I want to be alternative – Local and virtual currencies attacking $, € and ¥


Two weeks ago I received a message via academia.edu. Francisco had seen my work on money and thought I might be interested in his project, ‘kapitaltruth’. ‘KT’ is a local but electronic currency, which can be used independently from central authorities in a group of people. It is created and distributed based on the assessment of neighbours, friends and business partners. Those people evaluate you; they answer a questionnaire judging your behaviour and axiological attributes, including your propensity to study (‘I make an effort to learn, to teach and to understand’), your community-ability (‘I collaborate in community celebrations’) or personal lifestyle (‘I take care of my appearance’). The actual currency is digital in its form and the generation of money is conducted via server-technology. Payments work via a system comparable to PayPal and are restricted to the local circle of people that take part in the scheme.

Much more than simply proposing an ‘alternative currency’, Francisco has since 2003 been aiming for a higher goal: creating a different set of values that stabilise economic behaviour and at the same time utilise new technologies. ‘KT’ is based on the assumption that “human axiological value and the value of everyday interpersonal behaviour” can similarly be the basis of economic value. With this vision, Francisco’s ‘KT’ is merely one – with his mixture of local and digital elements a rather innovative although marginal one – among many schemes that forge alternatives to fiat (i.e. governmentally issued) money. His project demonstrates how theory and fantasy do actually translate into reality. The idea of complimentary currencies as such, however, is not completely new. The industrial revolution, for instance, saw the surge of regional currencies in Europe. Already during that time, both the initiators of such currencies and their levels of usage varied tremendously. Today there are frequent flyer programs and supermarkets’ loyalty schemes that have crept into the public sphere almost unnoticed as alternative forms of payment. The current explosion, however, is different. It is much closer to (and much more threatening for) what you and me normally understand as currency: dollars, euros, etc.

Many different classifications of what can be called alternative, complementary or local currencies exist. Some forms differ substantially, others only insignificantly. I only want to draw attention to the division between Local Exchange Trading Systems (LETS) and time banking here. LETS are inherently work-enabling. In systems such as the early Canadian ‘Green Dollar’ in British Colombia, the aim is to ‘stretch’ the remaining dollars in for instance high-unemployment communities. Members pay small fees to take part in structured community bartering. By providing services – refurbishment works, baby-sitting – through a centralised repository, credit is generated that can subsequently be spent for services or goods within the community. Time banking, in turn, is more explicitly aiming at community building. Like LETS schemes, a central repository registers people’s skills and then connects supply and demand. For models such as the Ithaca Hours, the centrality of time as an equal means of measurement is crucial. Most definitions of alternative currencies can, however, only agree on a set of negative features that distinguish them from fiat money: no legal tender, no interest, no charges for conversion. Intriguingly, the most recent developments show that the context of usage similarly unites alternative currencies: they are growing in situations of protest and crisis as well as out of a desire for locality.

Volos, a small city on the Greek mainland, is one of the hubs of this trend. Entire days pass during which not a single Euro-coin or -note is used. But people in Volos have not stopped trading; they simply use the ‘Tem’, a local currency that has replaced the Euro as a means of payment. It is what Richard Douthwaite calls ‘people’s money’ that currently finds so many supporters. Those currencies are not fiat or government money but are instead issued by private businesses or groups of citizens. In times of crisis, complementary currencies pose an alternative to usual forms of money. These currencies keep up what fiat money is normally designed to do, namely enable trade between private individuals and businesses. During the still ongoing turmoil in banks and public finances, currency and money were often kept short (particularly in the form of credit by the banks) and treated as a limited resource. This conceptualisation of money as a thing is resolved in most alternative currency schemes. Time banks and LETS are introduced to make money valuable as a ‘measuring rod’ for skills, relationships, knowledge, time and goods. The only limitation to trade is then posed by knowledge – and not by the currency’s own scarcity.

But it is not only the influence of economic crisis that drives the search for monetary alternatives. The idea of sustainability, an increasing awareness of ecological challenges ahead, often shapes the underlying debate. In theory, alternative currencies are able to guide economic activity by reducing investment in non-ecological, mainstream supermarkets and funnelling it to local producers and organic farmers. They are often limited to small, decentralised projects and communities – such as Brixton in London – that demonstrate a high degree of personal involvement. This desire for community and re-personalisation can surely be seen as a second factor accounting for the growing interest in local currencies.

With local currencies, initiators and activists try to build up a counter movement to all-encompassing globalisation, something that keeps people’s attention (and money) restricted to their locale. They believe in the empowering effect of introducing currencies in banlieues and suburbs since, as Peter North puts it in a recent book, regular fiat money “always tends to leach away from poorer, less well-endowed communities to the richer ones … the game is not fair”. With alternative currencies, monetary capitalism can be cured in the sub-national realm and provide a local solution to more general problems. The explicit aim is to create local jobs, maintain regional purchasing power, and enhance feelings of empowerment and solidarity among the citizens. ‘Clone towns’ – city centres where Zara, H&M, Mango, M&S and etc. are dominating the public space – can be dealt with in this way as well; the big chains are only scarcely taking part in the schemes and are as such excluded from the complementary realm of exchange. Their locality can hence be seen as the main advantage of the new wave of alternative currencies, directly enhancing the link between citizens creating a community. However, locality is at the same time the biggest disadvantage of any currency. It is what institutions such as the Eurozone want to overcome. But scaling up – including more people into the scheme and making the currency more widely acceptable – is with notable exceptions incompatible with this idea.

Scale is not a problem in the virtual world, however. The catch-22 between the challenge of a global problem and the solution in a restricted locality, a conundrum that local currencies don’t overcome by definition, can be tackled through recourse to the spatially endless virtual world – at least theoretically as Francisco’s ‘KT’ demonstrates. Indeed, the most prominent example, Bitcoins, was born in 2009 as a peer-to-peer currency undermining the idea of banks, government and fiat money. Under the pseudonym Satoshi Nakamoto, a software-professional wrote an algorithm that slowly solves cryptographic problems, producing units of the currency through this string of calculations. In this arrangement, the production is linked to hardware power: you provide your computer to solve mathematical problems and are in turn rewarded with BCs. Often this ‘mining’ is performed in groups or ‘Mining Rigs’ (for instance Bitclockers) to increase the likelihood of obtaining one of the 300 coins that is generated every hour in competition with other supercomputers. A second way to obtain Bitcoins is easier for the layperson: you buy them through software (such as Coinbase, Strongcoin or My Wallet) that connects you to an anonymous seller that wants to trade dollars or euros against BCs, that are then stored in the same software. In contrast to fiat money, the amount of BCs in circulation will eventually stop growing when 21 million Bitcoins are produced.

Bitcoins can be put into use through the mediation of this kind of ‘wallet’ software or online service to obtain goods and services. This is where the currency-like quality of Bitcoins develops visibly; the coins virtually enter the economic market paying for goods – both illegal substances, pornography, and gambling, as well as ethically unquestionable items (you can obtain a list of sellers from the Bitcoin magazine). As Nicolas Mendoza argues in a recent article for Al Jazeera, the underlying Bitcoin economy is only just starting to really grow, however. An increasing amount of merchants and organisations are beginning to accept Bitcoin, among them WordPress, Reddit and Kim Dot Com’s filesharing service Mega. This real world economic influence can be seen in stark contrast to the early – and still ongoing – focus of many Bitcoin users. Paul Krugman was complaining in mid-2011 how much Bitcoin misses the aim of a currency to “facilitate transactions” and is stuck in its role as investment vehicle. At that time, people used Bitcoin to make money rather than as money; it was a speculative instrument rather than a currency. James Surowiecki hence warned in August 2011 of the paradoxical situation Bitcoin finds itself in: “stop thinking of them as an investment and start thinking of them as a currency” most probably is the right step that might on the other hand make “people’s interest in Bitcoin fade away”. Now, the first BC-startups – payment processors such as Coinbase mentioned above, are developing the necessary infrastructure and are drawing attention from business circles. Even companies one might call BC-banks are slowly starting to emerge. Bitcoin Central collaborated with the French financial firm Aqoba last December to offer a model for what BC-banking might look like. Their account provides the core features of a standard bank account with an individual IBAN number, debit cards and federal insurance of your deposits. As Amazon, Ebay, etc. are still reluctant to accept the alternative currency, Bitcoin-Proxy merchants bridge this gap until the ‘product’ or ‘supply-side’ has taken up the rapid speed in which Bitcoin develops from a nerdy investment vehicle into a potentially commonly used means of exchange.

Another indicator of Bitcoin becoming more mainstream can be found in recent government activities. Although some authors still argue that Bitcoin is not really a currency – mainly due to its lack of what I described above as an economic basis – the US Treasury Department is watching every step. The Financial Crimes Enforcement Network (FinCEN) recently published a list of new principles advising digital money transmitters to comply with the Bank Secrecy Act. This document puts into perspective a decisive point: Bitcoin is effectively considered as money and as such falls under existing government regulation. This in turn means that institutions dealing with the transmission of Bitcoins would in theory have to register with the FinCEN. Mt. Gox, which handles over half of all Bitcoin trade, already requests personal information from its users and bans high-value exchanges. Even though it is clear that the changes in regulation do only marginally affect ordinary people’s usage of Bitcoin, doubts about the role of the ‘miners’ persist. Apparently, they too have to register individually with the FinCEN if they start converting their BCs into physical currency. This regulation does not only address concerns about the currency’s use in illegal activities and hacking, it also is a tribute to Bitcoin’s growing popularity and makes it easier for the system as a whole to attract larger sums of money through security policies and accountability. It might be perceived as an unnecessary regulative step at first, but it may actually open up a whole new world – the properly commercial landscape that often pays much attention to tedious details concerning security – which would turn BC into a proper currency.

But this attack has not gathered steam just yet. A positive thing about Bitcoin is that it is already seen as a store of value, which is an important function of money; the recent upsurge in demand for the coins after the Cyprus turmoil clearly demonstrates this. This development has its downside, however: it is fuelled by Bitcoin’s deflationary tendency. Since the supply of Bitcoin is restricted (the limit of 21 million will be reached by 2040) while the amount of things it can potentially buy constantly grows, the value of Bitcoin will automatically rise. General price-levels will decrease, encouraging the hoarding of (virtual) coins. Bitcoin is in no way where it could be. The sudden crash two weeks ago – a drop by 30% or $40 in value – when an online bank account service was hacked with Instawallet, illustrates this. The skyrocketing trade that followed, which led to the total shut-down of the exchange for three days, clearly marks Bitcoin’s vulnerability; its value collapsed by more than 50% last Tuesday after a (big!) bunch of gamblers cashed out.


Even though a crash means that Bitcoin has entered the rocky world of ordinary currencies, Bitcoin is a larger-than-life bubble, the “Harlem Shake of currency’. But how can it be considered the “new gold” if its value is so vulnerable? Only about $800m of Bitcoins are in circulation (in contrast to £28 billion in coins alone) and only a very small number of people are engaged in the system. Fuelled by the current (real-world) crisis, by the fear of Greeks and Spaniards losing their hard-earned cash to the still expanding juggernaut of the banks, by the greed of people willing to make (easy) money from this fear, Bitcoin can not settle down as an ordinary currency (but rather an ordinary commodity).

These worries do not have any effect on local complementary currency schemes such as the Brixton Pound or the Ithaca Hours mentioned above. They are designed to be small scale and often much more a complement than a substitute to official currencies. Their threat to currencies such as the euro or the dollar is therefore inherently limited and debarred from the big money of finance and banks. They can, however, be true alternatives for the everyday use of ordinary people. And this alternative is growing, as Edgar Kampers explained at a recent TED talk: about 10,000 complementary currency schemes are currently used all over the world. This trend is surging in both space and depth, and increasingly it is reaching out for the support of big companies and governments. Francisco and his project are therefore only one, rather curious, spark in this fireworks-display of new ideas about how money can be treated and used. I believe that the challenges these initiatives pose to the well-established framework of the monetary system, which has grown to a colossal size, are both necessary and beneficial. In the end, this pluralistic (and democratic) opening-up of the debate and flurry of practical experiments is only what markets normally do – at least if we follow the traditional liberal arguments, which might not coincide with current practices anymore. This might also be the reason why the same markets do not to like Bitcoin – it introduces pluralism and democracy where it was successfully repressed.

Johannes Lenhard is currently a PhD candidate in Social Anthropology at King’s College, Cambridge. His research is focused on the intersection of alternative economics, social theory and the ethnographic study of homelessness and mental health. He tweets under @acjf37 and is the current editor-in-chief of KR.