Posted by Allison on 6 April 2009, 14:59
You may not realise it at first, but there are actually a number of different currencies circulating in the world today.
We're not talking about different currencies as in the pound, the rouble, the dollar and the euro; rather we are talking about the types of currency that are around. For example, there is fiat money – which the world at large uses every single day - and representative money. But one of the most interesting forms of currency is that of private currencies. They are fascinating because they are vastly different from any other kind of currency we know, yet they still have the power to potentially have a very real effect on the world around us.
So what exactly is a private currency anyway?
Well to put it simply, it is a currency which is usually used in much smaller circles than the currencies we are used to using on a day to day basis. It can occur in many forms (some of which we will take a look at shortly) and instead of being issued by a government, a bank or another official body, it is issued by a private institution of some kind.
This obviously means that the currency is not controlled by an official institution either, and in theory anyone can issue their own private currency – which is where the problems can occur.
So we know what a private currency is. But could you name an example of it?
You might not think you could, but in truth you are probably participating in a private currency scheme of some kind without even realising it. Private currency is a little easier to understand if you accept the fact that it is not restricted to coins and banknotes. In fact, most private currencies don't rely on these at all, using other forms of exchange instead.
One of the most famous forms of private currency is actually Air Miles. When you think about the fact that all forms of currency have a value and can be exchanged for goods to the value of the coins and notes you have, then you can see that in a very basic way Air Miles do meet those criteria. When you buy shopping or spend money on your credit card, your card company may reward you with a certain number of Air Miles for your custom. You can then exchange these for free flights – instead of paying for them with real currency.
But there are other examples of private currencies as well, and in our modern day advanced world many of them exist on the internet. In these cases you will very likely never see or handle your private currency; it will appear as a number or value on your computer screen which can then be exchanged for goods or services when you have enough 'private currency' to do so. In these cases the currency will often be in the form of either points or an actual recognised monetary value.
In the case of a points system there will usually be something which essentially equates to the familiar concept of an exchange rate. A certain number of points will be equal to a certain amount of money in dollars, or whatever currency your country uses.
However, internet based private currencies cannot yet cross the divide into the real world. If you decide to participate in one of these private currencies you are restricted to using the currency you amass – however that may be done – online, and only at the places which have agreed to take part in the same scheme.
Another well known type of private currency which exists online is e-gold. This stands out for the simple fact that it has been around for over ten years and is still going strong. It is also very different from most other internet based private currencies in that it is backed by gold reserves. E-gold works well because it uses gold as its chosen unit of currency – therefore there are no exchange rates between countries. Everyone who chooses to make use of the e-gold system uses the exact same private currency.
But what does the future hold? It certainly seems that e-gold is here to stay, but is it the way of the future?
Many people believe that a global currency is the answer to fighting inflation and simplifying the many complex issues that surround money. But some people think that the private internet based currencies of today will actually end up being the global currency of tomorrow.
As things stand, the regular currencies in use now are controlled by 'the powers that be' in each individual country. The idea these people have in the long term is that a private currency could in fact be the starting point for a global 'virtual' currency, where no coins or banknotes would ever be in use or needed for anything again.
Could it happen? It is a distinct possibility. The success of e-gold (a well thought out system that clearly does work) has proven that it could. We are already used to using plastic for many purchases. We wouldn't dream of handing over a wad of banknotes or bags of coins in exchange for that brand new television we want, and it's not that hard a jump to get from there to simply having a single universal digital currency to work with in the future.
It's clear that it could happen, but will it happen in our lifetime? Perhaps the bigger question is what the effect would be on the banks and governments who are currently the major players in world currencies of all shapes and sizes. Could we ever imagine a country where the government was no longer in control of the currency of choice?
It makes you feel quite excited about the thought of a small private currency becoming the world's first universal digital currency. It could be the beginning of the end for the humble coin and banknote.