What are complementary currencies?

The human circulatory system is designed to provide every cell with nutrients while removing unwanted wastes. It works to meet the needs of each organ and maintain the overall health of the body. In an economy, the flow of money can also be likened to a type of circulation. Following such an analogy, the nation or region could represent the body, while each individual person could be represented by a cell. However, unlike human biological transactions, under the present monetary system the flow of financial nourishment supports some areas while failing to serve others. A situation arises where society ceases to function at an optimal level as a result of its metabolic imbalances in the money realm.

Taking money for granted, we tend not to examine its more unusual attributes. One of these is the realisation that note-based currency has no intrinsic value. Instead, its value is bestowed through a shared human agreement in its worth. Modern banking first appeared in 13th century Italy, where goldsmiths would store unwieldy gold coins and issue a receipt to the depositor. In time, coins fell into disuse, while the use of receipts flourished, to later evolve into the banknotes we are familiar with today. Money made from commodities such as gold was replaced by money based on credit.

Three major world religions (Judaism, Christianity and Islam) originally prohibited usury, the collecting of interest on a loan, as it was considered a sin. In 1545, the world entered a new era when the English king Henry VIII broke with the Pope to form the Protestant religion and legalised interest for the first time. (The Catholic Church continued to oppose usury for several centuries and interest is still forbidden under Islamic codes.)

The features of modern money came together in the UK during the 18th century. Technically known as fiat money, it is legal tender that has no intrinsic value but is created by the banks as a debt that is repayable with interest. Scarcity is artificially programmed into the system and is maintained through the actions of a central bank. This maintains its value, which would be diminished if a currency were available in non-scarce quantities.

Of the elements of modern money, perhaps interest is the most deserving of further attention. Its three primary aims are to:

  • Drive the need for economic growth in order for a country not to fall behind.
  • Concentrate wealth in the hands of a rich elite through a de facto tax on much of the rest of the population.
  • Foster competition by obliging players in the current “winner-loser” game to capture other peoples’ principals in order to repay their own loans with interest.

It could be possible that usury was banned by three religions not primarily for moral reasons, but because this was one of the most effective ways of protecting cohesive societies from fragmentation and social instability.

This industrial-era money system has served us in the past, but it is increasingly at odds with today’s social and environmental realities. Moreover, since the introduction of floating (rather than fixed) exchange rates in 1971 when President Nixon disconnected the US dollar, traditionally the world’s reference currency, from its gold backing, the world of globalised finance has increasingly resembled a rollercoaster. Instability has grown in proportion to the precipitous growth of speculative trading in areas such as foreign exchange.

Complementary currencies

Replacing the existing money system with a more just and sustainable alternative is fraught with challenges. These include designing a workable model, testing its viability, building a critical mass of support, working out how to switch across from the present system and dealing with entrenched vested interests that have the most to lose from a major change.

On a more modest scale, several strategies are possible. One is to support the local economy as far as possible, in order to increase local prosperity. Going against the grain of the present globalised economy, this can involve some extra effort and research.

Another possibility involves the use of complementary currencies. These have a long history and have tended to spring up like mushrooms in tough economic times, later disappearing in periods of general prosperity. In recent years, they have been championed by Bernard Lietaer, a Belgian economist whose former jobs include central bank executive and currency trader.

Monitoring the number of complementary currencies in existence around the world, Lietaer has found that since 1980 when then they were close to zero, these currencies have thrived reaching 2,500 in recent years. Lietaer sees today’s mainstream economies as out-of-balance “yang” institutions dominated by male values such as competition. Using this analogy, cooperative, sufficient “yin” transactions using complementary currencies can be viewed as their natural counterbalance. In the money metabolism, yin currencies can address the needs of parts of society that the yang economy fails to reach.

Some benefits that can derive from the use of complementary currencies include:


  • Strengthening or rebuilding of local communities.
  • Boosting local economies.
  • Creating local employment.
  • Developing new skills and creativity.
  • Environmental benefits from buying what is produced locally
  • rather than at a distance.
  • Relieving poverty. Complementary currency can be used by those on low incomes to relieve pressure on their national currency supplies.

Perhaps most remarkable is a sense of generosity that can arise among the participants of such a currency system. Lietaer reminds us that reciprocal gift exchanges are the most fundamental common feature of communities and that the disappearance of gift-giving often marks their breakdown. Traced back to its Latin derivation, community literally means “to give among each other”.

Alternatives in action

For those who are seeking out alternatives to the dollar, barter is an obvious choice but unfortunately this type of direct exchange lacks flexibility and can only work if both prospective participants have a product or service that the other wants. Complementary currency systems are a significantly more evolved means of trading outside of the mainstream money paradigm. Below are four examples of successful models:


Standing for Local Energy Trading System, LETS was invented in 1982 by a Canadian named Michael Linton. Based on a principal known as “mutual credit”, it operates like a barter network and payments are made to other members using local currency cheques. Each transaction involves a simultaneous debit and credit and if no trading with neighbouring systems has taken place, members’ computer balances should add up to zero.

With its positive and negative balances and the encouragement to spend local dollars rather than hoard them, LETS is too dissimilar from the national currency for some people to readily grasp. By design, it is sufficient rather than scarce and units are usually easier to earn than to spend.

LETS is significant for being the most prevalent complementary currency in Australia, with around 80 systems currently in operation. It is also active in several other countries, especially the UK, Canada and New Zealand. After peaking in the 1990s, LETS has since quietened down here, perhaps due to increasing individualism and a greater focus on mainstream economy employment.

The Ithaca HOUR

In 1991, shortly after the first Gulf War, a community activist named Paul Glover was fed up with seeing money leave Ithaca, his hometown in upstate New York, to be used for questionable purposes. In response, he designed the Ithaca HOUR, an interest-free, note-based currency — the first of its kind to be issued in modern times. Ten dollars, being an hour’s generous wage, was chosen as the value of a one-HOUR note. Other denominations in the set include the half-HOUR and quarter-HOUR.

Today, the Ithaca HOUR has around 300 participating businesses. It owes its remarkable success to a regular tabloid newspaper where businesses that advertise are paid four HOURS’ worth of bills.

As the HOUR is a type of fiat money, its organisers’ primary challenge is to fulfil the function of a central bank at a microcosmic scale. Their role is to regulate the volume of notes in circulation to ensure sufficiency rather than maintain scarcity. This involves avoiding an oversupply, which would create an inflationary condition and diminish the currency’s perceived value. Plus, they have to ensure there isn’t an undersupply, which would restrict opportunities for trading to take place.

Following Glover’s example, numerous cities and towns across the US have emulated the Ithaca HOUR, with varying degrees of success. So long as a set of local notes does not resemble the national currency, it is legal in most countries (including Australia) to issue and use them. Note-based trading systems are often readily adopted by business communities, particularly where the notes are 100 per cent redeemable for the national currency.

Time dollars

Another inspiring US complementary system, the Time Dollar, was created in 1986 by a visionary called Edgar Cahn. Like LETS, it is another mutual credit system, but transactions are instead based on hours of work. It is also simple to operate and small trading networks require only a piece of paper. Encouragingly, US tax authorities have ruled that all Time Dollar transactions are tax-exempt.

The Time Dollar philosophy makes much of the notion of “reciprocity” as an alternative to the one-way transactions that occur in the mainstream economy. In neighbourhoods with Time Dollar systems, there is a better sense of community and crime rates are usually lower.

Some Time Dollar networks have been started among members of retirement homes. Typically, in such an environment an elderly person will provide services for another, less independent, elderly person. In those retirement homes where Time Dollars are used, it has been observed that the older participants are in better health. Such a system has the potential to relieve pressure on already overstretched government budgets.

A very similar initiative running in Japan is called fureai kippu, a term that literally means “caring relationship tickets”. Elderly participants have commented that they prefer the work carried out by fureai kippu helpers. Perhaps this has something to do with foregoing the mainstream economy in favour of a reciprocal community-enhancing currency.


The WIR Bank (formerly the Swiss Economic Circle) is the world’s longest-running complementary currency system, which is still very active today. It was founded in Zurich in 1934 by a couple of businessmen and involves trading between small- to medium-sized businesses.

Unlike most other complementary currencies, WIR operates at a national level and serves the whole of Switzerland. Although membership fell to a low point at the end of World War II, it has grown steadily ever since and WIR now has 62,000 members, its own bank building and six regional offices. Annual turnover is around two billion Swiss Francs (AUD$2.17 billion).

The design of WIR is an interesting hybrid that combines a mutual credit clearing system with interest-bearing loans (at very low interest), which are removed from circulation after being repaid. In some ways, it resembles the for-profit business trading network Bartercard, but with very low commissions levied on transactions.


It’s taxing to save

One ingenious solution highlighted by Lietaer is an anti-hoarding measure known as demurrage. Originally used as a type of storage or holding charge, the use of demurrage in finance derives from the theories of economist Silvio Gesell (1862-1930). He warned that the interest-based financial system would inevitably create political instability and war. Unfortunately, he was later proved correct. Gesell believed that demurrage-based “free money” was a solution.

While the payment of interest on savings serves as an incentive to hoard money, demurrage does precisely the opposite. Where the storage of money incurs a charge, there is an incentive to spend it. Historically, the use of demurrage has been associated with periods of great prosperity, coupled with a marked movement of wealth from hoarded money into tangible assets.

Payment of interest in the mainstream economy has the effect of progressively discounting the value of projected future earnings on an investment project, thereby necessitating a short-term focus that may be ecologically, and even economically, unsustainable in the long term. Technically equivalent to a negative interest rate, demurrage encourages investment in longer-term projects that would otherwise yield a mediocre return.

During the Depression, when “scrip” note-based local currencies (substitutes for currency that are not legal tender) were springing up, such a demurrage charge was levied in the form of a stamp that was required to be stuck to a scrip note, usually once a month. To avoid paying for stamps, people would spend their scrip as fast as possible and this high velocity of currency circulation generated remarkable prosperity and employment. Such a demurrage charge would probably be deducted electronically today.

Unfortunately, the scrip currencies of the early 20th century fell victim to government shortsightedness. During the 1920s, the Wara currency experiment in the German town of Schwanenkirchen was emulated by more than 2,000 German corporations, but was suppressed in 1931 by the central bank. Similar monopoly control was exerted by the central banks in Austria and the US. In 1933 President Roosevelt banned scrip currencies on the same day he announced the massive work-creation projects known as The New Deal. Political credit was gained by “saving” people from poverty through centralised initiatives, while simultaneously preventing them from saving themselves.

More encouragingly, in recent years the central bank in New Zealand has endorsed complementary currencies as a means of reducing unemployment while keeping national currency inflation under control.

Zero-interest economies

A group working on monetary issues in the US is the Centre for the Advancement of the Steady State Economy, which believes we need to adopt a zero-interest economy in order to abolish economic growth. Despite being deeply embedded in the collective psyche as accepted wisdom, economic growth has a few problems.

One is that it is mathematically impossible to maintain over an extended period. Another is that although services represent an increasing share of developed country economies, in many others economic growth is still strongly tied to resource use. But, as many people are realising, resource use is increasingly at odds with such environmental realities as climate change. Resource scarcity is a more plausible cause of future conflicts than antipathy between countries.

Although no substitute for national currencies, complementary initiatives do demonstrate that a money system does not have to be based on scarcity and competition: a differently designed currency can foster such qualities as cooperation and generosity. Launching a decentralised and autonomous trading network may be preferable to waiting for governments to relieve poverty by acting on our behalf. Without embracing complementary currencies, Lietaer believes we may be heading towards a dystopian future, where life is deprived, oppressed and full of terror. He describes his preferred vision for the world as “sustainable abundance”.




The Future of Money, Bernard Lietaer (Century, 2001) Economia, Geoff Davies (ABC Books, 2004)

Of Human Wealth: Beyond Greed and Scarcity, Bernard Lietaer and Stephen Belgin (Citerra Press, 2007)


Transaction Net

Complementary Currency Resource Centre

LETS in Australia

Ithaca HOURS

Time Dollars

Centre for the Advancement of the Steady State Economy

Martin Oliver

Martin Oliver

Martin Oliver writes for several Australian holistic publications including WellBeing on a range of topics, including environmental issues. He believes that the world is going through a major transition and he is keen to help birth a peaceful, cooperative and sustainable reality.

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