Sectoral Currency

What Is a Sectoral Currency?

A sectoral currency is a medium of exchange that only has value in a limited marketplace in terms of geography or purpose. 

Local currencies, also known as a community currency, and local exchange trading systems (LETS) are examples of sectoral currency in use. The Fureai Kippu is a well-known example of a sectoral currency in Japan, where a unit of the currency is equal to an hour of service to an elderly person.

Key Takeaways

  • Sectoral currency is a form of complementary currency that is intended only for local or community use, or in exchange for a particular product or purpose.
  • As complementary currencies, these informal monetary systems are not considered legal tender.
  • Successful examples of sectoral currencies include local money systems like Ithaca HOURS or service-based value tokens such as Fureai Kippu in Japan.
  • Another example is saber, a system of rewards to incentivize Brazilian students to receive an education.
  • Sectoral currencies are similar to alternative currencies, although the former are only aimed at a narrow market.

Understanding Sectoral Currency

Sectoral currencies are a type of complementary currency, and include regional or local currency, which only has value in specified locations within a limited geographic region. Regional currency examples include BerkShares, Ithaca HOURS, and Lewes pounds.

Most complementary and sectoral currencies do not have actual monetary value in the eyes of the government since they are not legal tender. They are instead specific to a certain area or product and are meant to stimulate economic activity in a specific community or industry sector.

Because sectoral currencies can be seen as a threat to standard currencies when the economy is struggling, governments often downplay them as experimental.

Although purchased with standard currency either indirectly or directly, loyalty program rewards and gift cards are often considered sectoral currency because they can only be redeemed in specific stores or used to purchase certain products or services, and are most often considered to be a form of scrip. Still, these serve as sectoral currencies with a limited product or scope of purpose.

One of the earliest sectoral currencies was introduced in the socialist commune of New Harmony, Indiana, in 1825. Founder Robert Owen pioneered the introduction of "time money" to pay for goods and services. One note was equal to approximately an hour of working time.

Special Considerations

Complementary currencies can be found as early as ancient Egypt when farmers were given pieces of pottery based on the number of goods they harvested and put in storage. They could then trade these pieces for other goods or services they needed. In modern times, these types of currencies are still not able to be purchased, they must be earned.

In the past, it has been hard for people to accept anything but standard currency as a way to purchase or get paid for things. However, the introduction of cryptocurrency, which is not based on any standard currency, may increase the acceptance of complementary and sectoral currencies in the future.

Real-World Examples

The Fureai Kippu is a well-known type of sectoral currency scheme. These "caring relationship tickets" support a time-dollar system used in Japan to provide healthcare to the elderly and the disabled. Individuals earn the currency by spending their time providing care to someone in need. The hours of service they accumulate can be used to pay for their own care in the future or for the care of a family member with a present need.

Another example is saber currency, proposed in Brazil by Bernard Lietaer as a way to make higher education more attainable. Elementary school children would earn sabers for attending extra lessons taught by older students, who would earn sabers by teaching the lessons. Upon graduation, these sabers could be redeemed to help pay for a college education. The program was never accepted by the government or put into practice.

What Is a Complementary Currency?

A complementary currency is a medium of exchange that is intended to be used alongside a national currency. Complementary currencies are not intended to replace formal currencies. Instead, they are intended to facilitate and incentivize transactions within a specific industry or community.

Is Bitcoin a Complementary Currency?

Although bitcoin is sometimes used alongside fiat money, it probably does not meet the definition of complementary currency. Aside from censorship resistance, bitcoin is not targeted at a specific market or region, and its value is not directly affected by government policy decisions. Although it may meet the definition of an alternative currency, it is probably not a complementary one.

What Is Fiat Money?

Fiat money is a government-issued currency that is not backed by gold, silver, or any other commodity. Since fiat money is not tied to the value of real-world goods, any value it has derives from the government that issues it.

What Are Some Examples of Complementary Currencies?

Complementary currencies are used to facilitate payments within a specific area or industry. Examples include BerkShares, which can only be used in Berkshire, Massachusetts, or Fureai Kippu, a Japanese system that incentivizes caring for the elderly.

Are Local Currencies Legal?

Local currencies, also known as community currencies, are a form of paper scrip that is only intended for use within a small geographic region or industry. These local currencies are generally legal, so long as they are not used to evade taxes or violate other laws. Even if there are no laws prohibiting community currencies, they are not legal tender and do not meet the definition of money.

Article Sources

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  1. International Monetary Fund. ”A Balance Sheet Approach to Financial Crisis,” Page 39.

  2. Virginia University. "Robert Owen and New Harmony."

  3. National Commonwealth Group. ”A Model Complementary Currency Used to Reduce Poverty & Help Build Healthy Local Economies,” Pages 27-28.

  4. International Journal of Community Currency Research. ”Japan's Fureai Kippu Time-Banking in Elderly Care: Origins, Development, Challenges and Impact,” Pages 31 and 39.

  5. Coin Telegraph. "The Saber Case: How Complementary Currencies Can Go Crypto and Change the World."

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