What is a Complementary Currency?

A complementary currency is any currency which is not a national currency but has acceptance for use in specific conditions in a nation. Complementary currency is not intended for use as the primary means of exchange in an economy. Complementary currencies are set up by private citizens, advocacy groups, or public regulatory bodies to create parallel markets for specific goods and services, or within a specific geographic region, with the goal of regulating the economy or achieving a particular social, environmental, or political purpose.

Understanding Complementary Currency

Complementary currencies are not intended to replace the domestic currency of a nation. Depending on the type of complementary currency, there are several distinct disadvantages compared to a national currency, including the fact that they may be limited in terms of usage and, depending on the issuing process, prone to volatility and inflation. Instead of offering a true alternative currency, most complementary currencies have social goals that are limited in scope.

One of the most famous examples of complementary currencies is the BerkShares from the Berkshires region of Massachusetts. Set up as an experiment by a nonprofit organization to encourage local spending and investment, more than 400 business now accepts them. BerkShares have been called a community currency, which can be considered a sub-category beneath complementary currencies. These complementary currencies are explicitly aimed at supporting a regional economy, whether simply for regional development or larger goals such as reducing the carbon footprint that comes with shipping goods across the country or the world.

Key Takeaways

  • Complementary currencies are meant to work alongside domestic currency to further a particular social goal.
  • Regional currencies meant to keep spending local are a typical example of a complementary currency.
  • Cryptocurrencies are alternative currencies, but they generally aren't considered complementary currencies unless there is some social aim explicitly being fulfilled through their creation.

Other Types of Complementary Currency

Other examples of complementary currency can include cap and trade systems for regulating carbon. The European government, for example, issues carbon credits which companies purchase for the ability to emit carbon legally. A market has grown for the selling of excess credits between industries. These carbon credits, thus, become a complementary currency. Regulators work to set the price of this currency such that it encourages companies to reduce their carbon emissions in line with government targets.

Complementary currencies can also be time or skills based, formalizing a barter system or directing community efforts to areas of great need. The fureai kippu complementary currency was started in Japan to encourage people to assist seniors in their communities in return for transferable credits that can be exchanged for the time of others in the system. The fureai kippu system has spread to other parts of Asia where caring for a graying population is a serious issue.

Is Bitcoin a Complementary Currency?

Although the terms complementary currency and alternative currency are often used interchangeably, Bitcoin is one but likely not the other. The creation of bitcoin was, in part, to advance a libertarian agenda. Though bitcoin exchanges for national currencies, its value is not directly affected by government policy decisions. Its features enable bitcoin to function in markets outside the control of government authorities. This has made bitcoin an excellent alternative currency, but its status as a complementary currency is questionable.

Bitcoin has famously facilitated online marketplaces like the now-defunct Silk Road, where users could buy and sell illegal goods and substances. It has been used to finance child pornography as well as journalistic freedom. Most importantly, it has no unifying goal behind it other than providing a currency free from the influence of central banks. So, on the whole, bitcoin doesn't fit the definition of an alternative currency anymore. Even if it was part of a greater ideological goal in the past, that part has diminished through its real world use to advance a wide range of agendas.