At first, Brazilian authorities frowned on the idea.
In 1998, just as Banco Palmas was getting under way, police with machine guns raided its tiny office, acting on a complaint from Brazil's central bank. The palmas hadn't yet been printed, but police seized a handwritten ledger and 100 reais.
Mr. Melo convinced the government the notes weren't a threat to the real. Because the palma was pegged to the sovereign currency, he argued, it was as legitimate as a coupon or other proxy for legal tender.
It's just a scheme to boost local spending by pricing at a discount in redeemable scrip which is backed 1:1 by govt currency. So it's not a new currency. The beggar thy neighbor strategy is questionable - the increased spending in the local economy will reduce spending in other neighborhoods. Those in turn will retort by printing their own currency negating any relative advantage. The net effect is similar to trade barriers and tariffs, a destruction of synergy and comparative advantage - balkanization into small poor economic islands.
