Alternative currency

Not to be confused with private currency or complementary currency.

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.

Barters 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.

Examples of alternative currencies

• Barter clubs or corporate barter organizations are an example of alternative currency systems.
• BerkShares
• Bitcoin
• Calgary Dollars
• Community Exchange System (CES) global exchange network
• Electronic money
• Fourth Corner Exchange
• Ithaca Hours, Ithaca, NY
• Kelantan dinar (gold) and dirham (silver) in Malaysia
• Local Exchange Trading Systems (LETS), an example of mutual credit, is a type of local currency used in a number of small communities worldwide.
• Liberty Dollar is a private currency backed by silver, designed to be a nationwide alternative currency in the United States.
• Ripple monetary system
• Stroud Pound
• Time Dollar is a state-sponsored alternative currency in the U.S, designed to encourage the independence and productivity of welfare recipients.
• Toronto Dollar is another example of a backed local currency.
• Valun System proposed by E.C. Riegel
• Ven is a social currency used in Hub Culture, 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 Bank - 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 Wörgl 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.

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 instrument
• Commodity money
• Credit money
• Electronic currencies
• Flex dollar
• Private bank
• Collaborative finance
• Sectoral currency
• Time-based currency
• Cyclos

References

• Greco, Thomas H. Jr. Money: understanding and creating alternatives to legal tender. White River Junction, Vt: Chelsea Green Publishing, 2001.
• Lietaer, Bernard. The Future of Money. Random House, 2001.
• Raddon, M. Community and money: men and women making change. Montreal: Black Rose Books, 2003.

Further reading

• Suhr, Dieter (1990). The Neutral Money Network (NeuMoNe): A Critical Analysis of Traditional Money and the Financial Innovation "Neutral Money"

External links

• Community Currency Magazine
• Alternative Monetary Systems at the Open Directory Project