Alternative Currencies

Alternative, (or private, or sovereign) currencies are currencies used as a viable alternative to the dominant national central-bank distributed currency. They are perfectly legal  in the United States as long as they don’t look like federal reserve notes and as long as they’re not called dollars.

in the US, you’re not legally obligated to accept the national currency (so you could operate a business, for example, entirely through alt. currency denominations). The only requirement is that you accept the US dollar as payment for obligations that are already denominated in dollars.

Usually, these alternative currencies are a souped-up coupon system. Often they come with a small discount to incentivize participation and discourage exchanging the currency back into dollars. For example, the Berkshire County alternative currency (BerkShares) can be purchased at 95 cents on the dollar, and then spent at full equivalency (1:1) at participating businesses.

These alternative currencies come from the same philosophical root as eating local — they keep money in the community, support the local economy. They function much like our national currency, but their supply is not controlled by a central bank, you can’t pay your taxes with them, and you do have to count your alt-currency earnings as taxable income.

“The whole idea is not to bring them back to the bank because BerkShares have the most power in circulation. The money never leaves the community and everybody is richer for it,” says Stefan Root, owner of Berkshire Bike and Board in Great Barrington.

They’re not in competition with the US dollar — you can’t run most businesses entirely locally, and they don’t come with banking institutions and the related services (like loans!). But..

New businesses aimed at fulfilling a community need will soon be able to apply for loans on condition that 25% of the money is issued in BerkShares. “Sometimes people run out of things to do with their BerkShares and this would give them the opportunity to reinvest their surplus,” says Nick Kacher of the New Economics Institute, which supports BerkShares.

There’s even talk of changing the way the exchange rate works, given the recent fluctuations in the US economy — depegging the Berkshare from the dollar, and instead working out a floating exchange rate based on a local commodity, like maple syrup.

One emerging form of alternative currency is the virtual currency. Alternative markets often spring up around them (see: World of Warcraft gold farming). 

Bitcoin is a peer-to-peer digital currency

designed around the idea of using cryptography to control the creation and transfer of money, rather than relying on central authorities.

Once you download and run the Bitcoin client software, it connects over the Internet to the decentralized network of all Bitcoin users and also generates a pair of unique, mathematically linked keys, which you’ll need to exchange bitcoins with any other client. One key is private and kept hidden on your computer. The other is public and a version of it dubbed a Bitcoin address is given to other people so they can send you bitcoins.

It’s a way to exchange money securely without relying on a third-party like PayPal.

Exchanges like Mt. Gox provide a place for people to trade bitcoins for other types of currency. Some enthusiasts have also started doing work, such as designing websites, in exchange for bitcoins.

The way bitcoins are created is meant to mimic mining — they are created over time at a decreasing rate. There is no possibility for any sort of federal reserve-like intervention. This means that the bitcoin is an inherently deflationary currency.

This absence of a central monetary authority to control the money supply is what many find exciting about Bitcoins. Quantitative easing is not possible. Coins are created at a constant average rate to reward users who give up some of their computing power to track and validate transactions that are made with the currency*

The Economist’s last word: “Bitcoin is technically sophisticated. As a monetary system, it looks primitive.”

______________________________________________________________

Bits and bob.” The Economist. 16 June 2011.

Goldstein, Jacob and David Kestenbaum. “What is Bitcoin?” Planet Money. 24 August 2011.

Keller, Jared. “Bitcoin, Digital Currency of the Future?” the Atlantic. 25 May 2011.

O’Brien, Jane. “Berkshares boost the Berkshires in Massachusetts.” BBC News. 6 September 2011.

Simonite, Tom. “What Bitcoin is, and Why it Matters.” Technology Review. 25 May 2011.

Wolman, David. The End of Money: Counterfeiters, Preachers, Techies, Dreamers – and the Coming Cashless Society. (Boston: Da Capo, 2012).

Wikipedia, “Alternative Currency

Comments
2 Responses to “Alternative Currencies”
  1. dem says:

    Wow, BerkShares?! I love it. Had no idea 🙂

    Makes me fondly remember the days of subway tokens in NYC, when you could use the tokens as a uniquely-valued $1.25 coin to buy coffee or smokes at the corner deli. (This practice was also my first experience in playing the currency markets, when my tokens I had bought for $1.25 the week before suddenly became worth $1.50 at the deli when the MTA raised subway fares…)

    Also, you made my day by bringing up gold farming. The virtual economies of WoW and other MMORPGs are a pet fascination of mine. I just got Neal Stephenson’s REAMDE on Audible.

Trackbacks
Check out what others are saying...


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: