They don't just shop local in Totnes - they have their very own currency

If you were to nip down to Devon's Totnes market on a Saturday looking to buy some spelt flour pancakes, crêpes or falafels, then you might just encounter Lou Brown, who is a remarkably fine cook. But she has another, non-culinary distinction. Unlike most businesses in the country, Brown does not deal in currency with a picture of the Queen's head on it. No, instead, her change features an image much closer to home. The town where she lives.

Brown, along with thousands of her fellow residents in this colourful south-west retreat, uses Totnes pounds: notes printed and traded locally (and decorated with a sepia depiction of the town's main thoroughfare). The idea for the pound – used in 70 businesses round these parts – was introduced a year ago, to promote links between local businesses while reducing reliance on big business. The aim is to keep money circulating within the town's local economy. If people are encouraged to buy local produce, the thinking goes, it will help to cut down on food – and trade – miles and also help to strengthen community relations and links with local producers.

The concept has proved so popular that a cluster of other towns around the country are initiating copycat schemes. Indeed, it is hoped that similar projects can be launched in the Welsh towns of Lampeter, Llandeilo and Llandovery this year.

Brown says: "People are so positive about the currency. I think lots of people feel supportive towards helping local producers and farmers, especially with the growing awareness of the effects of transport on the climate. Some people ask for them in their change, especially when I put up my sign. They are certainly disappointed when they can't get hold of them."

Totnes radiates out from a bustling main road, Fore Street, peppered by cute boutiques run by what some locals refer to as "burnt-out people from the city who can afford to buy a shop and not sell anything". A legion of media types from London have second homes there and property prices are soaring. It follows that if anywhere could afford to experiment, it would be here. Its 8,500 residents have a reputation for middle-class, alternative lifestyles. Time magazine has dubbed it "the capital of New Age chic", while Highlife, the British Airways magazine, thinks it is one of the 10 places to be.

The Totnes pound was pioneered by a group of local environmentalists led by Rob Hopkins and Naresh Giangrande. They set up a system in which £1 coins are exchanged for 1TP at one of four "change" points around Totnes. There are now 6,000 Totnes pounds in circulation and plans to introduce further denominations.

The idea was partly based on a US model. "BerkShares" were launched in the Southern Berkshire region of Massachusetts in 2006. They were a roaring success – some 1.43 million "BerkShares" worth $1.29m (£650,000) were issued in the scheme's first 17 months and there are now more than 300 businesses accepting them. BerkShares' organisers say: "The purpose of a local currency is to function on a local scale the same way that national currencies have functioned on a national scale – building the local economy by maximising circulation of trade within a defined region.

"The currency distinguishes the local businesses that accept the currency from those that do not, building stronger relationships and a greater affinity between the business community and the locals. The people who choose to use the currency make a conscious commitment to buy local first. They are taking personal responsibility for the health and well-being of their community by laying the foundation of a thriving local economy."

As Noel Longhurst, one of the group which developed and manages the Totnes pound project explains: "The idea is to keep money in the area, thereby retaining wealth within the community. If you look at the places with economic problems it is because the wealth is leaking out of the neighbourhood."

His zeal is matched by Alan Langmaid, the administrator of the museum in Totnes, although he admits "a lot do end up under fridge magnets". There are, however, some notable detractors. "We took Totnes pounds for only a year but then nobody wanted them back in change," says Ray Johnson, the owner of Annie's Fruit Shop, located at the end of the town's main thoroughfare. "That's basically the reason we stopped using them. At the end of each day we counted up 60 or 70 Totnes pounds in our till; but you could only spend them in other shops that accepted them."

Hoping such cases would be in the minority, Hopkins and Giangrande administrate the currency through the town's "transition" organisation, created in September 2006. Following in the footsteps of a similar scheme in Ireland, such "transition" areas aim to stave off the twin threats of climate change and "peak oil". The latter refers to when the maximum rate of world petroleum production is reached (after which point production declines and prices rise sharply).

In addition to the pound, the transition town organisation offers people advice at "oil vulnerability auditing workshops" on how their businesses can wean themselves off the black stuff; and the group is in talks with the council over "edible landscapes" – herb gardens instead of ornamental verges and bushes. They have recently secured some allotments for the green-fingered, and are promoting the use of energy-saving light bulbs. Similar ideas are in the pipeline: they are telling the town's inhabitants to switch over to locally generated power, and are promoting the use of solar water heaters.

One of the many to paddle up this river of change is Tom Morris, the owner of Totnes Kayaks. Outdoor pursuits such as kayaking are popular in Devon, and needless to say, modern kayaks, which are made mostly from plastic, could be a major casualty of dwindling fossil fuel supplies. "We are looking at alternatives the whole time because the raw material and transport costs are simply not sustainable," he says. By way of example, he gestures to some smaller "Jackson" kayaks which use less plastic. "Shipping any kayak from the States, which is where many of the manufacturers are based, is costly. We are looking into sourcing these locally, by speaking to a couple of businesses who have set up plants in the UK. And because the shipping costs are lower, prices are lower for our customers." He explains that such change is partly the result of work done by "auditors" from the transition town organisation. They have been through everything in his shop and worked out how he can save money – and energy.

"Wales is a hotbed of activity, as is Cornwall," says Hopkins. "We are now up to 50 formal transition projects and more than 700 'mullers', those at an earlier stage of the process – with New Zealand and Australia being very active. A man from Japan was over here recently, and he has now gone back to start transition projects there. And we are busily getting our literature translated into a number of languages, including Welsh and Japanese.

"The viral nature of the growth of the transition movement has taken us all by surprise. We have gone from one transition project to there being 50 formal ones and more than 700 at the earlier stages just by word of mouth and the internet. We still have no film, nor, until very recently, did we have a book. I think it shows that people are hungry for positive solutions which engage their creativity.

"The transition movement has been described as being 'more like a party than a protest march', and that feeling of being part of something playful and solutions-focused has undoubtedly been a part of its success."

If he has his way, the ring of local currencies pouring out of tills will soon be heard up and down the country.

Keeping it local: how alternative cash schemes work

* The Totnes pound is worth £1. Each unit of local currency is legally backed by an equivalent in official currency, so traders and customers can confidently use them, knowing that they have a real value.

* Since local currencies are only accepted at local businesses, their use encourages the purchase of locally produced goods and services. This helps to prevent money "leaking" out of the area's economy.

* By helping to give a boost to local producers, the scheme cuts down on food miles, which is better for the environment.

* Another form of local trading is Lets (local exchange trading system). In this scheme, people exchange goods and services for a system of credits, so bypassing the formal economy.

* Lets is not bartering. Locals set up a club and can trade in goods and services using Lets "points". These points can be used to buy from any other member. Thus, a parallel economy is created.

( There are thousands of Lets schemes around the world.