-tiered network of local banks which readily provide credit to businesses in their constituencies.

Local knowledge of the business people they are dealing with combined with shared infrastructure and appropriate legislation allows Germany’s network of banks to think locally, while prospering at a national scale.

2. Complementary currencies for stronger businesses

Switzerland has a cooperative bank that takes the responsibility to support SMEs a step further. The “WIR” bank provides credit at close to 0% interest to more then 60,000 SMEs across the country by operating its own currency: the WIR (CHW) as an addition to the Swiss Franc.

The WIR currency is accepted by participating businesses, particularly in the construction and hospitality sectors, allowing a tightly knit network of traders and suppliers to benefit from cheap financing outside of the national money system. What’s more, the annual turnover of about 1-2 billion WIR has proven anti-cyclical to the Swiss Franc economy, playing a stabilising role in the economic success story of Switzerland.

3. Adding value with credit currencies

Hundreds of other examples of business-to-business credit currencies exist on a smaller scale than the WIR around the world. The International Reciprocal Trade Association (IRTA) currently represents over 100 currency providers with close to half a million business participating in what is called business barter credit clearing. This is a method of creating credit where no currency is loaned up-front, but credit limits for each company are agreed depending on their trading history and the goods and services they provide.

Currency systems like these tend to work best at a regional level. One successful example in Scotland today is The Business Exchange (TBEX) in Aberdeen, where businesses that operate below full capacity are able to finance their own purchases through the provision of their future products.

Capitalising on the success of models such as this, in the metropolitan region of Nantes in France, the local government has mandated its public bank to set up such a currency for SMEs in the area. The SoNantes, supported with EU funding, will launch later this year. It’s innovative model allows individual consumers to use the currency as well, by purchasing trade credits for Euros and using them to pay for goods, services and even public transport with the all-digital, local trade money.

This article was first published on the NEF website on August 29th, 2014.