Private currency is a currency issued by a private entity, be it an individual, a commercial business or a nonprofit enterprise. It is often contrasted with fiat currency issued by governments or central banks. In many countries, the issuance of private paper currencies is severely restricted by law.
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.
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.
In Australia, the Bank Notes Tax Act 1910 effectively shut down the circulation of private currencies by imposing a prohibitive tax on the practice. The Act was repealed by the Commonwealth Bank Act 1945, which imposed a fine for private currencies.
Now, s. 44(1) of the Australian Reserve Bank Act 1959 prohibits this practice. In 1976, Wickrema Weerasooria published an article which suggested that the issuing of bank cheques violated this section, though some 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.
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.
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.
Unsourced Many private currencies are community or local currencies, types of complementary currency.
Since 1991, residents of and around the city of Ithaca in Western New York State have been using a private currency in which participating workers either earn or purchase Ithaca Hours, which may be used to buy goods and services locally. The system has been ruled legal provided all Hours-derived revenues are reported to the IRS as income.
BerkShares is a local currency that circulates in The Berkshires region of Massachusetts. It was launched on September 29, 2006 by BerkShares Inc., with research and development assistance from the E. F. Schumacher Society. The BerkShares website lists over 370 businesses in Berkshire County that accept the currency. In 30 months, 2.2 million BerkShares have been issued from 12 branch offices of five local banks.
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), the Stroud Pound (2009) and the Bristol Pound, which also allows for electronic payments.
Austria had the Wörgl Experiment from July 1932 to September 1933.
Bavaria, Germany, has had the Chiemgauer since 2003. As of 2011 there were over 550,000 in circulation.
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.
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, 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.
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. 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, but there are over 700 digital currencies in existence.
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. In August 2013, the German Finance Ministry characterized Bitcoin as a unit of account.
In Thailand, lack of existing law leads many to believe Bitcoin is banned.
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. 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". Cruz claimed United States Private Dollars were "backed by the total net worth of the assets of its members" and had printed 6 billion dollars worth of the private currency, The backing assets were claimed to be valued at 357 billion dollars. The currency featured the slogan "In Jehovah We Trust". The Comptroller of the Currency issued an alert warning banks that checks issued by TUC were "valueless instruments" and should not be cashed. As of late October 2010, Cruz was still a fugitive, though an associate was convicted on related charges and sentenced to prison for eight years.