An alternative currency (or private currency) is any currency used as an
alternative to the dominant national or multinational currency systems
(usually referred to as national or fiat money). They are 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.
For all the regulatory crackdowns on bitcoin in recent weeks, the crypto-currency's advocates remain unfailingly optimistic.
Bitcoin,
they say, heralds a future where private and stateless currencies will
dethrone the dollar and other monetary dinosaurs.
But if you
strip away its technological trappings such as the encryption and
peer-to-peer networks, bitcoin in fact closely resembles earlier private
currencies which circulated alongside government-sponsored money.
This
was particularly true of the sorts of coins that served as small change
for the lower classes of society. According to monetary historian Eric
Helleiner, merchants in England issued low-denomination coins made out
of copper, lead and tin from the 13th century onwards.
Private
currencies got a further boost during the industrial revolution, when
British factory owners became so desperate for small change to pay wages
that they minted their own cash in far greater quantities and at a
cheaper price than the government itself could muster. Much of this
currency consisted of coins made of copper, or occasionally silver, but
by the nineteenth century private paper currencies also became common.
By the eve of the American civil war, at least 10,000 different kinds of notes competed with the coins issued by the US Mint.
In
most nations, foreign coins often circulated alongside official coins,
sometimes supplanting them. The most famous of these interlopers, the
Spanish peso or silver piece of eight, was the de facto currency in
America.
The creation of central banks gave nation-states even
further control over their currency. Even the design of the nation's
money, argues Helleiner, came to be seen as a means of instilling
allegiance to the state, with nationalist imagery becoming commonplace
on currency at this time.
Appearing on CNBC yesterday, former
Congressman Ron Paul warned that if the US continues on its current
course, the dollar will collapse, and gold will literally be priceless.
"Eventually,
if we're not careful, it will go to infinity, because the dollar will
collapse totally," Paul said on CNBC.com's Futures Now
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