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A private currency is a currency issued by a private organization. It is often contrasted with fiat currency issued by governments. 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.
The great advantage of private currencies over national fiat currencies is that they are not created as debt to private banks. This means they do not get drained away from the community to remote banks through the charging of interest. Experience demonstrates that private currencies actually strengthen the economy; local currencies remain in town, stimulating home town productivity. Such local exchange systems also unify communities and fund local projects and businesses.
[edit]History
[edit]United States
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 banks, 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.
[edit]Ithaca hours
The city of Ithaca in Western New York State has experimented [1] with barter [2] in which participating workers exchange services for Ithaca Hourswhich 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.
[edit]
BerkShares is a local currency that circulates in The Berkshires region of Massachusetts. It was launched September 29, 2006[1] 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.
[edit]United States Private Dollars
In 2007, Angel Cruz, founder The United Cities Corporation (TUC) [3] in one of the few dramatic abuses of the use of private currencies, announced he was establishing an alternative currency named "United States Private Dollars" [4]. The vast majority of the thousands of local exchange programs operate responsibly, but Cruz claimed his "United States Private Dollars" were "backed by the assets of a consortium of partners and the future earnings of United Cities' employees" [5]. The currency featured the slogan "In Jehovah We Trust" [6], and carried the notice "This note is a legal instrument for all debts public and private within the TUC worldwide network".[citation needed] He defended the issuance of his currency as follows:
"Who gave me the right? The American people within the network, by signing all the contracts, by providing legit currency, legal currency, because the reserve note is not a legal currency. It's a monopoly, which is against the law."[7]
On July 8, 2007, he had attempted to evict a Palmetto Bay, Florida branch of the Bank of America, accompanied by 30 of his followers, 10 of whom were dressed as armed guards, and presented a "court order" supposedly issued by the "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. [8]
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, but those checks were rejected as fraudulent by local banks after the employees deposited them because of an invalid routing number on the checks.
The US 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. As of November 2008, Angel Cruz is a wanted federal fugitive, not because the issuance of private currency is in itself illegal, but because of fraud and the potentially violent behavior of his employees. [9]
[edit]Liberty Dollars
[edit]In other countries
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.
[edit]Currency backing
Today many private currencies are backed by a commodity 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 bartering.[citation needed] 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.
[edit]Private Currency vs. Private Money
Private Currency is the opposite of the fiat currency while private money, in monetary economics, is the money supply created by private/commercial bank; in business, is the finance source other than bank.
[edit]Resources
- Hayek, Friedrich A. Denationalization of Money: An Analysis of the Theory and Practice of Concurrent Currencies 1977. ISBN 978-0255360876
