What are Complementary Currencies?

Nikolas Xenofontos, Director of Risk, easyMarkets

Money is the engine which makes the economy move. However, money can also generate problems particularly when there is too little of it or too much. When the number of problems grow in our monetary system doubts about the system grow as well.

Another issue that can arise with money is the amount of it in the system. When individuals and firms are willing to incur dept you will see an influx of money pumped into circulation. Typically, a money shortage reduces growth and reduces wealth accumulation.

The deficiency of money within the economy can lead to economic crisis. When consumers don’t have enough income to maintain their basic needs this will carry over to businesses causing a slowdown in the economy. When exchanges don’t take place because there is not enough money in the system is there an alternative way for these transactions to take place?

Complementary currencies can be extremely beneficial particularly when economies find themselves in financial crisis. Complementary currencies may stimulate the exchange of goods and services and without the currencies those transactions would not have taken place.

The creation of complementary currencies takes a lot of planning along with implementation. Organizations need to design the currency and bring it into circulation. The organizations that create the complementary currencies need to get the public to buy into the currency and inject it into the mainstream. In addition, a clear set of rules and agreements need to be created when a new form of complementary currency is created. Complementary currencies need constant oversight, maintenance and supervision for it to work.

Currency design is not an easy feat. Also, not every currency design is equally appropriate for a specific region within society. For example, a monetary system with high interest rates in not suitable for a region/country where additional monies would be pumped into the economy. On the flip side in strong economic regions high interest rates could be used to counter inflation. It is important to keep in mind that a complementary currency should be sustainable and appropriate in the society that it is introduced to.

There are usually several groups associated to the creation of complementary currencies. These groups consist of idealists, entrepreneurs, and IT. Technology plays a strong role in the creation of complementary currencies. In many instances IT professionals create complementary currencies in their own communities. Bitcoin is a perfect example of a complementary currency created by visionaries along with technology experts.

There are different types of complementary currencies. An example of several of these currencies is described below:

1. Time Banking – In time banking environment individuals/participants provide services in exchange for hours. In the United States there are over 250 time banks and the money is called time dollars. The hours which are accumulated can be used towards numerous services.
2. Barter networks – this system usually has a mutual credit currency design. Typically, businesses join a network use an internal currency. Presently, there are over 700 barter networks registered worldwide.
3. Peer to Peer money systems (P2P) – Again, Bitcoin is a perfect example of the P2P system. This virtual money system has a fluctuating exchange rate in terms of legal tender. In the future if P2P currency takes off in popularity it could play a major impact on the perception of the present banking system.

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