Create Your Own Currency !

Everyone would love to issue their own money! It's a dream as old as money itself – to be instantly rich without the slightest effort. Plenty of people have (rather ironically) worked their butts off to make this dream a reality. There are many, many different kinds of private currencies competing with government issued ones. This article will give you an excellent overview of the entire field of what are generally called complementary or alternative currencies. With a little effort, some creativity, and a talent for community organizing, you too can create an alternative currency. You might not get instantly rich, but on the other hand – you're certainly on the right track to making more money! The reason that complementary/alternative currencies are not more common are the many obstacles that must be overcome in order for a currency to gain wide acceptance. These obstacles generally fall into two broad categories – obstacles for the issuer, and obstacles for consumers and users. The first category includes the sort of problems most people associate with regular currencies, problems like counterfeiting, fraud, accounting problems, storage, and other issues relating to whoever must print or mint, store, and distribute the currency. The second category is actually the most difficult set of obstacles for private issuers, problems like gaining merchant and user acceptance, assigning a value to the currency, and scarcity (or oversupply). These problems have been wrestled with for centuries, and many types of solutions have been attempted. Like with any free market, good ideas tend to succeed whereas bad ones fade away. So too with private currencies. Without getting bogged down in arguments - pro and con, about government issued currencies (also called 'fiat' currencies, because they are created by government order or fiat), the main reason that private currencies have continually been created over the millennia deals with the issue of value. Economists when discussing currency tend to focus on things like its use as a medium of exchange, and as a storehouse of value. The latter point is the source of private currencies, because (for many reasons) government currencies tend to lose their value over time, especially when not backed by any assets – only the promise of repayment by the government itself (entities which are often proven to be untrustworthy). Despite constant devaluation, endless betrayals of trust, and enormous losses of value, government issued currency continues in use mainly because governments hold a gun to the head of the economies they control. A government can insist that everyone in their power accept the currency they issue, and consequently fiat currency will exist as long as governments do. Of course, people may choose to abandon government currencies in favor of private alternatives, and often do. The concern with currency as a medium of exchange also drives the creation of private currencies, but not to the extent the issue of value does. Private currencies dealing with “medium of exchange”issues (where people want easier or cheaper transfers of their cash, or desire to keep such transfers secret) have led to the creation of the so-called “virtual” or online currencies, like Bitcoin (www.bitcoin.org) , Litecoin (www.litecoin.org), Ripple Pay (www.ripplepay.com), and the host of other electronic forms of money available over the Internet. Concern with money as a storehouse of value has led to the creation of asset-backed currencies, using silver, gold, and labor or barter as a basis for currency. Currencies backed by metals include Shire Silver (www.shiresilver.com), and American Open Currency (www.opencurrency.com). Currencies based on labor and/or barter include LETS (Local Exchange Trading Systems), Ithaca Hours (www.ithacahours.org), Time Dollars (www.timebanks.org), and a host of others. Each of these different varieties, their advantages, drawbacks, and details will be discussed in turn. Though somewhat more complicated in their details and in the methods of issuance, virtual or electronic currencies are actually much simpler in practice, and will therefore be discussed first. These digital currencies are of two main types; game tokens that have evolved into currency, usually issued from and only useful inside a kind of enclosed electronic garden (places where people are playing multiplayer games and social networking activities), and electronic coinage traded between people online, sometimes created and joined together by social networks, and others issued by a company or organization. There are no hard and fast rules dividing these two types, and there tends to be some crossover between them. Of the first type, perhaps the best-known variety emerged from the online game Second Life. The currency used to purchase avatars and other electronic items used within the game is called Linden Dollars. Because of the large number of users, Linden Dollars eventually took on real value, and were traded for regular currency as electronic items with value to players were exchanged. A very similar type of game token/currency is the Q Coin, created by Tencent, a Chinese online gaming company. With 798 million QQ accounts, and over 220 million regular users, it's no surprise that Q coins have become an alternative currency among people using the Tencent service in China (QQ accounts can pay for everything from blogging services, social networking, VIP chat rooms, to avatars and multiplayer fighting games). The People's Bank of China is considering cracking down on Q coins, though at this point it remains a popular virtual money, increasingly accepted by regular brick-and-mortar merchants. Amazon and Facebook both have electronic currencies designed to be spent on their sites, and there are many imitators trying to get a piece of this e-commerce gold rush. The other very well known electronic currency emerged in a similar way, though it has become more of an actual currency. This is the much discussed BitCoin, (www.bitcoin.org), 80% of which is traded on one exchange – Mt. Gox, an exchange based in Tokyo that was originally used for trading specialty fantasy game cards. Bitcoin was the creation of Satoshi Nakamoto, who in 2008 wrote a research paper that outlined the mechanics of how Bitcoins could be created and used. The currency was actually launched in January of 2009. The Bitcoin organization describes the currency as an open source peer to peer digital cash, enabling instant peer-to-peer transactions, worldwide payments, free of any central authority and with virtually no fees. Managing the transactions is the job of the network itself, and transfers are stored publicly and permanently on the network. Payments are irreversible, so care must be taken to protect your Bitcoins, which have to be stored in an electronic wallet. The price of the coins is volatile, as trading is illiquid and thin. The accounting ledger is stored in the cloud, individual nodes transact with each other without any intermediary. You earn Bitcoins by “mining” them, a process in which people use computing power to solve complex math problems, and generate prime numbers (that are in turn used to encode Bitcoins and protect them from fraud or counterfeiting). It is a competition, and winners get Bitcoins as a kind of reward. This may seem unnecessarily complicated, and complex, but it's purpose is straightforward. By having all transactions carried out by a decentralized network, there's no need to manage the currency per se, a major headache and the principal function served by central banks. Further, the complexity of creating Bitcoins, and the way transactions are stored publicly makes counterfeiting and fraud virtually impossible. In addition, this kind of networked anarchy means that it can continue indefinitely without any outside costs or control, merely relying on the currency to act as a variety of network protocol. It also makes it very difficult for governments to control or interfere with it, as there's nothing to seize, and no one to arrest or threaten. Bitcoins currently trade at about $121 per coin. Almost identical in structure is Litecoin (www.litecoin.org), another open source P2P crypto-currency. It's much more user-friendly than Bitcoin, however -you can download free software that will enable you to “mine” Litecoins, and it's designed so that it doesn't attract the ire of governmental authorities. Litecoins are currently valued between $2.50 to $3, and though only launched in October of 2011 are already very popular. There are similar currencies, such as Feathercoin (it has 336 million coins in circulation, with a block reward of 200 coins, four times the size of coins in circulation as Litecoin), and WebMoney (the two main varieties being WMR – WebMoneyRubles, and WMZ – WebMoneyDollars, currently trading at about a dollar apiece). Still others include Freicoin, based on a monetary principal known as demurrage; Namecoin – a kind of currency used to distribute Internet Domain Names, Terracoin, PPcoin (also P2Pcoin), Ven, and so on. One alternative that bridges the gap between labor and barter-based currencies and online digital ones is RipplePay (www.ripplepay.com). Ripple acts like an interconnected network of Local Exchange Trading Systems. It tracks obligations between individuals in a social network. Ripple was inspired by the LETS concept, though it is easier and much simpler to set up and use. It's a payment system where everyone acts as a banker. You open an account for free, create a profile in the system, indicate who you already know and how much you trust them, connecting to these people by e-mail, and then giving them credit limits within Ripple. Whenever you want to make a payment to another Ripple user using only a friendly obligation, the system finds intermediaries connecting you to the person you want to pay. You end up owing one of your neighbors within the system, and it acts as an open source transfer of trusted personal payments. It's cheaper to use than regular money, and it turns out that friends are easier to hit up for credit that are banks. Unlike LETS (which track obligations to and from a single central intermediary organization), Ripple transfers funds based on credit within a social network. There are currently 100 billion “ripples” (Ripple currency units), also known as XRP's, run by a new site created by the RipplePay founders, and named OpenCoin, Inc. In contrast to the complexity of digital currencies, labor and barter-based money systems are much more down to earth. A good overview of these currencies can be found at Merit Exchange (www.meritexchange.org), with links to the ccDatabase (a database of complementary currencies worldwide), the Complementary Currency Resource Center (with resources to help you start such currencies yourself), Transaction Net: Complementary Community Currency Systems, a site with many resources on it, and the International Journal of Community Currency Research, which tracks and reports on community and complementary currencies around the world. Labor and barter based currencies are quite simple. In essence, members join (or form) an organization (very much along the same lines as co-ops and mutual assistance groups), set a value on their labor, goods and services, and then exchange them amongst themselves using credits members create, via a kind of clearing house or accounting system run by the central organization or group. There are two main types. One is the aforementioned LETS, the other variations on Time Dollars (sometimes named Hours). They are very similar in their goals and aspirations, both designed to keep resources within the community, empower individuals, encourage volunteerism and help meet needs that are normally unmet. Local Exchange Trading Systems create interest-free local credit. Members earn credits doing whatever activities they choose (that others find useful or valuable), and transactions are recorded in a central location open to all members. Generally, no scrip or physical currency is issued in LETS, but instead credits are recorded, and then traded for goods and services produced by other members. With government issued currency, money is hard to earn, but easy to spend; LETS is the opposite – easy to earn, but hard to spend. The main difficulty LETS organizers experience is signing up merchants, and maintaining the network of volunteers that keep the system running. The original LETS set out five main criteria; that the organization's purpose was to make sure that resources from the community were directed within the community; that there was no compulsion to trade; information on debt balances must be open to all; there must be an equivalence to a national currency; no interest must be chart. The one criteria that is largely ignored is equivalence, only 13% of LETS's practice it, and most established alternate means of valuation. LETS's are largely divorced from the mainstream economy. Founder Michael Linton calls them “personal money systems”. To set one up requires only a telephone, and answering machine, and a notebook. People set up an organization to trade amongst themselves, and agree to pay a small fee to cover administrative costs. Thereafter, members maintain a directory of offers and wants to assist trades. After trading members may log in online, and write checks cleared by the system accountant, or exchange notes, but whatever the mechanism members are trading credits they themselves have created. Since the details are worked out by users there is a great deal of variation in schemes. There are usually no tax implications, since the IRS has ruled repeatedly that credits earned by volunteers are not taxable. An organization formed in the Czech Republic has created very good software for LETS, which can be found at www.ATSGroup.cz/cyclos ( the Cyclos server offers hosting and technical support for LETS communities). In Switzerland, WIR Bank operates a system very similar to LETS, and in the UK many such organizations operate, including LETSLINK UK, the North London LETS, and Skillsbox (www.skillsbox.org). A very similar phenomenon is that of Time Dollars organizations (www.timekeeper.org), and various Hours trading schemes, such as Ithaca Hours (www.ithacahours.org). The systems basically turn time into money. Volunteers earn credits for time they spend helping other members. One hour of service earns one credit or a “time dollar”. You can then buy an hour of service for what you need. This type of program is especially useful for people that are offering personal care services, help with chores, translation services, counseling, and other kinds of volunteer activities (though it can be adapted for any kind of good or service). In the case of Ithaca hours, you pay $10 for a single listing in the directory, and the organization gives you two hours worth $20 for joining. You earn four hours if you join or renew at the annual meeting. The first step is to decide what rate of ours will be accepted for purchases or services. Some merchants accept 100% payment in hours, many limit the hours they will accept. You should calculate the rate of ours proportionally to your ability to put the hours back into the local economy. There is an Hours directory and an Hours website, and a great deal of support for the 900 or so merchant participants excepting hours as payment. The Time Dollars programs have set up a template for those wishing to form a sister organization. First, get a committed group of people who are ready to work and help each other. Second find and develop a core group for the program – one or two at a minimum coordinators, liaisons, and people will help find customers and merchants. Third, gather your resources – find office space, phone, copier, computer, those willing to volunteer some time, and a place to meet and socialize. Fourth decide how much time to spend on the program, will staff the paid and if so how much? On average ongoing social services organizations spend between $10,000 to $100,000 per year, most of which goes to salary and staff related expenses. All of these organizations offer help on getting grants and financial resources. Fifth, download the timekeeper software, which is made for people running time dollar programs and is available as freeware. It can be customized and helps you manage the enterprise. The software can help you produce personalized bank statements for each member, supplies information so volunteers get new assignments, helps monitor preferences and follow-up, and is a great tool that will strengthen the community and the institution itself. Sixth Avenue members check with local authorities, in consideration of liability and taxes. Since these are essentially the same as a volunteer organization, taxes are minimal or nonexistent, and liability is that of any similar group. Seventh, develop a way to evaluate your work. Decide what you want to accomplish, and evaluate a way to see if it's working. Eighth, recruit members, and engage in community work with businesses and others. Finally remember that it's all about community, get yours involved. A site with lots of help includes http://ctb.ku.edu. Hours programs, and variations have been established all over the world. In the US includes the Cascadia Hour Exchange, in Portland Oregon. Their currency – called CHE, is modeled after Ithaca hours. Each unit is worth $10, members negotiate prices for goods and services with other people and businesses that accept them. Members pay a $50 fee to join and receive five CHE's on joining. Most Cascadia members are self-employed or work at crafts, or are independent contractors. The Cascadia motto is “In Each Other We Trust” (proudly displayed on Cascadia script bills). Other successful programs include Bay Bucks, out of Traverse City, Michigan, established in 2006. Life Dollars, established in Bellingham and Seattle Washington in 2004, though these are meant to replace US dollars entirely. Membership is over 700, and most transactions are online. Members have accounts through which they transfer dollars directly to other members and businesses, using plastic cards. Some paper is issued, but it's mostly electronic to avoid fraud. The value varies from $10-$12 based on the local hourly living wage, and over $1 million has been exchanged in goods and services. Slight variations that boost their communities include Downtown Dollars, established in Ardmore Pennsylvania in 2010, and Local Trade Partners, in Fayetteville, Arkansas in 2009 - the latter using a hybrid currency and barter system, where only local business owners can join and are required to live locally. A 5% transaction fee is charged, with almost $3 million trading hands between 500 businesses in 2011. The list of similar programs is a very long one, the commonality being a desire to keep resources within a community, and to assist the members of that community. Last but not least, and the one alternative currency most closely linked to ancient currencies are those based on precious metals. Over a dozen states in the US from Arizona to Idaho to Virginia, are considering legalizing gold and silver as a legal medium of exchange. To date, only Utah has passed such a law, but this type of alternate currency is rapidly becoming a mainstream idea. Of course, up until the 19th century, gold and silver coinage was the basis for European monetary systems, and consequently (because of colonialism) was the de facto monetary regime for most of the world. Only in modern times has a fractional reserve banking system and fiat currency become the common system. The people involved in golden and silver-backed currencies are very different crowd from the virtual/digital currency people, or the labor/barter folks. The precious metals currencies attract individuals closer to the libertarian part of the political spectrum, tend to be suspicious of government, and are pessimists about the future value of fiat currency (historically, they're certainly right to be so!). Using precious metals as an alternate currency is the simplest variety of every type discussed here. All that is required is for you to use one of the many suppliers (generally refineries, or specialty bullion dealers) to purchase precious metals; mint them into coins or medallions, and begin signing up merchants and consumers to trade them in place of currency. The advantages of using precious metals are pretty much self-explanatory. A gold and silver-backed currency is debt-free, inflation free, maintains its value, and is accepted worldwide. The drawbacks are those that have always plagued holders of precious metals. Finding a safe place to store the stuff; making sure that the metal is in fact investment-grade and the coins are minted with a sufficiently complex design to foil counterfeiters, and of course having enough capital to get the whole thing off the ground. Shire Silver, an organization based in New Hampshire (www.shiresilver.com), embeds small strips of silver in plastic cards, and encourages members to trade them. It is experiencing quite a bit of success doing so. A rather more sophisticated approach is taken by American Open Currency (www.opencurrency.com), who have established three groups – AOCS Merchants, to accept the currency, AOCS Currency Issuers, and a Trade Coordinator group, that exchanges the various silver and gold backed currencies with the general public. AOCS offers wholesale priced investment-grade silver and gold, links members with experienced artists and mint masters (so production of your own currency is done at very reasonable cost), and in general does everything possible to support and encourage precious metals backed currency usage. As AOCS founder Rob Gray notes, “we simply need to withdraw our time, energy, and money from banks, politicians, and corporations that do not serve our own interests.” Gray is careful to point out that legal tender laws do not make federal reserve notes the exclusive form of payment in the United States. You can pay debts in any way you like, if it's agreed upon and accepted before incurring the debt. US coins and currency are legal tender for all debts for paying public charges, taxes and dues, but they only apply to US debt obligation. Businesses remain free to accept any form of payment they like, and no law requires you to spend or accept federal reserve notes. Considering that the dollar has lost 98% of its value since the creation of the Federal Reserve system, Gray's points are not in any way lunatic or suspect. The only legitimate argument that can be made against gold and silver backed currency would be one based on practicality. Precious metals are very volatile in price (which is bad for business and any kind of financial planning), they are heavy, hard to carry around, and easily stolen, their rarity keeps the money supply limited (which hurts the average individual), and there are other practical drawbacks. Nonetheless, those promoting asset-backed currencies have history on their side. This overview would not be complete without mentioning one last alternative currency that is gained great popularity in the last few years – gift cards. A brief visit to the Plastic Jungle (www.plasticjungle.com), reveals the amazing variety of this kind of scrip. $110 billion worth of gift cards were issued in 2012, and an amazing 85% of the US population has changed such cards during the holidays. The phenomenon known as “spillage” is associated with the cards – this is loss due to non-use, amounting to $1.7 billion last year (down from $8 billion in 2007 - obviously the economy is spurring more people to use those gift cards!). Issuing your own gift card, like with all alternative currencies, is a matter of how successful you are at promoting your trustworthiness. Machines to encode a magnetic strip on a plastic card are available for a few hundred dollars, and are no barrier to anyone wishing to use plastic and an electronic platform/website as their medium for an alternative currency. In the end, that's what it's all about. Virtual and asset-backed currencies are about trust – the issuer is promising to be more trustworthy than the government issued currency with which he or she is competing. If you can convince a group of people that you know what you're doing and that you can be trusted with their money, and that you have their best interests at heart (in contrast with the government), then you have what it takes to create your own currency. It's really all about selfpromotion, and perceived honesty. You now have many tools with which to craft your own currency. The dream of being able to coin your own money is within the grasp of anyone in today's society. I hope this helped you in some way, or at the very least informed and amused you. 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