Alternative currency
Encyclopedia
Alternative currency is a term that refers to any currency
used as an alternative to the dominant national or multinational currency systems (usually referred to as national or fiat money). Alternative currencies can be created by an individual, corporation, or organization, they can be created by national, state, or local governments, or they can arise naturally as people begin to use a certain commodity as a currency. Mutual credit
is a form of alternative currency, and thus any form of lending that does not go through the banking system can be considered a form of alternative currency.
When used in combination with or when designed to work in combination with national or multinational fiat currencies they can be referred to as complementary currency
. Most complementary currencies are also local currencies
and are limited to a certain region.
Barter
s are another type of alternative currency. These are actually exchange systems, which only trade items; thus without the use of any currency whatsoever. Finally, LETS
is a special form of barter which trades points for items. One point stands for one man-hour of work.
Often there are issues related to paying tax
. Some alternative currencies are considered tax-exempt, but most of them are fully taxed as if they were national currency, with the caveat that the tax must be paid in the national currency. The legality and tax-status of alternative currencies varies widely from country to country; some systems in use in some countries would be illegal in others.
is an event that showed the potential of this increased spending through the introduction of a local currency known as Freigeld
. Local currencies also have the benefit that they cannot be spent abroad, and thus the money
always keeps circulating locally, benefiting only the local economy.
Alternative currencies are reported to work as a counterbalance for the local economy. They increase in activity if the local economy slows down, and decrease in activity if the local economy goes up.
According to professor Nikolaus Läufer, the use of local currencies such as Freigeld can only increase economic activity temporarily. Lengthy use of a local currency will ultimately result in a decline in economic activity and lead to a destabilization of the economy. This is due to the increased circulation velocity of the money as the amount in circulation decreases (as currencies as Freigeld reduce in value rapidly).
Electronic currencies
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
used as an alternative to the dominant national or multinational currency systems (usually referred to as national or fiat money). Alternative currencies can be created by an individual, corporation, or organization, they can be created by national, state, or local governments, or they can arise naturally as people begin to use a certain commodity as a currency. Mutual credit
Mutual credit
Mutual credit is a type of alternative currency in which the currency used in a transaction can be created at the time of the transaction. LETS are mutual credit systems.Typically this involves keeping track of each individual's credit or debit balance...
is a form of alternative currency, and thus any form of lending that does not go through the banking system can be considered a form of alternative currency.
When used in combination with or when designed to work in combination with national or multinational fiat currencies they can be referred to as complementary currency
Complementary currency
Complementary currency is a currency meant to be used as a complement to another currency, typically a national currency. Complementary currency is sometimes referred to as complementary community currency or as community currency...
. Most complementary currencies are also local currencies
Local currency
In economics, a local currency, in its common usage, is a currency not backed by a national government , and intended to trade only in a small area. As a tool of fiscal localism, local moneys can raise awareness of the state of the local economy, especially among those who may be unfamiliar or...
and are limited to a certain region.
Barter
Barter
Barter is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. It is usually bilateral, but may be multilateral, and usually exists parallel to monetary systems in most developed countries, though to a...
s are another type of alternative currency. These are actually exchange systems, which only trade items; thus without the use of any currency whatsoever. Finally, LETS
Local Exchange Trading Systems
Local exchange trading systems , also known as LETSystems, are locally initiated, democratically organised, not-for-profit community enterprises that provide a community information service and record transactions of members exchanging goods and services by using the currency of locally created...
is a special form of barter which trades points for items. One point stands for one man-hour of work.
Often there are issues related to paying tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
. Some alternative currencies are considered tax-exempt, but most of them are fully taxed as if they were national currency, with the caveat that the tax must be paid in the national currency. The legality and tax-status of alternative currencies varies widely from country to country; some systems in use in some countries would be illegal in others.
Examples of alternative currencies
- BarterBarterBarter is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. It is usually bilateral, but may be multilateral, and usually exists parallel to monetary systems in most developed countries, though to a...
clubs or corporate barter organizations are an example of alternative currency systems. - BerkSharesBerkSharesBerkShares is a local currency that circulates in The Berkshires region of Massachusetts. It was launched September 29, 2006 by BerkShares Inc., with research and development assistance from the New Economics Institute. The BerkShares website lists over 370 businesses in Berkshire County that...
- BitcoinBitcoinBitcoin is a decentralized, peer-to-peer network over which users make transactions that are tracked and verified through this network. The word Bitcoin also refers to the digital currency implemented as the currency medium for user transactions over this network...
- Calgary DollarsCalgary DollarsThe Calgary Dollar is a local currency in Calgary, Alberta, Canada. While functioning as a limited form of currency within Calgary, they are not a legal tender nor are they backed by a national government. Instead, the currency serves as a tool for community economic development as well as a...
- Community Exchange System (CES) global exchange network
- Electronic moneyElectronic moneyElectronic money is money or scrip that is only exchanged electronically. Typically, this involves the use of computer networks, the internet and digital stored value systems...
- Fourth Corner ExchangeFourth Corner ExchangeFourth Corner Exchange Inc is a sustainable community currency based in the Pacific Northwest USA. Founded in 2002 by Francis Ayley and a group of like minded friends, Fourth Corner Exchange started trading in January 2004, utilizing a basic Time Dollar system that has some features of LETS, but...
- Ithaca HoursIthaca HoursThe Ithaca HOUR is a local currency used in Ithaca, New York and is the oldest and largest local currency system in the United States that is still operating. It has inspired other similar systems in Madison, Wisconsin; Corvallis, Oregon; and a proposed system in the Lehigh Valley, Pennsylvania...
, Ithaca, NY - Kelantan dinar (gold) and dirham (silver) in Malaysia
- Local Exchange Trading SystemsLocal Exchange Trading SystemsLocal exchange trading systems , also known as LETSystems, are locally initiated, democratically organised, not-for-profit community enterprises that provide a community information service and record transactions of members exchanging goods and services by using the currency of locally created...
(LETS), an example of mutual creditMutual creditMutual credit is a type of alternative currency in which the currency used in a transaction can be created at the time of the transaction. LETS are mutual credit systems.Typically this involves keeping track of each individual's credit or debit balance...
, is a type of local currency used in a number of small communities worldwide. - Liberty DollarLiberty DollarThe Liberty Dollar was a private currency produced in the United States. The currency was issued in minted metal rounds similar to coins, gold and silver certificates and electronic currency . ALD certificates are "warehouse receipts" for real gold and silver owned by the bearer, ALD certificate...
is a private currencyPrivate currencyA private currency is a currency issued by a private organization. It is often contrasted with fiat currency issued by governments or central banks. In many countries, the issue of private paper currencies is severely restricted by law....
backed by silverSilverSilver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...
, designed to be a nationwide alternative currency in the United StatesUnited StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
. - Ripple monetary systemRipple monetary systemRipple is an open-source software project for developing and implementing a protocol for an open decentralized payment network. In its developed form , the Ripple network would be a peer-to-peer distributed social network service with a monetary honour system based on trust that already exists...
- Stroud PoundStroud PoundThe Stroud Pound is a local currency in use in Stroud, Gloucestershire. Unveiled on 12 September 2009, the scheme is the third local currency scheme introduced in England in recent years after the Totnes Pound and the Lewes Pound.-History:...
- Time Dollar is a state-sponsored alternative currency in the U.S, designed to encourage the independence and productivity of welfare recipients.
- Toronto DollarToronto dollarThe Toronto Dollar, founded in December 1998, is a paper local currency used in Toronto, Ontario and backed by the Canadian dollar.The currency is administered by Toronto Dollar Community Projects Inc., a not-for-profit community group, and is a project of St. Lawrence Works.The currency can be...
is another example of a backed local currency. - Valun SystemE.C. RiegelEdwin Clarence Riegel , generally known as E.C. Riegel, was an independent scholar, author and consumer advocate who campaigned against restrictions on free markets that harmed consumers and promoted an alternative monetary theory and an early private enterprise currency alternative.Best selling...
proposed by E.C. RiegelE.C. RiegelEdwin Clarence Riegel , generally known as E.C. Riegel, was an independent scholar, author and consumer advocate who campaigned against restrictions on free markets that harmed consumers and promoted an alternative monetary theory and an early private enterprise currency alternative.Best selling... - VenVen (currency)Ven is a global virtual currency used by members of a social network service Hub Culture to buy, share and trade knowledge, goods and services globally. It can be spent at any Hub Culture Pavilion or used for micropayments on the Internet at large. The value of Ven is determined on the financial...
is a social currency used in Hub CultureHub CultureHub Culture is a social network service that operates the global digital currency Ven, and according to its website, is "the first to merge online and physical world environments." It was founded in November 2002. The Hub Culture group of companies is privately held with offices in Bermuda, Geneva,...
, a private social network that operates a network of Pavilions which accept the currency for products and services. Ven is traded among members and is one of the most advanced alternative currencies in existence, with live market pricing derived from a basket of commodities and currencies that make up the value of Ven. - WIR BankWIR BankThe WIR Bank, formerly the Swiss Economic Circle , or WIR, is an independent complementary currency system in Switzerland that serves small and medium-sized businesses...
- One of the oldest and most successful complementary currencies, founded in 1934, oriented towards small and mid-sized corporations, with 62,000 members.
Advantages
Some alternative currencies devalue rapidly (they are called Schwundgeld); this increases monetary circulation. The Miracle of WörglWörgl
Wörgl is a town in Tyrol, Austria, in the Kufstein district. It is 20 km from the state border with Bavaria.-Transport:Wörgl is an important railway junction between the line from Innsbruck to Munich, and the inner-Austrian line to Salzburg...
is an event that showed the potential of this increased spending through the introduction of a local currency known as Freigeld
Freigeld
In the theory of Freiwirtschaft, Freigeld is a monetary unit proposed by Silvio Gesell.- Properties :Freigeld has several special properties:...
. Local currencies also have the benefit that they cannot be spent abroad, and thus the money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
always keeps circulating locally, benefiting only the local economy.
Alternative currencies are reported to work as a counterbalance for the local economy. They increase in activity if the local economy slows down, and decrease in activity if the local economy goes up.
Disadvantages
Alternative currencies promoted as local currencies that cannot be spent abroad have limited use.According to professor Nikolaus Läufer, the use of local currencies such as Freigeld can only increase economic activity temporarily. Lengthy use of a local currency will ultimately result in a decline in economic activity and lead to a destabilization of the economy. This is due to the increased circulation velocity of the money as the amount in circulation decreases (as currencies as Freigeld reduce in value rapidly).
See also
- Bearer instrumentBearer instrumentA bearer instrument is a document that indicates that the owner of the document has title to property, such as shares or bonds. Bearer instruments differ from normal registered instruments, in that no records are kept of who owns the underlying property, or of the transactions involving transfer of...
- Commodity moneyCommodity moneyCommodity money is money whose value comes from a commodity out of which it is made. It is objects that have value in themselves as well as for use as money....
- Credit moneyCredit moneyCredit money is any claim against a physical or legal person that can be used for the purchase of goods and services. Examples of credit money include personal IOUs, and in general any financial instrument or bank money market account certificate, which is not immediately repayable in specie, on...
Electronic currencies
- Flex dollarFlex dollarFlex dollars are a form of payment used at large institutions, especially Universities. James Madison University, University of Toronto, Queen's University, University of Waterloo, University of Western Ontario, and Messiah College are all schools that use this system...
- Private bankPrivate bankPrivate banks are banks that are not incorporated. A private bank is owned by either an individual or a general partner with limited partner...
- Sectoral currencySectoral currencyA sectoral currency is a form of complementary currency that is restricted to a specific sector. Examples of sectoral currency are the Saber, which is restricted to the educational sector and thus can only be used to buy education and the Hureai kippu, which is restricted to the health care...
- Time-based currencyTime-based currencyIn economics, a time-based currency is an alternative currency where the unit of exchange is the man-hour.Some time-based currencies value everyone’s contributions equally. One hour equals one service credit...
- CyclosCyclosCyclos is open source online banking software for Microfinance institutions, local banks and complementary currency systems like LETS, Barter networks and Time banks.Cyclos has the following functionality:* Online banking tools;...