"I don't know how to respond when I see places issuing thousands of billions in local currency. Isn't it possible because they are wealthy cities, unlike us? If it were a remote area, it might be different, but seeing this in the same metropolitan area makes our residents feel isolated."
A lament from an official in Gwanyang came after hearing that Seongnam City plans to increase its local currency issuance from 210 billion won last year to 750 billion won this year, more than tripling it. Gwanyang aims for an issuance amount this year of 120 billion won, the same as last year. This is only 16% of Seongnam's issuance. Residents of Gwanyang are clamoring to increase the issuance, but the budget is severely lacking. Another official from Gwanyang said, "Even if the budget increases from now, it will not be enough" and noted, "Many residents are not benefiting from the local currency."
Local currency is making the rich neighborhoods richer. This is because the local currency project distributes the budget of local governments to self-employed individuals and residents. Contrary to the goal of revitalizing the lagging local economy, criticisms suggest that the effects are minimal and only exacerbate regional imbalances.
According to each local government on the 13th, Seongnam plans to issue 500 billion won worth of local currency in the first quarter of this year. An additional 250 billion won will be issued later, making a total issuance of 750 billion won. Hwaseong, which ranks first in cumulative issuance in Gyeonggi Province, will also issue 500 billion won in local currency this year alone. As of 2021, Seongnam and Hwaseong are the 1st and 2nd wealthiest neighborhoods in Gyeonggi Province by Gross Domestic Regional Product (GDRP). Seongnam has Pangyo, which is home to information technology (IT) companies, while Hwaseong hosts factories of major corporations such as Samsung Electronics and Kia.
In contrast, Gwanyang, ranked 18th in GDRP, is struggling to even meet basic demand. On New Year's Day, residents flocked to buy local currency, resulting in the 40 billion won issuance for January selling out in just 1 hour and 30 minutes. Approximately 30% of the target issuance (120 billion won) ran out in just one day. Initially provided local currency benefits were suspended for the month of January due to budget shortages. Residents are posting complaints on the city hall website asking for additional budget allocations, but the city has not found a sharp solution.
Gyeonggi Gwacheon City planned to issue 52 billion won in local currency last year but only managed to issue 50.3 billion won. Ultimately, Gwacheon has lowered its goal to issuing 50 billion won this year. Seongnam and Gwacheon are just 30 minutes apart by car, yet there is a 15-fold difference in local currency issuance scale.
The disparity in local currency signifies more than residents feeling isolated. When all the local currency issued by Seongnam is used, it will release 750 billion won in cash only in the Seongnam commercial zone. This will proportionally increase sales for self-employed individuals.
Non-self-employed residents also benefit significantly. Local currency provides benefits in the form of discounts. When the discount is 10%, purchasing 1 million won worth of local currency allows residents to spend 1.1 million won like cash. The residents save 100,000 won, and the local government bears 100,000 won through the budget. The local government budget goes straight into the wallets of the residents, creating a structure where residents of wealthy municipalities with higher budget allocation receive more financial benefits.
Seongnam plans to initially allocate 75 billion won for local currency this year, with a plan to increase it to 85 billion won. In contrast, Gwanyang's budget this year is 12 billion won. Combining statements from local government officials responsible for local currency projects, residents of Seongnam are expected to see economic benefits of at least 70 billion won, while Hwaseong is expected to see around 50 billion won. In contrast, Gwanyang is estimated to receive at best 12 billion won, and Gwacheon is expected to have a maximum of 5 billion won.
Experts point out that when one local government increases the issuance of local currency, it sucks sales from neighboring municipalities, deepening the phenomenon of the rich getting richer and the poor getting poorer. Local currency can only be used in the area where it was issued. Since residents of Seongnam only consume the local currency in Seongnam, the frequency of spending money in neighboring areas like Gwacheon decreases. As Seongnam's commercial zone sales increase, Gwacheon's sales decline, offsetting the economic effect.
The Korea Institute of Public Finance (KIPF) noted in its December 2020 report on the impact of local currency introduction on local economies that "it should be noted that when local currency introduction leads to increased sales in the area, it comes at the expense of decreased sales in neighboring municipalities" and "if a municipality that experiences decreased sales also adopts local currency, the revitalization effect of the local economy will disappear, potentially harming small municipalities."
Lee Jae-myung, leader of the Democratic Party, who emphasizes the necessity of local currency, publicly criticized KIPF as an "outdated institution" during his time as the governor of Gyeonggi Province in 2020. However, experts argue that KIPF's claims have become a consensus in recent academic circles. Seok Byeong-hoon, a professor of economics at Ewha Womans University, stated, "Local currency should only be issued in economically challenged areas to achieve a redistributive effect."
The government has completely cut the budget for supporting local governments issuing local currency since 2023. However, due to opposition from the Democratic Party, budgets of around 300 billion won were allocated for both 2023 and last year. Even during the supplementary budget formation process this year, there have been disputes between the ruling and opposition parties over the local currency budget.
☞ Local currency
A voucher issued by local governments for the purpose of revitalizing the local economy and protecting local small businesses. It can be exchanged for goods or services through local governments or affiliated stores.