Private currency

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A private currency is a currency issued by a private entity, be it an individual, a commercial business, a nonprofit or decentralized common enterprise. It is often contrasted with fiat currency issued by governments or central banks. In many countries, the issuance of private paper currencies and/or the minting of metal coins intended to be used as currency may even be a criminal act such as in the United States (18 U.S. Code § 486). [1] Digital cryptocurrency is sometimes treated as an asset instead of a currency. Cryptocurrency is illegal as a currency in a few countries (mainly in West Asia and North Africa).

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Today, there are over four thousand privately issued currencies in more than 35 countries. These include commercial trade exchanges that use barter credits as units of exchange, private gold and silver exchanges, local paper money, computerized systems of credits and debits, and digital currencies in circulation, such as digital gold currency.

Private bank notes

A private $1 note, issued by the "Delaware Bridge Company" of New Jersey 1836-1841 Delaware Bridge Company Dollar.jpg
A private $1 note, issued by the "Delaware Bridge Company" of New Jersey 1836–1841

In the United States, the Free Banking Era lasted between 1837 and 1866, when almost anyone could issue paper money. States, municipalities, private banks, railroad and construction companies, stores, restaurants, churches and individuals printed an estimated 8,000 different types of money by 1860. If an issuer went bankrupt, closed, left town, or otherwise went out of business, the note would be worthless. Such organizations earned the nickname of "wildcat banks" for a reputation of unreliability; they were often situated in remote, unpopulated locales said to be inhabited more by wildcats than by people. The National Bank Act of 1863 ended the "wildcat bank" period. See also: History of free banking.

Private currency issued in Australia by The City Bank of Sydney circa 1900 The City Bank Of Sydney 20 pound note.jpg
Private currency issued in Australia by The City Bank of Sydney circa 1900

In Australia, private currency had first been used since the arrival of European settlers in 1788, and into the early years of Federation before the Bank Notes Tax Act 1910 effectively shut down the circulation of private currencies by imposing a 10% tax on the practice, making it economically prohibitive. This Act was subsequently repealed by the Commonwealth Bank Act 1945, which imposed a £1000 per day fine for private currencies, and s. 44(1) of the Australian Reserve Bank Act 1959 [2] prohibited the practice outright. In 1976, Wickrema Weerasooria published an article which suggested that the issuing of bank cheques violated this section, to which banks responded that since bank cheques were printed with the words "not negotiable" on them, the cheques were not intended for circulation, and thus did not violate the statute. [3]

In Hong Kong, although the government issues currency, bank-issued private currency is the dominant medium of exchange. Most automated teller machines dispense private Hong Kong bank notes. [4]

In Scotland, the Bank of Scotland, Clydesdale Bank, and the Royal Bank of Scotland, and in Northern Ireland, the Bank of Ireland, Danske Bank, First Trust Bank, and Ulster Bank, are authorised by Parliament to issue Pound sterling bank notes. They are subject to central bank (the Bank of England) regulations concerning "ring-fenced backing assets" and are backed in part by deposits at the Bank of England. They are exchangeable with other pound notes on a one-to-one basis, and circulate freely within the United Kingdom, though not legal tender, not even in Scotland and Northern Ireland. In fact, technically, no banknote (including Bank of England notes) qualifies as legal tender in Scotland or Northern Ireland. [5]

Complementary currencies

England has had the Totnes pound since it was launched by Transition Towns Totnes Economics and Livelihoods Group in March 2007; A Totnes Pound is equal to one pound sterling and is backed by sterling held in a bank account. As at September 2008, about 70 businesses in Totnes were accepting the Totnes Pound. Other local currencies launched since then include the Lewes Pound (2008), the Brixton Pound (2009), [6] the Stroud Pound (2009) [7] and the Bristol Pound, which also allows for electronic payments. [8]

Austria had the Wörgl Experiment from July 1932 to September 1933. [9]

Bavaria, Germany, has had the Chiemgauer since 2003. As of 2011 there were over 550,000 in circulation. [8]

Since starting in 2006, the "City Initiative Karlsruhe" has issued the Karlsruher which has no nominal value. Every coin has the value of 50 Eurocents and is primarily used in parking garages. As of 2009, 120 companies in Karlsruhe accept the Karlsruher and usually grant a discount when paid with it. [10]

Breadcoin was created in Washington DC in 2016 to address food insecurity and has a value of $2.20 when used at over 60 participating food vendors. [11]

In Canada, numerous complementary currencies are in use, such as the Calgary Dollar and Toronto dollar. However private currencies in Canada cannot be referred to as being legal tender and many private currencies (as well as loyalty programs) avoid the word "dollar", using names like "coupons" or "bucks", to avoid confusion. Examples include: Canadian Tire money and Pioneer Energy's Bonus Bucks. [12]

Convertible Minute is a community currency launched by the Minutes Bank users, started in Romania.

Customer reward and loyalty programs operated by businesses are sometimes counted as private currencies. However, though "points" or "miles" may be exchangeable for merchandise or travel from the program sponsor, most of them lack the key element for currency of being a medium of exchange transferable to other individuals and usable as payment for items from other vendors. A few programs do have "partnerships" allowing this to some extent, and permit the transfer of points or miles. Some startups, such as the Canadian website Points.com, [13] have sought to make loyalty "points" more currency-like by creating an exchange where points from one loyalty program can be traded for points in other such programs. [14]

Cryptocurrencies and digital currencies

A cryptocurrency is a form of digital or virtual currency where cryptography secures the transactions and controls the creation of additional units of the currency. [15] Technically, cryptocurrency is a not currency, but a digital form of token coins or scrip, as cryptocurrencies do not comply with the four fundamental functions of money according to economic theory. A cryptocurrency wallet can be used to store the public and private keys which can be used to receive or spend the cryptocurrency. The cryptographic systems used allow for decentralisation; a decentralised cryptocurrency is fiat money but one without a central banking system. In terms of total market value, Bitcoin is the largest cryptocurrency. [16]

On 6 August 2013, Federal Judge Amos Mazzant of the Eastern District of Texas of the Fifth Circuit ruled that bitcoins are "a currency or a form of money" (specifically securities as defined by Federal Securities Laws), and as such were subject to the court's jurisdiction. [17] [18] In August 2013, the German Finance Ministry characterized Bitcoin as a unit of account, [19] [20] usable in multilateral clearing circles and subject to capital gains tax if held less than one year. [20] [19]

In Thailand, lack of existing law leads many to believe Bitcoin is banned. [21]

Private currency crimes

As national currencies can be counterfeited, so too can private currencies, and private currencies are subject to other criminal issues, including fraud.

The Liberty Dollar was a commodity-backed private currency created by Bernard von NotHaus and issued between 1998 and 2009. In 2011, von NotHaus was arrested and subsequently convicted on charges of money laundering, mail fraud, wire fraud, counterfeiting, and conspiracy. [22] [23] The charges stemmed from the government view that the Liberty silver coins too closely resembled official coinage.

In 2007, Angel Cruz, founder of The United Cities Corporation (TUC), announced he was establishing an alternative "asset based" currency named "United States Private Dollars". [24] Cruz claimed United States Private Dollars were "backed by the total net worth of the assets of its members" and had printed six billion dollars' worth of the private currency; [25] the backing assets were claimed to be valued at 357 billion dollars. [26] The currency featured the slogan "In Jehovah We Trust". [27] The Comptroller of the Currency issued an alert warning banks that checks issued by TUC were "valueless instruments" and should not be cashed. [27] In 2008, Cruz was indicted by a Federal grand jury in Florida on one count of conspiracy to defraud the United States under 18 U.S.C.   § 1344 and 18 U.S.C.   § 371 and six counts of bank fraud under 18 U.S.C.   § 1344 and 18 U.S.C.   § 2 in connection with his dealings with Bank of America, while attempting to get United Cities bank drafts cashed. [28] As of late October 2010, Cruz was still a fugitive, [29] though an associate was convicted on related charges and sentenced to prison for eight years. Angel Cruz was finally captured in 2020. [30]

See also

Related Research Articles

A currency is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general definition is that a currency is a system of money in common use within a specific environment over time, especially for people in a nation state. Under this definition, the British Pound sterling (£), euros (€), Japanese yen (¥), and U.S. dollars (US$) are examples of (government-issued) fiat currencies. Currencies may act as stores of value and be traded between nations in foreign exchange markets, which determine the relative values of the different currencies. Currencies in this sense are either chosen by users or decreed by governments, and each type has limited boundaries of acceptance; i.e., legal tender laws may require a particular unit of account for payments to government agencies.

Federal Reserve Notes, also United States banknotes, are the currently issued banknotes of the United States dollar. The United States Bureau of Engraving and Printing produces the notes under the authority of the Federal Reserve Act of 1913 and issues them to the Federal Reserve Banks at the discretion of the Board of Governors of the Federal Reserve System. The Reserve Banks then circulate the notes to their member banks, at which point they become liabilities of the Reserve Banks and obligations of the United States.

<span class="mw-page-title-main">Currency substitution</span> Use of a foreign currency in parallel to or instead of a domestic currency

Currency substitution is the use of a foreign currency in parallel to or instead of a domestic currency.

<span class="mw-page-title-main">Legal tender</span> Medium of payment recognized by law

Legal tender is a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered ("tendered") in payment of a debt extinguishes the debt. There is no obligation on the creditor to accept the tendered payment, but the act of tendering the payment in legal tender discharges the debt.

The Hong Kong dollar is the official currency of the Hong Kong Special Administrative Region. It is subdivided into 100 cents or 1000 mils. The Hong Kong Monetary Authority is the monetary authority of Hong Kong and the Hong Kong dollar.

The Singapore dollar is the official currency of the Republic of Singapore. It is divided into 100 cents. It is normally abbreviated with the dollar sign $, or S$ to distinguish it from other dollar-denominated currencies. The Monetary Authority of Singapore (MAS) issues the banknotes and coins of the Singapore dollar.

<span class="mw-page-title-main">Liberty dollar (private currency)</span> Private currency produced in the United States

The American Liberty Dollar (ALD) was a private currency produced in the United States.

<span class="mw-page-title-main">Digital currency</span> Currency stored on electronic systems

Digital currency is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Types of digital currencies include cryptocurrency, virtual currency and central bank digital currency. Digital currency may be recorded on a distributed database on the internet, a centralized electronic computer database owned by a company or bank, within digital files or even on a stored-value card.

The history of the United States dollar began with moves by the Founding Fathers of the United States of America to establish a national currency based on the Spanish silver dollar, which had been in use in the North American colonies of the Kingdom of Great Britain for over 100 years prior to the United States Declaration of Independence. The new Congress's Coinage Act of 1792 established the United States dollar as the country's standard unit of money, creating the United States Mint tasked with producing and circulating coinage. Initially defined under a bimetallic standard in terms of a fixed quantity of silver or gold, it formally adopted the gold standard in 1900, and finally eliminated all links to gold in 1971.

<span class="mw-page-title-main">Early American currency</span> Money in the English/British American colonies and the pre-1789 United States

Early American currency went through several stages of development during the colonial and post-Revolutionary history of the United States. John Hull was authorized by the Massachusetts legislature to make the earliest coinage of the colony in 1652.

A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may accept credit card payments, wire transfers or other forms of payment in exchange for digital currencies or cryptocurrencies. A cryptocurrency exchange can be a market maker that typically takes the bid–ask spreads as a transaction commission for its service or, as a matching platform, simply charges fees.

<span class="mw-page-title-main">History of the Canadian dollar</span> History of currency in Canada

Canada has an extensive history with regard to its currencies. Prior to European contact, indigenous peoples in Canada used items such as wampum and furs for trading purposes, which continued when trade with Europeans began. During the period of French colonization, coins were introduced, as well as one of the first examples of paper currency by a western government. During the period of British colonization, additional coinage was introduced, as well as banknotes. The Canadian colonies gradually moved away from the British pound and adopted currencies linked to the United States dollar. With Confederation in 1867, the Canadian dollar was established. By the mid-20th century, the Bank of Canada was the sole issuer of paper currency, and banks ceased to issue banknotes.

Virtual currency, or virtual money, is a digital currency that is largely unregulated, issued and usually controlled by its developers, and used and accepted electronically among the members of a specific virtual community. In 2014, the European Banking Authority defined virtual currency as "a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically." A digital currency issued by a central bank is referred to as a central bank digital currency.

<span class="mw-page-title-main">United States dollar</span> Official currency of the United States of America

The United States dollar is the official currency of the United States and several other countries. The Coinage Act of 1792 introduced the U.S. dollar at par with the Spanish silver dollar, divided it into 100 cents, and authorized the minting of coins denominated in dollars and cents. U.S. banknotes are issued in the form of Federal Reserve Notes, popularly called greenbacks due to their predominantly green color.

<span class="mw-page-title-main">Cryptocurrency</span> Digital currency not reliant on a central authority

A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It is a decentralized system for verifying that the parties to a transaction have the money they claim to have, eliminating the need for traditional intermediaries, such as banks, when funds are being transferred between two entities.

Circle began as a peer-to-peer payments technology company that now manages stablecoin USDC, a cryptocurrency the value of which is pegged to the U.S. dollar. It was founded by Jeremy Allaire and Sean Neville in October 2013. Circle is headquartered in Boston, Massachusetts. USDC, the second largest stablecoin worldwide, is designed to hold at or near a stable price of $1. The majority of its stablecoin collateral is held in short-term U.S. government securities.

United States virtual currency law is financial regulation as applied to transactions in virtual currency in the U.S. The Commodity Futures Trading Commission has regulated and may continue to regulate virtual currencies as commodities. The Securities and Exchange Commission also requires registration of any virtual currency traded in the U.S. if it is classified as a security and of any trading platform that meets its definition of an exchange.

Bitfinex is a cryptocurrency exchange owned and operated by iFinex Inc, and is registered in the British Virgin Islands. Bitfinex was founded in 2012. It was originally a peer-to-peer Bitcoin exchange, and later added support for other cryptocurrencies.

Tether is a cryptocurrency stablecoin, launched by the company Tether Limited Inc. in 2014. As of January 2024, Tether's website lists fourteen protocols and blockchains on which Tether has been minted.

Cryptocurrency and crime describe notable examples of cybercrime related to theft of cryptocurrencies and some methods or security vulnerabilities commonly exploited. Cryptojacking is a form of cybercrime specific to cryptocurrencies that have been used on websites to hijack a victim's resources and use them for hashing and mining cryptocurrency.

References

  1. ↑ "18 U.S. Code § 486 - Uttering coins of gold, silver or other metal" . Retrieved 7 July 2018.
  2. ↑ Reserve Bank Act 1959 (Cth) s 44 Other persons not to issue notes.
  3. ↑ Weerasooria, Wickrema. "The Australian Bank Cheque - Some Legal Aspects" (PDF). (1976) 2(2) Monash University Law Review 180. ISSN   0311-3140
  4. ↑ International Bank Note Society. "Hong Kong's 1,000 (HSBC) dollar note".
  5. ↑ The Association of Commercial Banknote Issuers. "Scottish and Northern Ireland Banknotes Fact Sheet" (PDF). Archived from the original (PDF) on 2018-01-28. Retrieved 2017-02-12.
  6. ↑ Leo Hickman (16 September 2009). "Will the Brixton pound buy a brighter future?". The Guardian . Retrieved 25 September 2012.
  7. ↑ Town launches its own bank notes BBC News 13 September 2009
  8. 1 2 Harvey, Dave (19 September 2012). "Bristol Pound launched to keep trade in the city". BBC West News. Retrieved 21 September 2012.
  9. ↑ "Currency Solutions for a Wiser World » The Wörgl Experiment: Austria (1932-1933)". Lietaer. 17 January 2021. Retrieved 28 September 2022.
  10. ↑ "Karlsruhe (bonus system)" (in German). Retrieved 15 April 2014.
  11. ↑ Iati, Marisa (2019-01-11). "'Breadcoin' is a new currency in D.C. for people in need". Washington Post. Washington DC. Retrieved 2021-10-18.
  12. ↑ Last, Arthur M. (December 2003). "Canadian Tire Money: An Analogy for Use When Discussing Weak Acid–Strong Base Titrations". Journal of Chemical Education. 80 (12): 1403. Bibcode:2003JChEd..80.1403L. doi:10.1021/ed080p1403. ISSN   0021-9584.
  13. ↑ "Points.com". points.com.
  14. ↑ "Points.com establishes currency exchange for loyalty programs". PCMag. September 23, 2010.
  15. ↑ Andy Greenberg (20 April 2011). "Crypto Currency". Forbes.com. Retrieved 8 August 2014.
  16. ↑ Espinoza, Javier (22 September 2014). "Is It Time to Invest in Bitcoin? Cryptocurrencies Are Highly Volatile, but Some Say They Are Worth It". Journal Reports. The Wall Street Journal. Retrieved 28 June 2016.
  17. ↑ Farivar, Cyrus (2013-08-07). "Federal judge: Bitcoin, "a currency," can be regulated under American law". Ars Technica. Retrieved 2013-08-15.
  18. ↑ "Securities and Exchange Commission v. Shavers et al, 4:13-cv-00416 (E.D.Tex.)". Docket Alarm, Inc. Retrieved 14 August 2013.
  19. 1 2 Vaishampayan, Saumya (19 August 2013). "Bitcoins are private money in Germany". Marketwatch . Archived from the original on 24 August 2013.
  20. 1 2 Nestler, Franz (16 August 2013). "Deutschland erkennt Bitcoins als privates Geld an (Germany recognizes Bitcoin as private money)". Frankfurter Allgemeine Zeitung .
  21. ↑ Watts, Jake Maxwell (July 30, 2013). "Thailand's Bitcoin ban is not quite what it seems". Quartz. Retrieved 15 April 2014.
  22. ↑ "Defendant Convicted of Minting His Own Currency" (Press release). United States District Court for the Western District of North Carolina: U.S. Attorney's Office. March 18, 2011. Archived from the original on December 5, 2012.
  23. ↑ Lovett, Tom (March 19, 2011). "Local Liberty Dollar 'Architect' Bernard von NotHaus convicted". Evansville Courier & Press.
  24. ↑ "Florida man launches 'United States Private Dollar'", Daily Kos , August 25, 2007.
  25. ↑ "TUC Currencies", United Cities website, via Internet Archive
  26. ↑ "TUC Improving the US Economy by the Circulation of Their Private Currency Today", OpenPR.com August 2, 2007
  27. 1 2 "Kissimmee nonprofit 'concerned' over checks", Orlando Sentinel , August 25, 2007
  28. ↑ Indictment, United States v. Cruz, case no. 6:08-cr-00177-UA-DAB, docket entry 1, Aug. 6, 2008, U.S. District Court for the Middle District of Florida (Orlando Div.).
  29. ↑ Status Report, United States v. Cruz, case no. 6:08-cr-00177-UA-DAB, docket entry 88, Oct. 28, 2010, U.S. District Court for the Middle District of Florida (Orlando Div.)
  30. ↑ "U.S. Marshals Arrest Fugitive 9 Years on the Run in the Dominican Republic". www.usmarshals.gov.

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