While reading the MoneyLab Reader, I stumbled upon an article by Beat Weber, going into the contexts where Bitcoin or other complementary currencies are actually attractive in the presence of traditional (fiat)currencies:
Complementary currencies can work if they are able to:
- provide exclusive access to certain transactions (or exclusive benefits in relation to such transactions like discounts or anonymity) with respect to:
- their content,
- their location,
- their size or the transaction partners, provided there is sufficient solvent demand for such transactions.
Absent such attractions, keeping a CC in use requires measures to decouple community
members from the rest of the economy, which goes beyond the mere introduction
of a currency. But even in that case, alternative economic circuits revolving around
CCs will need official currency to pay for taxes and at least some imported commodities
from the outside world. This requirement entails difficult choices involving the
means of acquiring outside currency and managing the implications this has for the
loyalty of CC community members and the management of exchange rates with the
official currency. Because decentral entities issuing complementary currencies usually
lack powerful instruments like capital controls, legal tender laws or taxing authority,
they must either attract voluntary users with economic features that prevail in competition with official currency, or they must induce people to substitute individual economic motives by collective values enforced by peer pressure or non-economic benefits.
Of course, community members can choose to adopt complementary currencies despite
their failure to prevail in competition against competing currency networks according
to purely economic criteria. Whether such non-economic motives can prevail
over economic advantages of joining official currency networks is an empirical question
that cannot be settled once and for all. But it has to be kept in mind that enforcement
mechanisms to foster community participation can gain a repressive character
beyond a certain limit. And while social and community building effects may be
considered successful features of complementary currency projects which go beyond
economic aspects, possible disputes among network members over valuation standards,
distribution of benefits and governance issues are also part of the reality of CCs
which have to be included in any assessment.
Some CC projects are based on the hope that a different currency can stop the growth
of inequality, thought as being triggered by the accumulation of money and the alleged
tendency of money to grow through the compound interest mechanism. But such an
approach rests on the conflation of money and wealth. Wealthy people do not hoard
cash or bank accounts to a large extent. The primary form of wealth in capitalism is
business ownership and income derived from owning or managing firms, as well as
housing property and various financial assets. None of these are touched upon by
Inequality is not the result of monetary distortions of the market but
of its normal functioning, assisted by a very benign tax treatment of wealth and its private transfer among generations. This wealth is the result of profit-oriented production based on private property and free labor, organized by competition on markets. Money symbolizes, measures, stores, and transfers wealth. Manupulating or reforming money does not yield an economy based on different principles. The expectation that through reformed money, the market would turn into a neutral forum of exchange among independent, small and equal individual producers is subject to disappointments.
Source The Economic Viability of Complementary Currencies:Bound to Fail? by Beat Weber, in MoneyLab Reader
More from Beat Weber:
MoneyLab – Beat Weber – Overcoming the legitimacy crisis of money with Bitcoin? from network cultures on Vimeo.