What Is a Complementary Currency?

A complementary currency is any currency that is not a national currency but has acceptance for use in specific conditions in a nation. A complementary currency is not intended for use as the primary means of exchange in an economy; it is 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.

The goal of a complementary currency is to regulate the economy or achieve a particular social, environmental, or political purpose.

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.

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 a complementary currency is BerkShares. BerkShares are a local currency that can only be used in the Berkshire region of Massachusetts. Set up as an experiment by a nonprofit organization to encourage local spending and investment, there are now more than 400 businesses that accept BerkShares as a form of payment.

BerkShares are sometimes called a community currency, which can be considered a sub-category within complementary currencies. Community currencies are complementary currencies that are explicitly aimed at supporting a regional economy for the purposes of either regional development or larger goals, such as reducing the carbon footprint that comes with shipping goods across the country or the world.

Examples of Complementary Currencies

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

Complementary currencies can also be time- or skills-based and, in effect, formalizing a barter system or directing community efforts to areas of great need. The Fureai Kippu system is a type of complementary currency that was started in Japan. "Fureai Kippu" can be roughly translated as "ticket for a caring relationship." Participants earn an electronic currency for every hour of labor they spend helping an elderly person. Credit is then held in an online clearinghouse and can be redeemed when the participant is in need of care themselves (or passed on to someone else that needs it).

The Fureai Kippu system was first introduced in 1995 as a way of addressing Japan's aging population. Now, there are hundreds of institutions that participate in the system and accept the credits, and the Fureai Kippu system has spread to other countries in Asia where there is an aging population.

Is Bitcoin a Complementary Currency?

Although the terms complementary currency and alternative currency are often used interchangeably, Bitcoin likely does not meet the criteria for both of these terms. Although Bitcoin can be exchanged 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, such as the now-defunct Silk Road, where users could buy and sell illegal goods and substances. It has been used to finance both child pornography and journalistic freedom.

Most importantly, it has no unifying goal other than to act as 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.

However, these discussions around the broader applications of crypto have created an opportunity for central bank digital currencies (CBDCs) to position themselves as accepted forms of complementary currencies in the future.