Note: This is a guest post from Blockchain.works-hub.com.
Currency is nothing more than an intermediary to facilitate the exchange of goods and services. It is a contract between two parties involved in a transaction and this form of contract has evolved over ages. What we know as currency at large is a state-regulated set of denominations. But, the past wasn’t exactly similar as there was a time when humans exchanged goods solely through the barter system. This eventually moved on to gold and silver coins issued by regional rulers, to local banks, and so on.
The system is way past those eras now, what we experience today is a highly complex global economic structure. The interdependence of national economies has created an intertwined system of currencies that are government-issued notes and coins. But to think that nationally issued government currency notes are the only way to exchange value within an economy would be ignorance to a slight extent.
There have always been other means to signify a transfer of goods and value. Complementary currencies have been a part of the US economy way before federal reserve notes came into place. Each region used to maintain its banking system at different times in history to facilitate the community economy. Though, the most relevant complementary currency of our age is a technological behemoth, Bitcoin. Inefficiencies and shortcomings in the nationally accepted systems have led to the invention of bitcoin and the same can be said for any other complementary system in the past.
CRISIS AND CRYPTOCURRENCY
There have been many crisis events in history that have shaped country-wide economics in a variety of ways. While the American Civil War gave rise to the national banking system, the 2008 economic meltdown fueled the cryptocurrency race with the advent of Bitcoin. The former disrupted the regional banks to make a centralized federal banking structure whereas the latter challenges the government’s centralized power over currency. Even though the eras of civil war and the 2008 global recession are highly contrasting, the financial movements that rose from these events challenge the same centralized system that is highly prone to manipulation.
In 2009, the world witnessed the first truly decentralized digital currency in the form of Bitcoin. We also saw the simultaneous invention of Blockchain, the technology that powers Bitcoin and tens of thousands of other cryptocurrencies of today. With this technology, we are creating a parallel currency system that is not governed by borders or central authorities. All of this is possible because blockchain works on the sole idea of decentralization and eliminating intermediaries.
THE NEW AGE OF COMPLEMENTARY CURRENCY
Let us get one thing clear, that Bitcoin, Ethereum, Cardano, or any other crypto coin will not entirely replace fiat currencies and the official banking system, not anytime soon at least. In fact, cryptocurrencies are alternate money systems and are not considered complementary currencies as their multiplier effect isn’t driven by government actions. But there is an enormous growth in blockchain technology job listings around the world, when we look at this along with the fact that many newer cryptocurrencies are close embodiments of community money we can say that the upcoming technology surely promises to revamp the idea of complementary currency.
Complementary money systems furnish community relationships, push regional growth, and create self- sustainability. But they have shortcomings that limit their scope of success.
CONSTRAINTS OF COMPLEMENTARY CURRENCY SYSTEMS (CCS)
CCSs have struggled to be in circulation for a variety of reasons and have failed to serve their purpose in the long term. Community-based local money has been the most prominent form of complementary currency and some of them even had a substantial circulation time. Despite multiple attempts at creating a parallel system of money, there have been only a handful of them that remain active at present.
Ithaca HOURS is an example of one such community currency that was in circulation in Ithaca, New York since 1991. Though it is not in circulation anymore, it was the first legitimate complementary currency in the US and one of the longest-running. Many local businesses and service providers accepted payments in Ithaca Hours, where the value of one Ithaca Hour was pegged to $10, which was the average wage in Ithaca during 1991. Paul Glover was the founder of this system, a community activist, and a professor. His movement began with the noble idea of supporting local business by protecting it from the Dollar’s volatility and the idea had its momentum until Glover got more involved in his political career.
What happened with HOURS was not unique. LETs was another community currency, used in adjunction to the Canadian Dollar in British Columbia. The exchange system was invented by a Dentist, named Micheal Linton and his system failed when he moved away. The loss of active leadership has been a major reason for the failure of many community currencies.
Another major constraint with CCSs is the lack of scalable models. Capitalism works on value creation and the conventional banking system is foundational to it. Historically, complementary currencies and local banks have failed to create that value generation chain. For such alternate money systems to work, community currencies must reduce people’s dependence on official money and banking system. There is another set of such currencies that took birth in the post-2008 era but couldn’t survive the massive digitization of the banking and payments systems.
With this, we can comprehend that there are three major constraints with complementary currencies;
Community Leadership, centralization
Lack of robust financial model
Technological hindrance
Thankfully, blockchain was designed to tackle all these bottle-neck issues. The first Bitcoin paper was focused on the decentralization of money and value creation. It has a model that makes it highly relevant in today’s world despite the enormous backlash and even bans in several countries. Today there are numerous blockchain-based currencies in the market and on crypto exchange platforms.
BLOCKCHAIN TO AID COMPLEMENTARY CURRENCY
Blockchain programs use a decentralized ledger to record data secured by modern cryptography. The changes in these ledgers are verified by a network of unacquainted peers through an algorithmic consensus. This makes the ledger highly secure, immutable, and practically incorruptible.
Bitcoin was the first product/idea to use Blockchain in practicality and through years of evolutions, it has eliminated many problems that our government-backed currency faces, like centralized control. This is an issue with complementary currencies as well. No matter how noble an idea is, the fact that there is a need for active leadership makes its fate concentrated in one place. When we look at community banking in blockchain led systems, we are looking at opportunities to create an ecosystem that will make these banks and local currencies into sustainable entities.
Brixton Pound is one such complementary/community currency that has realized the need to generate value and provide an actual alternative to the Pound Sterling. Launched in 2008, Brixton Pound was one of the first local currencies to adopt digital payments but their model was not sustainable. That is why, in 2021, they are bringing a new iteration that is based on Algorand’s proof-of-stake blockchain program.
FUTURE OF COMMUNITY AND COMPLEMENTARY CURRENCIES
The worldwide acceptance of cryptocurrency is proof that the global citizen is ready to accept currency in more than one form. And the reason why crypto coins like Bitcoin and Ethereum are so valuable is that they have a unique value creation model that works in tandem with our capitalistic system. This is one thing that almost all complementary currencies until now have had missing.
The fact that many cryptocurrencies will transform into community money in the future, makes a solid case for blockchain to make complementary currencies more effective in the coming times.
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