Monthly Archives: April 2006

Currency Principles and Definitions

A currency is anything that is accepted as a means of payment, i.e., a medium of exchange.

Money is first and foremost a medium of exchange.

Except for full-bodied coin, every currency is a credit instrument.

In the modern world, virtually all money is credit money — money is credit; credit is money.

A currency, in order to hold its value at par, should be issued on the basis of goods and services already in the market or on their way to market, not on the basis of long-term debt (see the “real bills doctrine”).

A currency may manifest in various forms, e.g., paper notes, token coins, or bank account balances (“deposits”), but the substance remains the same, credit.

The credit represented in a currency is denominated in terms of some value unit, e.g., dollars, euros, yen, etc.

National currencies are typically credit instruments (liabilities) of the respective national central banks.

National currency units are typically undefined causing confusion between the currency (liability) and the measure of value (unit).

[to be continued]

The Complementary Currency Handbook

I am in the process of writing The Complementary Currency Handbook. This book provides important guidance in addressing critical issues that relate to the creation and management of complementary currencies and credit clearing exchanges.

Here are some basic questions that need to be asked about ANY currency:

  • Who is the issuer?
  • How is it issued into circulation?
  • What is the basis (foundation) of issue?
  • What is the amount currently in circulation?
  • What are the terms of the (explicit or implied) contract offered by the issuer to the users of the currency, i.e.,
    What does the issuer promise?
    What is the form of redemption?
    What are the limits, if any, on the amount that may be issued?
    What is the duration of the contract? Is there an expiration date?
    Are there any fees, conditions, or limitations associated with redemption?

Beyond Money

Money is, first and foremost, a medium of exchange, something we use to pay for the things we buy.
Money has evolved over time, from:
1. commodities that are valuable in themselves, to
2. symbolic “warehouse receipts” or claim checks for commodities in storage somewhere (including deposits of gold or silver in banks), to
3. credit created on the basis of some assets pledged as collateral, such as a house when you get a mortgage from a bank.

Today, virtually all money is credit money.

The process of money creation takes place in banks when banks make “loans.”

But ultimately goods and services pay for other goods and services; money is just an interediary device that facilitates the process. Money has become simply an information system that offsets your debits from purchases with credits from your earnings.

Mutual credit clearing is the process that is making conventional money obsolete.

For complete background on this subject, see