Introduction

The private currency is a type of Monnaie whose emission and guarantee are ensured by a bank " privée" , independent of the State, in opposition to the usual currencies, subjected to a Monopoly of emission and guarantee by a State or a treaty between States.

There were some rare historical examples of private currencies. The private currency is almost non-existent today. The concept of private currency is primarily proposed by some liberal, like Friedrich Hayek or David Friedman, as a means to decrease the capacity of the State to handle the economy with its own advantage.

For the fundamental ones on the currency in general, to see the article Currency.

Fundamental concepts

principal Article: Currency

A currency is a good having three fundamental properties: it is used as numerary (means of payment to buy very other well), of store of value (it keeps about same the Valeur from one day to another) and of Unit of Account . To be used as currency, a good must thus be easy to transport (numerary), durable or easily renewable (store of value) and to measure in common units (Unit of Account).

Historically, the first currencies used goods presenting these properties: shells, Bronze, Gold. By their durability and their compactness taking into consideration their exchange value, the noble metals (Gold, money) were essential little by little. However, their use rather bound the offer of currency to the risks of the production of these metals than to the needs for the economy. In addition, with the increase in the amount of the transactions, their handling and their detention became increasingly expensive. Trade banks, then emitted credits, genuine modern banknotes, ackowledgements of debt to the carrier, by which the debtor agent was committed paying the sum stipulated on the credit with any person being presented with banknote.

The modern currency rests on this type of implicit Contrat. A currency is thus emitted by a Central bank which guarantees the value of it while ensuring of its capacity to change a given amount of the currency emitted into currency emitted by a Central Bank or ackowledgement of debt emitted by an agent of the economy concerned. The creation of currency itself master key by the Bank S. When a bank lends a $Q$ amount to an agent, it exchanges an ackowledgement of debt of this agent (amount $Q\; (1+t)$, where $t$ is interest rate) against currency, drawn from its own reserves. If these last are insufficient, it can exchange the ackowledgement of debt against currency near the central bank. This one exchanges the ackowledgement of debt against a quantity $Q\; (1\; \backslash \; tau)$ of currency, where $\backslash \; tau$ is the Discount rate (). When the agent refunds (in currency), the bank thus has in its cases an amount $Q\; (1+t-\; \backslash \; tau)\; >\; 0$ of currency: it thus created for itself a quantity $Q\; (T\; \backslash \; tau)$ of currency.

The proposal of the private currency would be to exempt central bank by giving to the transmitting bank of the loan two capacities:

1. instead of providing currency emitted by Central Bank to the borrower, it gives him matérialisation of contract (ticket, certificate, etc) making it possible the carrier of this certification to obtain prêteuse bank the value of the loan in the monetary form of its choice;
2. the bank can sell as she hears it the ackowledgement of debt of the borrower to any other economic agent.

The fundamental argument in favor of such a possibility would be that the discount rate would be determined by the market rather than by the authority controlling Central Bank. Under the assumption that the market led to effective balances, that would allow the establishment of interest rates directly determined by the needs for the economy, whereas the leaders of the central bank can have contradictory objectives with the effectiveness of the economy.

Operation of a private currency

In the state, the financial markets generally make it possible the banks to renegotiate the credits they have, atrates determined by the risk of not-covering of the credit (the borrower cannot or does not want to refund). The conceptual problem of the private currency is thus to conceive how the private agents could emit titles having function of currency. With this intention, it is necessary to consider the way in which the value of the currency thus emitted would be given, the manner of determining the value of the currency in question and the guarantees which can offer a potential transmitter.

The contract of currency

Basically, the private currency would take the form of a Contrat , signed by the transmitter, transmitting the aforementioned binder with the legitimate owner of the title. So that this contract can be used as means of payment, the identity of the owner is not stipulated, which allows the transfer of this contract of one agent the other according to the rules of supply and.

The central point of contract of currency is the definition of its conditions of realization, i.e. the conditions under which the owner of the contract can obtain transmitter against the exchange of the title of other goods. It thus stipulates the degree of liquidity of the title (refundable at sight or with a time) as well as the nature of refunding. This one would be related to the definition of an economic size and a good being used to carry out refunding. This couple (well, size) is called valorimeter .

Moreover, the contract of currency can limit the possibilities of transaction, for example to prohibit the transfer with the members of a list of agents, to impose of it a maximum or a realizable minimum of currency over a given period. However, any provision of this type tends to limit the liquidity of the currency thus emitted, and thus to decrease the interest for the borrower by it.

Lastly, the contract of currency will be able to stipulate the procedures of the control of the accounts of the transmitter, the guarantees of reserves that this one offers, the conditions of refunding in the event of lack of liquidities and the right and the court of competent jurisdiction in the event of litigation or of bankruptcy.

Valorimeter of a private currency

A fundamental role of the currency is that of Unit of Account: in a given economy, all the prices are expressed in the same unit. In the case of private currency, the problem is to determine a unit of reference, called valorimeter , on which the emitted title (the contract of currency) will be dependant.

In practice, the valorimeter consists of a couple (well, economic size) unspecified. For example, one can imagine a contract of currency whose value would be a given quantity of gold, increased evolution of a price index between the date of emission and that of the realization. The good of reference can also be made up of a basket of other currencies, and the index can be an unspecified index, calculated by any beforehand selected organization.

Guarantees of the transmitter

The value with the exchange of a currency is basically a measurement of confidence in the capacity of the transmitter to refund the value of the credit expressed by the contract of currency. By its capacity with raising taxes at will, to even confiscate the goods of its inhabitants, the State has in this field an in the short run quasi-unlimited confidence (see Government loans). A private banking, which is transmitting of private currency, does not have these guarantees. Its principal guarantee is the value of the credits which it has, credits coming from the borrowers. The guarantee given by a private banking is that the value of its credits remains durably higher than the emitted money supply than it put in circulation.

In the contract of currency, the transmitter can be committed having an amount of credits constantly predetermined or calculated according to the money supply that it will have emitted. It can also define the composition of these credits of reserve: commercial credits, long-term loans, currencies official, private currencies, active physical (factories, grounds, buildings), other financial credits. The transmitter can also offer the guarantee of other banks or companies which begin to take part in the refunding of whole or part of the emitted currency, engagement formalized by a contract between the transmitting bank and the company guarantor.

Economic incentives with the creation of private currency

In the current system, the trade banks are known as banks second-rate . To obtain currency, it must indeed discount their credits near the Central Bank in order to obtain currency. Central Bank imposes on the credits thus exchanged a Discount rate. If the trade banks had the possibility of emitting a private currency, they would touch the entirety of the value of the credit.

In addition, a transmitter could make it possible other agents to emit its currency deprived against payment of a Franchise. Symmetrically, the institutions guaranteeing the integrity of the accounts of the transmitter or the indices used in the contract of currency could require a remuneration of the transmitter.

Historical occurrences

Historical period

Historically, of the private currencies often coexisted with official currencies, in particular when confidence in this one was affected by political events. Thus, the Scottish banks emitted currency of 1750 to 1850. It is only between the 17th century and the 20th century that the monopoly of the currency was completely transferred to Central banks.

Contemporary period

Cases of emission

Vis-a-vis the development of their national Debt, several States were found in situation of suspension of payment of their debt, as in the case of the Argentinian economic crisis. Some of these States then authorized the emission of currency by a case of emission ( Currency board ). This one generally emitted a deprived currency with fixed parity with an official currency of reference like the American dollar, this currency being guaranteed to an high percentage by the reserve clean of the case, generally consisted of the remainder of the reserves of the Central bank of the country concerned.

The purpose of these cases are to oblige the State with a strict budgetary discipline time that the renegotiation of its debt with its creditors took place.

“SALT”, System of Local exchanges

“SALT” is a private currency which profits from the tolerance of the State for a restricted number of operations of barter between private individuals on a small territory. This tolerance is limited by taxation rules. The operation of a “SALT” thus undergoes a constant risk legal, which harms seriously the quality of this currency.

Development of the financial markets

If the emission of currency remains at present the monopoly of the bank power stations and an attribute fundamental Régalien, the emergence of new forms of financial markets removed most of its interest to the concept of private currency. Indeed, the strong development since the beginning of the Years 1980 of the futures markets of financial instruments and others derivative products allows the companies and the banks to constitute to measure and to hold titles presenting any reasonable combination of liquidity and risk. So the exchanges of titles on the financial markets monopolized most of the benefit which the banks with the emission of private currency could find. The daily amount such exchanges is thus higher than the totality of the world money supply.

The Miles

In practice, one often meets private currencies limited to a given market. The most known example, studied in-depth by the economists, is that of the programmes of fidelity of the airline companies. The participants in a program of fidelity receive with each purchase of tickets a number of miles depend on the price on the ticket. These miles can then be exchanged against services, other tickets, nights of hotel, etc

By studying the evolution of the mass of miles , the economists had the surprise to note that this particular currency was, because of its lack of liquidity, subjected to a rapid Inflation. Thus, the holders of the majority of the miles have a stock such as the number of nights of hotels which they can acquire is in general higher than their life expectancy. This inflation is primarily founded on the prohibition made to the holders of miles resell them with other private agents, limiting the function of currency of exchange of this unit.

Other contemporary private currencies

• the Argentinian crédito , emitted by the Total Red of Clubes de Trueque Multirecíproco (RGT) in 1995 and which made great great strides at the time of the Argentinian Economic crisis of 2001, but knew then the failure because of the Hyperinflation and the Contrefaçon.
• Currencies out of numerical gold

Difficulties

At present rare are the economists defending the need for a private currency. On the one hand, the development of the financial markets answered a certain number of the inefficiencies announced by the original promoters of the idea. In addition, the general movement of independence of the Central banks reduced the capacity of the States considerably to handle the currency, which was the principal concern of the liberal .

Especially, the practical operation of a private currency would pose important informational problems. Before any transaction, the agents should thus attentively read all the conditions of the contract of currency, all the contracts not being easily comparable because of the great number of contractable terms. This difficulty would be further increased in the absence of a common Unit of Account, role now held by the official currencies. The majority of the economists thus agree to think that the costs of transaction in the presence of a multiplicity of private currencies would be very high. The alternative would be a minority circulation of private currencies, the official currency being used as common reference. In practice, that is far from different from the existence of very liquid financial markets such as they developed since the Années 1980.

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