Private currency
Encyclopedia
A private currency is a currency
issued by a private organization. It is often contrasted with fiat currency issued by government
s or central bank
s. In many countries, the issue of private paper currencies is severely restricted by law.
Today, there are over four-thousand privately issued currencies in more than 35 countries. These include private gold and silver exchanges, local paper money, computerized systems of credits and debits, and electronic currencies
in circulation, such as digital gold currency
.
In the United States
, the Free Banking Era lasted between 1837 and 1866, when almost anyone could issue paper money. While there are more restrictions today than in this era, it is still legal to create your own currencies. States, municipalities, private bank
s, railroad and construction companies, stores, restaurants, churches and individuals printed an estimated 8,000 different monies by 1860 and can still do so today. If an issuer went bankrupt, closed, left town, or otherwise went out of business the note would be worthless. Such organizations earned the nickname of "wildcat banks" for a reputation of unreliability; they were often situated in remote, unpopulated locales said to be inhabited more by wildcats than by people. Yet according to Lawrence H. White's article in The Freeman, "it turns out that 'wildcat' banking is largely a myth. Although stories about crooked banking practices are entertaining—and for that reason have been repeated endlessly by textbooks—modern economic historians have found that there were in fact very few banks that fit any reasonable definition of wildcat bank". The National Bank Act of 1863 ended the "wildcat bank" period.
in Western New York State has experimented with barter in which participating workers exchange services for Ithaca Hours
which are used to buy goods and services forming a subprivate currency for a small locality. The system has been ruled legal provided all transactions are taxed and all currency is redeemable in United States Dollars.
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 E. F. Schumacher Society. The BerkShares website lists over 370 businesses in Berkshire County that accept the currency. In 30 months, 2.2 million BerkShares have been issued from 12 branch offices of five local banks.
Several of Cruz's employees stated that they had been promised a 30-year contract, a new car, health insurance and payment of their debts. The workers received compensation in the form of checks from United Cities. Those checks were rejected as fraudulent by local banks after the employees deposited them because they lacked standard routing numbers.
The U.S. Treasury Department's Office of the Comptroller of the Currency issued an alert warning banks that United Cities' checks were "valueless instruments" and should not be cashed.
On July 8, 2007, Cruz attempted to evict employees of a Palmetto Bay, Florida branch of the Bank of America. He was accompanied by 30 of his followers, 10 of whom were dressed as armed guards, and he presented a "court order" supposedly issued by "The United Cities Private Court." The "court order" referenced a pending $15.25 billion lawsuit against the Bank of America filed by Cruz in Miami-Dade County Court the month before. Cruz had claimed the bank had wronged him because an Orlando branch of Bank of America refused to cash $14.3 million in United Cities "bank drafts."
On August 6, 2008, Cruz was indicted by a Federal grand jury in Florida on one count of conspiracy to defraud the United States under and and six counts of bank fraud under and in connection with his dealings with Bank of America with the United Cities bank drafts. If convicted, Cruz would face a maximum possible sentence of up to 185 years in federal prison.
As of late October 2010, the Assistant United States Attorney in Orlando, Florida filed a report with the U.S. District Court to the effect that Angel Cruz was still a fugitive, and that the United States Secret Service
was continuing its efforts to apprehend Cruz. A co-defendant in the case, Harry William Marrero, was sentenced on September 1, 2009 to eight years and one month in prison. Marrero is incarcerated at the United States Penitentiary at Atlanta, Georgia, and with time off for good behavior would be scheduled for release on September 7, 2015.
In Australia
, the Bank Notes Tax Act of 1910
basically shut down the circulation of private currencies by imposing a prohibitive tax on the practice. Many other nations have similar such policies that eliminate private sector competition.
One example of a currency that lost government support but retained use amongst a community is the Iraqi Swiss dinar.
England
has had the Totnes pound
since it was launched by Transition Towns
Totnes Economics and Livelihoods group in March 2007; A Totnes Pound is equal to one pound sterling and is backed by sterling held in a bank account. As at September 2008, about 70 business in Totnes were accepting the Totnes Pound.
There are also the Lewes Pound
(from September 2008) and the Stroud Pound
(from 12 September 2009).
Austria
had the Wörgl
Experiment from July 1932 to September 1933.
Currently, Bavaria
Germany
has the Chiemgauer
, started in 2003.
Starting in 2006 the "City Initiative Karlsruhe
" issues the Karlsruher which has no nominal value. Every coin has the value of 50 Eurocent and is primarily used in parking garages.
As of 2009, 120 companies in Karlsruhe accept the Karlsruher and usually grant a discount when paying with it.
In Hong Kong
although the government does issue currency, bank issued private currency is the dominant medium of exchange. Most automated teller machine
s dispense private Hong Kong bank notes.
In Canada
private currencies cannot be referred to being legal tender (Calgary Dollar and Toronto dollar
) or use alternate names like coupon or bucks (e.g. Canadian Tire money
and Pioneer Energy#Bonus Bucks).
to increase asset security and nullify inflation
, which can be caused by an issuer increasing money supply
. Some use established and historic forms of money, such as silver
or gold
, as in the case of digital gold currencies
or the Liberty dollar
.
It is possible for privately issued money to be backed by any commodity, although some people argue that perishable goods can never be used as currency, other than in barter
ing. One criterion that is regarded as critical for any currency backing material is its fungibility
. Alternative views suggest paper money backed by energy
(measured for example in "joules of electricity" or "joules of oil"), transport (measured in kg·km/h), or food for instance, may be used in the future.
, in monetary economics, is the money supply created by private/commercial bank; in business, is the finance source other than bank.
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...
issued by a private organization. It is often contrasted with fiat currency issued by government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
s or central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
s. In many countries, the issue of private paper currencies is severely restricted by law.
Today, there are over four-thousand privately issued currencies in more than 35 countries. These include private gold and silver exchanges, local paper money, computerized systems of credits and debits, and electronic currencies
Electronic money
Electronic 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...
in circulation, such as digital gold currency
Digital gold currency
Digital gold currency is a form of electronic money based on ounces of gold. It is a kind of representative money, like a US paper gold certificate at the time that these were exchangeable for gold on demand. The typical unit of account for such currency is the gold gram or the troy ounce,...
.
United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, the Free Banking Era lasted between 1837 and 1866, when almost anyone could issue paper money. While there are more restrictions today than in this era, it is still legal to create your own currencies. States, municipalities, private bank
Private bank
Private banks are banks that are not incorporated. A private bank is owned by either an individual or a general partner with limited partner...
s, railroad and construction companies, stores, restaurants, churches and individuals printed an estimated 8,000 different monies by 1860 and can still do so today. If an issuer went bankrupt, closed, left town, or otherwise went out of business the note would be worthless. Such organizations earned the nickname of "wildcat banks" for a reputation of unreliability; they were often situated in remote, unpopulated locales said to be inhabited more by wildcats than by people. Yet according to Lawrence H. White's article in The Freeman, "it turns out that 'wildcat' banking is largely a myth. Although stories about crooked banking practices are entertaining—and for that reason have been repeated endlessly by textbooks—modern economic historians have found that there were in fact very few banks that fit any reasonable definition of wildcat bank". The National Bank Act of 1863 ended the "wildcat bank" period.
Ithaca hours
The city of IthacaIthaca, New York
The city of Ithaca, is a city in upstate New York and the county seat of Tompkins County, as well as the largest community in the Ithaca-Tompkins County metropolitan area...
in Western New York State has experimented with barter in which participating workers exchange services for Ithaca Hours
Ithaca Hours
The 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...
which are used to buy goods and services forming a subprivate currency for a small locality. The system has been ruled legal provided all transactions are taxed and all currency is redeemable in United States Dollars.
BerkShares
BerkSharesBerkShares
BerkShares 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...
is a local currency that circulates in The Berkshires
The Berkshires
The Berkshires , is a highland geologic region located in the western parts of Massachusetts and Connecticut.Also referred to as the Berkshire Hills, Berkshire Mountains, and Berkshire Plateau, the region enjoys a vibrant tourism industry based on music, arts, and recreation.-Definition:The term...
region of Massachusetts
Massachusetts
The Commonwealth of Massachusetts is a state in the New England region of the northeastern United States of America. It is bordered by Rhode Island and Connecticut to the south, New York to the west, and Vermont and New Hampshire to the north; at its east lies the Atlantic Ocean. As of the 2010...
. It was launched September 29, 2006 by BerkShares Inc., with research and development assistance from the E. F. Schumacher Society. The BerkShares website lists over 370 businesses in Berkshire County that accept the currency. In 30 months, 2.2 million BerkShares have been issued from 12 branch offices of five local banks.
United States Private Dollars
In 2007, Angel Cruz, founder of The United Cities Corporation (TUC) in one of the dramatic abuses of the use of private currencies, announced he was establishing an alternative "asset based" currency named "United States Private Dollars". Cruz claimed his "United States Private Dollars" were "backed by the total net worth of the assets of its members" and had printed $6,127,379,895 worth of the private currency. According to a press release, these assets were $357,170,993,418. The currency featured the slogan "In Jehovah We Trust".Several of Cruz's employees stated that they had been promised a 30-year contract, a new car, health insurance and payment of their debts. The workers received compensation in the form of checks from United Cities. Those checks were rejected as fraudulent by local banks after the employees deposited them because they lacked standard routing numbers.
The U.S. Treasury Department's Office of the Comptroller of the Currency issued an alert warning banks that United Cities' checks were "valueless instruments" and should not be cashed.
On July 8, 2007, Cruz attempted to evict employees of a Palmetto Bay, Florida branch of the Bank of America. He was accompanied by 30 of his followers, 10 of whom were dressed as armed guards, and he presented a "court order" supposedly issued by "The United Cities Private Court." The "court order" referenced a pending $15.25 billion lawsuit against the Bank of America filed by Cruz in Miami-Dade County Court the month before. Cruz had claimed the bank had wronged him because an Orlando branch of Bank of America refused to cash $14.3 million in United Cities "bank drafts."
On August 6, 2008, Cruz was indicted by a Federal grand jury in Florida on one count of conspiracy to defraud the United States under and and six counts of bank fraud under and in connection with his dealings with Bank of America with the United Cities bank drafts. If convicted, Cruz would face a maximum possible sentence of up to 185 years in federal prison.
As of late October 2010, the Assistant United States Attorney in Orlando, Florida filed a report with the U.S. District Court to the effect that Angel Cruz was still a fugitive, and that the United States Secret Service
United States Secret Service
The United States Secret Service is a United States federal law enforcement agency that is part of the United States Department of Homeland Security. The sworn members are divided among the Special Agents and the Uniformed Division. Until March 1, 2003, the Service was part of the United States...
was continuing its efforts to apprehend Cruz. A co-defendant in the case, Harry William Marrero, was sentenced on September 1, 2009 to eight years and one month in prison. Marrero is incarcerated at the United States Penitentiary at Atlanta, Georgia, and with time off for good behavior would be scheduled for release on September 7, 2015.
In other countries
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
, the Bank Notes Tax Act of 1910
Australian Bank Notes Tax Act 1910
The Bank Notes Tax Act of 1910 effectively ended the era of private currency in Australia.It is a federal law that imposes on all bank issued currency a tax of ten per cent...
basically shut down the circulation of private currencies by imposing a prohibitive tax on the practice. Many other nations have similar such policies that eliminate private sector competition.
One example of a currency that lost government support but retained use amongst a community is the Iraqi Swiss dinar.
England
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...
has had the Totnes pound
Totnes pound
The Totnes pound is an alternative local currency, intended to support the local economy of Totnes, a town in Devon, UK.The initiative is part of the Transition Towns concept, of which Totnes is a pioneer...
since it was launched by Transition Towns
Transition Towns
Transition Towns is a grassroots network of communities that are working to build resilience in response to peak oil, climate destruction, and economic instability...
Totnes Economics and Livelihoods group in March 2007; A Totnes Pound is equal to one pound sterling and is backed by sterling held in a bank account. As at September 2008, about 70 business in Totnes were accepting the Totnes Pound.
There are also the Lewes Pound
Lewes Pound
The Lewes Pound is a local currency in use in the town of Lewes, East Sussex. Inspired by the Totnes pound and BerkShare, the currency was introduced with the blessing of the town council in September 2008 by Transition Town Lewes - a community response to the challenges of climate change and peak...
(from September 2008) and the Stroud Pound
Stroud Pound
The 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:...
(from 12 September 2009).
Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...
had the Wörgl
Wörgl
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...
Experiment from July 1932 to September 1933.
Currently, Bavaria
Bavaria
Bavaria, formally the Free State of Bavaria is a state of Germany, located in the southeast of Germany. With an area of , it is the largest state by area, forming almost 20% of the total land area of Germany...
Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
has the Chiemgauer
Chiemgauer
Chiemgauer is the name of a regional local currency started in 2003 in Prien am Chiemsee, Bavaria, Germany. It is named after the Chiemgau, a region around the Chiemsee. The Chiemgauer program is intended to promote local commerce...
, started in 2003.
Starting in 2006 the "City Initiative Karlsruhe
Karlsruhe
The City of Karlsruhe is a city in the southwest of Germany, in the state of Baden-Württemberg, located near the French-German border.Karlsruhe was founded in 1715 as Karlsruhe Palace, when Germany was a series of principalities and city states...
" issues the Karlsruher which has no nominal value. Every coin has the value of 50 Eurocent and is primarily used in parking garages.
As of 2009, 120 companies in Karlsruhe accept the Karlsruher and usually grant a discount when paying with it.
In Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
although the government does issue currency, bank issued private currency is the dominant medium of exchange. Most automated teller machine
Automated teller machine
An automated teller machine or automatic teller machine, also known as a Cashpoint , cash machine or sometimes a hole in the wall in British English, is a computerised telecommunications device that provides the clients of a financial institution with access to financial transactions in a public...
s dispense private Hong Kong bank notes.
In Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
private currencies cannot be referred to being legal tender (Calgary Dollar and Toronto dollar
Toronto dollar
The 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...
) or use alternate names like coupon or bucks (e.g. Canadian Tire money
Canadian Tire money
Canadian Tire money is a loyalty program by Canadian Tire. It consists of coupons, issued by the company, which resemble real currency , and can be used as scrip in Canadian Tire stores, but is not considered a private currency...
and Pioneer Energy#Bonus Bucks).
Currency backing
Today many private currencies are backed by a commodityCommodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
to increase asset security and nullify inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
, which can be caused by an issuer increasing money supply
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...
. Some use established and historic forms of money, such as silver
Silver
Silver 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...
or gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
, as in the case of digital gold currencies
Digital gold currency
Digital gold currency is a form of electronic money based on ounces of gold. It is a kind of representative money, like a US paper gold certificate at the time that these were exchangeable for gold on demand. The typical unit of account for such currency is the gold gram or the troy ounce,...
or the Liberty dollar
Liberty Dollar
The 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...
.
It is possible for privately issued money to be backed by any commodity, although some people argue that perishable goods can never be used as currency, other than in 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...
ing. One criterion that is regarded as critical for any currency backing material is its fungibility
Fungibility
Fungibility is the property of a good or a commodity whose individual units are capable of mutual substitution, such as crude oil, wheat, precious metals or currencies...
. Alternative views suggest paper money backed by energy
Energy accounting
Energy accounting is a system used within industry, where measuring and analyzing the energy consumption of different activities is done to improve energy efficiency.-Energy management:...
(measured for example in "joules of electricity" or "joules of oil"), transport (measured in kg·km/h), or food for instance, may be used in the future.
Private currency vs. private money
Private currency is the opposite of the fiat currency while private moneyPrivate money
Private money is a commonly used term in banking and finance. It refers to lending money to a company or individual by a private individual or organization. While banks are traditional sources of financing for real estate, and other purposes, private money is offered by individuals or organizations...
, in monetary economics, is the money supply created by private/commercial bank; in business, is the finance source other than bank.
Further reading
- Hayek, Friedrich A.Friedrich HayekFriedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...
Denationalization of Money: An Analysis of the Theory and Practice of Concurrent Currencies 1977. ISBN 978-0255360876