Alternatives to cash, like Bitcoin and Uber, may never replace the coins or paper bills in our wallets, but they are creating significant social and economic impacts, and with some design adjustments, could have even greater impact.
Alternative currency is a privately developed form of money that is used as a substitute to national currency in designated areas. It is not regulated by national governments or banks.
Researchers have examined three types of alternative currencies—cryptocurrencies, timebanks, and local currencies—that are influencing today’s economy. Better technology and the increased uncertainty driven by the recent economic downturn have moved these alternative versions of money into the mainstream market.
They explain that cryptocurrencies are digital currencies that use encryption to maintain security and anonymity. Bitcoin is the most popular form of cryptocurrency, generating more than 100,000 transactions each day.
Local currencies are forms of money that can only be used in certain geographic areas or cities.
The main idea behind local or alternative currencies is to keep money circulating in the community to strengthen the local economy.
Advantages of alternatives
Alternative currencies offer several advantages over traditional money.
Firstly, they could more easily inhibit ”the hoarding effect.”
Hoarding is a problem with every currency, including dollars, People hold onto money instead of spending and investing it.
Negative interest rate methods effectively inhibit hoarding, although people who already have money may oppose them. However, because alternative currencies have fewer fixed assumptions, it may be easier and more acceptable to build in a gradual loss of value as a way to encourage people to keep the currency in circulation.
Another potential advantage is that alternative currencies facilitate social interactions, in addition to economic interactions. They cause people to interact more.
While cryptocurrencies are not as social as timebanks or local currencies, they do remove institutions, like local and national banks, from the process.
The future of alternative currencies is very hard to predict. Many of the alternatives to currencies will either improve or will be pushed out of the market.