With the U.S. dollar at a historic low and the Federal Reserve continuing to inflate, interest in alternative currencies is growing. Newcomers may think community currencies are a recent phenomenon. Actually, community currencies have a long history even here in the land of the dollar.
The 1930’s saw an explosion in the launch of local currencies. The severe deflation of the Great Depression combined with FDR’s decision to take the U.S. Dollar off the gold standard domestically (it was still redeemable for gold by foreign central banks) inspired many local communities to experiment with “scrip.”
W.H. Caslow’s “Recovery Certificates,” were one example. Launched by the newspaperman in 1933, the scrip was comprised of one dollar notes with 54 spaces on the back. Users fixed two cent stamps in a space each time the note changed hands. When all 54 spaces were full, the note could be redeemed for one dollar by Caslow’s newspaper. The eight cent surplus would cover the cost of the currency.
Caslow’s scrip caught on at first and stimulated the local Chicago economy. With U.S. dollars scarce and expensive, Recovery Certificates were “cheap money” and used widely. Caslow paid his employees in the scrip, but wouldn’t accept them himself in return for advertising. That was a warning sign.
The weakness inherent in the scrip and others like it was their lack of intrinsic value and susceptibility to inflation. Caslow’s scrip depended upon confidence the newspaper would redeem the notes for cash. With over $1 million in scrip issued, Caslow closed down his newspaper, rendering the currency worthless.
All fiat currencies face the same challenge. Users must be confident that the notes can be redeemed for something of equal value to what they traded away to obtain them. For the U.S. dollar, that means goods and services produced in the United States.
While legal tender laws mandate that U.S. dollars be accepted as payment of debts, they do not guarantee how much each dollar will buy. Therefore, as the supply of money increases relative to the supply of goods and services that can be purchased with that money, the purchasing power of the currency decreases. This is reflected in higher prices. If production falls at the same time that the currency is increased, the problem multiplies geometrically.
A second kind of money, “representative money,” attempts to mitigate this problem by making the paper currency redeemable for a hard asset, usually gold or silver. The U.S. dollar was representative money for as long as it was redeemable for one of these two.
The potential for inflation still exists if banks are allowed to hold a “fractional reserve,” meaning that they only keep a fraction of total deposits on hand. For example, a bank may issue bank notes redeemable for four tons but have only two tons of gold on hand. That means the bank is unable to honor all of its obligations to depositors. For this reason, representative money also relies on confidence. Holders must be confident that the gold is really in the bank vault.
OpenCurrency represents three values as a community currency; an intrinsic value, a currency value, and a collectible value. Unlike many paper based community currencies, OpenCurrency silver currency is convertible to the U.S. Dollar creating intrinsic value. Why does this matter? Users do not have to trust a bank. The silver is embodied in the community currency itself.
There is no way to inflate this currency, outside the ancient practice of “clipping coins,” meaning diluting the precious metal content of the coin with base metals. Today’s verification technologies make this virtually impossible on a large scale.
Any tie to gold or silver makes a currency tend to increase in value. The representative money U.S. dollar in 1912 was worth almost double what it was worth in 1800.
Being a complimentary community currency, open currency has performed even better. Since the open currency valuation model was first introduced in 1998 it has appreciated over 500%. Crafted in silver OpenCurrency is the basis for community currency that doesn’t share the central weakness of so many others failing local paper currencies.