New Private Monies. Kevin Dowd

      1 IntroductionThis monograph examines contemporary private, or non-­governmental, monetary systems. At one level, mention of a private monetary system has still not lost its capacity to shock: it raises connotations of individuals printing their own banknotes and putting them into circulation, or even minting their own coins. Yet, at another level, privately issued money is familiar and commonplace, and all kinds of private money already circulate widely. Examples include gift certificates, grocery store vouchers and Chuck E. Cheese tokens. Bank deposits are another example. In fact, most of the outstanding money in circulation is privately issued. However, my focus of interest is not on these familiar, sometimes regulated and frankly boring forms of private money but rather with unregulated or loosely regulated varieties of private money that emerge spontaneously via market forces and operate outside government control: individuals printing their own currency or minting their own coins are perfect examples.Most private monetary systems consist of local paper currency or credit systems such as local economic trading systems (LETS), community mutual credit systems, time banks, local paper currency and company scrip, which was often issued as a means of payment when regular currency was unavailable, such as in remote mining towns or on long voyages.1 They also include local private bank currency, such as the clearing house loan certificates and other forms of private emergency currency issued by US banks in the period before the founding of the Federal Reserve.2 Well-known contemporary examples in the US include Potomacs, Ithaca Hours and BerkShares. Innumerable instances of these systems have been recorded over the years, and one would imagine that there must be many thousands of them operating in the US today. In fact, there are so many across the world that there is even a research journal devoted to them, the International Journal of Community Currency Research.3 A second form of private money is private coinage, which also has a long and successful – not to mention, colourful – history.4The subject of private money raises an important definitional issue: what exactly is private money? In this monograph, the term is used to refer to a widely accepted medium of exchange or payment issued by a non-governmental body in the absence of any legal privileges. The term ‘widely accepted medium of exchange’ is used rather than the more standard definition of a ‘generally accepted medium of exchange’ because no private money – apart from bank deposits which often are backed by some form of legal privilege or guarantee – can be regarded as generally accepted.This working definition also requires that the money in question is not just issued by a non-governmental body – after all, the Federal Reserve is technically a private organisation, as was the Bank of England until 1946. The money must also be issued in the absence of legal privilege or state guarantees. The latter qualifier rules out Federal Reserve currency as private money. We can therefore think of private money as generally operating on the fringes (at least) of the official monetary system, competing with official money, although some private monies have the potential to displace official money altogether.A persistent and complex theme of historical private money systems is their often uneasy relationship with the state. The state has typically had a dual role towards them. In most cases it has been a destroyer. But, in other cases, it has been a creator of sorts, or at least an unwitting midwife. On the one hand, the typical response of the state has been to stamp out private money. The usual motive was the obvious one: private monetary systems were often seen as a threat to the ability of the state to raise seignorage and an affront to the prerogatives of the state itself. On the other hand, though the state never set out to do so, it was often the state that enabled these private monetary systems by creating the circumstances that led them to emerge in the first place. The system of clearing house loan certificates mentioned earlier is a good example: this was a direct consequence of the note issue restrictions of the National Banking System legislation of the 1860s. Another example is the bills of exchange system in early nineteenth-century Lancashire: this arose to fill a gap created by the refusal of the Bank of England to service the area properly combined with the legal inability of other banks to do so (see, for example, Baxendale 2011). In these and many other cases, private money emerged to fill a market niche that the state itself had created.This monograph focuses on three contemporary (and predominantly US) cases of private monetary systems that have received a lot of recent publicity:The Liberty Dollar: this is a dollar-denominated gold- and silver-based monetary system that can function in an environment where the values of the precious metals have fluctuated greatly against the dollar.Digital Gold Currency (DGC) with the focus on the best-known such system, e-gold: these are gold-based payments systems that proved to be particularly useful for international payments.Bitcoin: this is the first successful example of the most recent form of private currency, cryptocurrency, and is path-breaking in a number of ways. It is a radical new type of currency based on the principles of strong cryptography; it has a novel production process – a form of digital ‘mining’ for want of a better description – that we have never seen before; it offers users the potential for anonymous and untraceable transactions; it runs itself and is the first ever private monetary system that is completely decentralised; it is not so much unregulated as ‘unregulatable’ and it apparently cannot be shut down. Bitcoin is truly revolutionary.

      1 The Liberty DollarThe Liberty Dollar was designed by Bernard von NotHaus, the founder of the National Organization for the Repeal of the Federal Reserve and the Internal Revenue Code (NORFED). It was launched on 1 October 1998. At its inception, von NotHaus announced that his objective was to ‘be to the Federal Reserve System what Federal Express was to the Post Office’ by providing a private voluntary barter currency as an alternative to Federal Reserve currency. The new Liberty Dollar was to be based primarily on gold and silver coinage – though strictly speaking they should be described in law as ‘medallions’5 – and its precious metallic basis was to provide protection against the inflation to which the inconvertible dollar has been prone since World War II, thanks to the Federal Reserve’s predilection for expansionist monetary policies.The Liberty Dollar consists primarily of coins in gold and silver; a second component consisted of warehouse receipts redeemable on demand in specie stored securely in an audited warehouse in Idaho; and a third component, the ‘eLibertyDollar’,