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Complementary Currencies

Money is not a given. Although we are often not aware, the money we use is essentially a choice. “The essence of money is an agreement [a consensus] to accept something that in itself may have no fundamental utility to us, but that we are assured can be exchanged in the market for something that does” (Greco 2001: 29). That means that money is a social construct; a human invention. As a result our conventional money has its own features and rules. These features and rules are simply the result of decisions made in the past. These include for example the choice to pay interest, the choice to abandon the ability to exchange money for gold, the choice to have money issued by banks only, or the choice to use paper money instead of silver coins. As a result money is not neutral but politically loaded; it serves the interests of some better than others.

Complementary Currencies are currencies that have different designs and serve different purposes than our conventional money. Complementary Currency (CC) is one specific form of money that exists as a supplement to our conventional (national) money. “A complementary currency (…) is an agreement to use something else than legal tender (i.e. national money) as a medium of exchange, with the purpose to link unmet needs with otherwise unused resources” (Lietaer & Hallsmith 2006: 2). ‘Unused resources’ refers in this context to goods and services (labor) offered, where no demand for them exists within the market-economy mediated by conventional money.

Because complementary currencies are often local currencies, they are often referred to as Community Currencies. Nevertheless, not all complementary currencies are local in nature and therefore ‘complementary currencies’ is a more proper description of the phenomenon that we intend to describe. The term ‘alternative currency’ is also often used to describe complementary currencies. In essence this term is deceitful, as complementary currency are not designed to concur with- or to substitute conventional currencies. In addition, some coin the term ‘private currencies’. The term could be considered synonymous to complementary currencies, but emphasize that the currency is issued by individuals, businesses or NGO’s as opposed to ordinary currency issued under the authority of the government. Likewise in use, though far less applied, is the term ‘auxiliary currencies’ (see for example Douthwaite & Wagman 1999) as synonym of complementary currencies.

What is Money?

We cannot understand complementary currencies separate from other forms of money. We therefore need to understand first what money is. Money is essentially an instrument created to overcome the limitations of ordinary barter (reciprocal trade). In the words of Bilgrim and Levy (in Greco 2001:24) money is any medium of exchange adapted or designed to meet the inadequacy of the method of exchanging things by simple barter. The most important limitation of barter is that there’s not necessarily a reciprocal need for products or services. (e.g. when John is interested in exchanging apples for eggs with Jessica, but Jessica is not interested to receive apples, no exchange takes place). Secondly, products are hard to store and many products are perishable making hoarding difficult. (e.g. John cannot hoard apples indefinitely to exchange it at a later time). Thirdly, products can hardly be rated at their true value as one single unit of measurement lacks. How to express the value of an apple? It’s very inconvenient to say one apple is either worth 3 eggs, ¼ bread, 4 mushrooms, ½ broccoli or 1 potato. Hence, money overcomes the problems of simple barter by performing three essential functions: exchange, store of value and unit of account . (Greco 2001: 182).

Money is firstly created to ease exchanges. It is an intermediary instrument invented to smoothen transactions making direct swap (exchanging one product for another) redundant. Money is a generic term for all agreed upon media of exchange that can be used to purchase goods and services. Secondly, by creating money the possibility of hoarding also emerged. Thirdly, money created an opportunity to calculate and measure the value of any good or service. In other words, money enables to numerically express prices, debts and credits. Money could therefore be defined as ‘anything that is generally accepted (trusted) as a means of payment for allocating and exchanging goods and services, can be stored and facilitates measurement of value’ (based on Greco 2001: 23).

Nevertheless, Greco (2009:24) is right when pointing to the fact that money is traditionally described in terms of what it does, rather than what it is. According to Michael Linton money is essentially an “information system to employ human effort” (in Greco 2001:24). Money is simply an instrument to keep score of the value everyone has put in the economy, be it services or goods. Ideal typically, those who have in sum a lot of money have contributed a lot to the community, whilst those that all in all are indebted owe the community provision of goods and services . Money is something you ‘earned’; that is not solely something you obtained but something you deserved and which can be administered to receive like value in return for your contribution to the economy. Money is an IOU (I owe you). Where money is earned by providing goods or services, the possessor of money has the right to lay claim to any good or service from the community using the money (Greco 2001: 182).

Complementary Currencies as a Distinctive Type of Money

In describing money we can make a distinction between three types of money: legal tender, complementary currencies and vouchers.

Legal tender (or forced tender) are currencies issued under the authority of the government and that by national law are acknowledged as a valid means of payment for settling debts. That means that, if the debtor pays with legal tender, they are to be accepted by the creditor in settlement of a debt . It also means that legal tender is the currency that the government of a country accepts as payment in taxes (Lietaer & Hallsmith 2006: 5).

Complementary currencies comprise all money that lie outside the realm of legal tender and as a rule are issued into circulation by some group or organization other than the government or banking establishment. That doesn’t mean that complementary currencies are de facto illegal tender! It simply means that, contrary to legal tender, non-legal tender does not have to be accepted, but definitely can if both parties involved in a transaction agree to do so. Transactions do not necessarily have to take place in legal tender. As such complementary currencies are a wide group of innovative money programs that function as medium of exchange on their own next to the ordinary national currencies. A definition of complementary currency would therefore be ‘anything that is not legal tender but is generally accepted as a means of payment in exchanging goods and services, which can be stored and enables measurement of value’.

Next to legal tender and complementary currencies, a third category of money could be distinguished; vouchers. Among these are coupons, stamps, loyalty points, gift certificates, chips in a gambling casino etcetera. Although these are outside the realm of legal tender, they could neither be considered complementary currencies. As opposed to complementary currencies they are not intended to function as a generally accepted means of payment. Vouchers can be spend on a very limited range of products, and are accepted by only a few. Consequently, it is even doubtful if we should consider them money at all. Vouchers meet the criterion of non-legal tender, but fail the criterion of generally accepted means of payment. Or as Greco (2001:147) asserts: “idealtypically to qualify as actual community currency, an issue should change hands many times before being returned to the issuer for redemption”. According to this criterion, casino chips, bus tickets, CD-coupons, supermarket points, minutes on a prepaid phonecard and stamps, that are only used once, all have value but are not complementary currencies.

It should be noted that any currency could transform into another type. A government can for example declare a complementary currency as legal tender. Vouchers can become a complementary currency when it gradually becomes generally accepted and increasingly changes hands many times. Air Miles loyalty points could be an example of the latter. In reality the boundaries between these three types of money are rather vague. It is sometimes hard to say whether a currency is legal tender, complementary currency or none of both.

Describing Complementary Currencies

Obviously, not all complementary currencies are the same. In different respects, there are noticeable differences between complementary currencies. With these differences in mind, we can distinguish between different types (categories) of complementary currencies.


First of all, complementary currencies vary with respect to their aim(s) and reason(s) of development. Complementary currencies can generally be designed either for commercial purposes or for social goals. Examples of the former are Trade Exchanges (also labeled Barters) whilst Time Banks are the ultimate example of the latter. We also find combinations, like the WIR in Switzerland or the Transition Currencies in the UK. Subsequently we can identify multiple variants of commercial complementary currencies; Business to Business (B2B), Business to Consumer (B2C), Consumer to Consumer (C2C) and Consumer to Business (C2B) (Lietaer & Hallsmith 2009: 7). The same goes for social complementary currencies; some are dedicated to decreasing unemployment, others to poverty eradication, education improvement, healthcare provision, childcare provision, assisting the elderly, community-building (strengthening cohesion), or the environment. The examples of social purposes one can think of, is off course almost infinite.

Design criteria

The design criteria involve the technical aspects of the complementary currency. These technical features are self-evidently partly influenced by the aims and purposes of the complementary currency.

The first design criterion is the ‘Support Medium’. Currencies can take different physical forms. Commodity currencies are ‘goods’ used as a generally accepted means of payment. Historically these have been for example salt, wheat, cattle, shells, cigarettes and many precious metals such as gold, silver and bronze. (Lietaer & Hallsmith 2009: 14). Nowadays, we are more familiar with money in the form of paper and coins. Finally, electronic money – being card-, internet- or mobile payment based- can be distinguished as a support medium. Each support medium has its own advantages and disadvantages in relation to counterfeiting and fraud, involved costs, trust, accessibility, creating, storing and transporting (Lietaer & Hallsmith 2009: 15) (see Table 1).

Table 1. Advantages and Disadvantages of each Support Medium of Money

Secondly money can be identified according to its function. As previously discussed, money has three functions: medium of exchange, store of value and standard of value (unit of account/measuring). Not all complementary currencies fulfill these functions equally. Especially the choice to implement or not to implement interest, transaction bonuses, demurrage (hoarding tax), transaction fees, and expiration dates, affect the extent to which a complementary currency fulfills the functions of saving and exchanging (see Table 2).

Table 2. Mechanisms to encourage and discourage spending and/or saving

With regard to the standard of value, most complementary currencies simply denominate their unit of account in terms of conventional currencies (e.g an apple worth €5 is also worth 5 barter credits). There are however some exceptions. In time banking currencies are denominated in hours. In other cases currencies are denominated in physical units; miles in case of Air Miles, the kWh in case of the WAT (a complementary currency in Hokkaido, Japan), coal in case of the Wära and crops in case of the LEAF. (Lietaer & Hallsmith 2009: 17). Again every standard of value has its own advantages and disadvantages. Currencies referring to conventional currencies have the advantage of familiarity and don’t need multiple pricing systems, whilst time denominated currencies make sense when a currency is primarily intended for valuing services rather than goods.

A third design criterion is the issuing procedure or the basis on which money is brought into circulation and taken out of circulation (redemption). Money sometimes has real value (intrinsic value), represents something of real value (representative money), and sometimes doesn’t have or represent any real value at all. Backed currencies are issued on the basis of a specific good (like gold) and have a guarantee of the issuer that they can be redeemed at all times for a fixed amount of this specific good at the issuing organization (usually banks). Non-backed currencies on the contrary, are not brought into circulation on the basis of a specific good and do not represent anything of real value. It can be exchanged for something of value (that is you can buy something with it) only for as long as there is confidence in the money itself. The money is therefore often referred to as fiduciary money or fiat money. Because borrowing often necessitates a collateral (like real estate), these loans can be considered backed currencies as well, although it needs a legal action for the collateral to be seized. In some cases complementary currencies are backed by, and redeemable for other (usually conventional) currencies rather than a specific good like gold. Lietaer & Hallsmith (2009:21) refer to these as ‘purchased and redeemable vouchers’, of which Chiemgauer is a well-known example. Commercial vouchers differ in one respect, as these are purchased with conventional currency but are not redeemable for conventional currency. Instead, one can redeem them for a limited variety of products (e.g. CD’s or books) at the shops issuing the vouchers. Loyalty points can also be exchanged for a limited range of products and services only. But contrary to commercial vouchers these are received for free with every purchase in conventional money; clients often unaware, pay indirectly for these marketing costs. Finally mutual credit can be perceived a distinct issuing procedure, where currency arises by simultaneously creating a debit (for the buyer) and corresponding credit (for the seller) with every transaction. In this case the currency is backed by a promise of the indebted person to provide goods or services in the near future. In some cases signing a contract is required, making a promise legally enforceable.

Table 3. The issuing procedure possibilities of complementary currencies

It is important to understand that currencies aren’t always 100% backed either by commodities, national currencies, goods, collateral or promise. In other words, the commodities, currency or good in deposit is insufficient to back all money in circulation. In fact, most currencies are only partially backed; a practice known as fractional reserve banking. Fiat money is 0% backed.

In addition, it is self-explanatory that it is possible to design a complementary currency backed by for example multiple commodities or multiple national currencies. An example of the former would be the Bancor, a currency proposed by Keynes after World War II, containing thirty different commodities. An example of the latter would be the Special Drawing Rights (SDR’s); an international currency based on a basket of national currencies. Finally, it is not unimaginable to think of hybrids; for example currencies partially backed by commodities and partially backed by national currencies.

Cost Recuperation is the final design criterion end essential for the survival of a complementary currency. After all, the creation, and continuous management of a complementary currency obviously involves costs. The challenge is to keep costs as low as possible, but nevertheless some funding is required. Apart from that, multiple possibilities exist for the recovery of costs involved. Income can be generated internally as well as externally. The first option is to attract funding through sponsorship or for example advertisement income. The second option is to charge the users of the complementary currencies. Possible mechanisms include entry fees, periodical membership fees, transaction fees (Value Added Tax or Income Tax) exchange fees, interest (on debts), expiration dates and demurrage (hoarding tax) (Lietaer & Hallsmith 2009: 24). Although internal cost recuperation might turn out to be an impediment for citizens to start using a complementary currency, the advantage is clear; the complementary currency can sustain itself and is not dependent on external sources of funding. Worth mentioning is that in case of some complementary currencies the costs are recuperated in conventional currencies, whilst in others complementary currencies themselves are accepted.

Implementation and Origin

Implementation answers the question of when, where and how. Not all complementary currencies arose at the same time. Historically, some periods turned out to be more conducive for new complementary currencies to emerge. Secondly complementary currencies vary in their origin and focus, be it local, regional, national or transnational. Thirdly, how refers to ‘with whom?’ and ‘with which means’. Some complementary currencies are more professionally organized than others, the actors involved in the creation differ, (sometimes involving financial institutions, businesses, ordinary citizens, governmental institutions) and whereas some have limited financial means, others have more adequate means.

Impact and significance

Complementary currencies deviate significantly in respect to their success. When assessing the impact of a complementary currency different aspects should be considered including size (number of implementations, number of participants, amount of currency in circulation, annual turnover), growth, period of existence, social, economic and commercial consequences, and so forth. Above all remarkable differences are there with regard to the extent complementary currencies achieve their purposes.


Complementary currencies are all forms of money that exist parallel to our conventional national currencies. Just as conventional currencies they fulfill the three functions of money; exchanging, storing, measuring. Complementary currencies share the perception that money is an agreed-upon instrument to facilitate exchange, measurement, and saving. Hence, money is not given and can be created by ourselves when ordinary currency is unable to fulfill certain needs within society. It can be designed in a way that fulfills certain predefined purposes.

Although the domain of complementary currencies comprises all money that is not legal tender (vouchers excluded), significant differences exist between them as well. Complementary currencies are not one coherent group sharing the exact same characteristics, like all national currencies do. In fact there are many categories of complementary currencies: Stamp Scrip, Trade Exchanges (Barters), Local Exchange Trading Systems (LETS), Time Banks, Regiogeld, and Commercial Credit Circuits, just to name a few. Every category comprises many complementary currency programs, all with their own distinctive features. There were for example multiple Stamp Scrip currencies such as Wära in Germany, Wörgler Schillings in Austria and Recovery Certificates or Larkin Merchandise Bonds in the US. They have in common that they are invented to provide an alternative stable means of payment for the formal economy during financial crisis. However, there also fundamental differences between the two, for example with regard to the issuing procedure. The schedule below gives an (humble and incomplete) overview of the most important complementary currencies per category and their features.

Table 4 Features of Complementary Currencies (by category)


Greco, Thomas H. Jr. (2001) Money. Understanding and Creating Alternatives to Legal Tender. White River Junction, VT: Chelsea Green Publishing.

Douthwaite, Richard J. & Dan Wagman (1999) Barataria. A Community Exchange Network for the Third System. Utrecht: Strohalm.

Lietaer, Bernard A. (1999) The Future of Money: Creating New Wealth, Work and a Wiser World. Post Falls: Century Publishers.

Lietaer, Bernard A. & Gwendolyn Hallsmith (2006) Community Currency Guide. Global Community Initiatives. Available: [1]