Local currencies have a long history, and yes, they are legal! Local currencies strengthen the local economy by favoring local businesses and by putting people to work, matching needs with resources, even when the money supply is tight or when the value of federal currency declines.
mkeXchange is a group that has been meeting since late 2008 to start one or more local currencies in Greater Milwaukee. The group is currently working on both a hard (paper) currency, and a mutual credit system, similar to timebanking.
To learn more about these efforts or get involved, visit http://groups.google.com/group/MkeExchange.