If you’re wondering what a local British Pound is, you’re not alone. I was like that too, before my friend pointed them out to me. After a little more research, I found that these are called complementary currencies and they are by no means new or rare. Just peculiar. Here’s what they actually are:
A “complementary” currency is a type of quasi-monetary exchange medium that is intended to function as a complement to (rather than an alternative to) standard national currencies. (Costanza, Robert et al., “Complementary Currencies as a Method to Improve Local Sustainable Economic Welfare”, University of Vermont, Draft, 12 December 2003.)
For those who still don’t understand what they are, complementary currencies are like baseball cards or game tokens. They are valuable and tradable in certain mediums and within a certain group – be it interest-based or medium-based. If you try and trade them outside of the system, they are not valuable, but can be converted to more traditional currency, when in contact with the right buyer.
In some case, the buyer can be the issuing authority, in others it can be another community member or someone who would like to gain access to the community and would like to pay their way in.
In 2004, according to the same source I quoted the definition from, there were about 500 complementary currencies in circulation and historically there have been about 4000 issued to that date. If they were to redo the study today, they would find that cryptocurrencies and tokens fit this description to a large extent.
These complementary currencies have the following interesting and relevant characteristics to the blockchain world:
- Convertibility: while they are sometimes tradable for national currency (fiat), this exposes them to the risk of run on the bank, but this feature increases adoption.
- Commodity-backed: increases security, but reduces participation due to lack of convertibility.
- Acceptance: it is increased if people can buy goods and services they need with the said currency – like taxes, food, beverages, rent etc. Pretty much like the circular economy I described in an earlier post.
- Operational costs: some of these currencies carry a fee for the issuer, to cover operational costs, like printing and securing, network operations etc.
- Taxing: here some have been deemed taxable, some not, by design. Up to each state and community to decide.
Complementary currencies were introduced as a means of storing and increasing the value and wealth of a certain community. This resembles what the crypto community is trying to achieve with utility tokens and it struck me that not once have I heard a comparison of this system to what ICOs / Token Sales are trying to achieve. While there is less geographical limitation today, compared to the attempts in previous centuries, the abstract characteristics of the currencies remain surprisingly similar.
What’s even more surprising is the lack of information at the very top of political decision making, where no lobbyists or politicians have compared crypto to these complementary currencies. They have chosen, consciously or unconsciously, to see them as competing currencies, not as complementary. That presumably makes them an easier target for stronger regulations.
Both cryptocurrencies and complementary currencies as a greater category face the following barriers for adoption:
- Lack of acceptance (catch 22)
- Lack of credibility (issuer)
- High transaction costs (issuer)
- Unsustainable operational cost (issuer / community)
The problems we’re facing in the crypto world today are not new. We just have to read more, understand more and find precedents where others made it work, show them to the world, apply them and use them in conversations with the ever-present nay-sayers.
I’ll leave you at the end with this study on British local pounds.