What Is a Private Currency?
Private currencies are units of value issued by a private organization (such as a corporation or nonprofit enterprise) to act as an alternative to a national or fiat currency, which would otherwise be the standard unit of value in a country. As a result, these currencies are not legal tender.
Key Takeaways
- Private currency is a means of value and exchange issued and maintained by a private entity such as a corporation, often for the benefit of members of that entity.
- Company towns were once a common locale for private currency issued as scrip by the employer to be used to purchase necessities and other goods from company stores.
- Private currencies are not legal tender and may be illegal in some jurisdictions; however, the advent of cryptocurrencies may spark a renaissance in digital private currencies.
Understanding Private Currencies
Company scrip was a common form of private currency issued to employees by their employer, which could only be exchanged in company stores owned by the employer. This was more common in the 19th century in the U.S. and Europe as the industrial revolution created mining towns far away from other forms of economic activity.
Private currencies have been used in the United States since the mid-1800s and are still used today in some localities. Although issuing private currency is restricted by law in many countries, there are still estimated to be thousands of private currencies circulating in dozens of countries worldwide.
Many private currencies struggle to survive for more than a few years due to being relatively illiquid, narrowing the range of choice for businesses and consumers, suffering from a trust deficit, and the complications of having to deal with two parallel or complementary currencies.
As a result, private currencies are often issued and backed by physical commodities, such as gold or silver. When backing a private currency with a commodity, issuers can increase the security and viability of the asset. This practice also limits the effects of inflation on the currency's value since commodities tend to move closely in line with inflation.
Special Considerations
A cryptocurrency is a decentralized digital currency that uses cryptography to safeguard user information in transactions and control the creation of additional currency units. Bitcoin issued its first token in 2009 and quickly became the best-known and largest cryptocurrency in terms of total market value. Although investing in digital currencies can be extremely risky and volatile, their use has skyrocketed.
Digital currencies still must overcome many significant technological and legal obstacles, but they are widely predicted to become more than a fad. Some economists and other experts believe that cryptocurrencies could eventually become a part of the mainstream financial system that could involve the trading of digital assets and potentially even replace some national currencies.
El Salvador became the first country in the world (in June 2021) to accept bitcoin as a legal tender.
Because blockchain-based cryptocurrencies are open-source, virtually anybody with basic programming skills and an understanding of the technical infrastructure can create and market their own private digital currency.
Private vs. Local Currency
While similar, local currencies differ from private currencies in that they are not issued by a private organization for internal use but by a community or local government to stimulate local economic activity.
For example, the Ithaca HOUR was a printed currency exchanged in Ithaca, New York, between 1991 and 2011. It allowed participating workers to earn or purchase HOURS to buy goods and services locally, but it is no longer circulating.
Launched in 2006 in the Berkshires region of Massachusetts, a local currency called BerkShares is similarly issued from branch offices in the community. It is accepted at hundreds of businesses in Berkshire County, MA.
Is Bitcoin a Private Currency?
Bitcoin is possibly the least private of the popular cryptocurrencies. Bitcoin transactions are recorded and linked through a public blockchain ledger. Amounts of transactions and their corresponding alphanumeric IDs get recorded. Wallet addresses may keep you anonymous, but not if someone discovers your wallet address and can link it to your known identity.
Is the U.S. Dollar Private Currency?
The U.S. dollar is issued by the government and controlled by a central bank, so it is not a private currency.
Is It Illegal to Create a Currency?
It is illegal to create coins or currencies with the intent to compete with the official currency of the United States. Article 1, Section 8, clause 5 of the U.S. Constitution prohibits states and, by proxy, local governments from creating and issuing their own currencies. Scrip, or vouchers and barter systems, can be created and used between agreeing parties, but there can be no attempts to circulate private currencies.
FAQs
Private currencies are units of value issued by a private organization (such as a corporation or nonprofit enterprise) to act as an alternative to a national or fiat currency, which would otherwise be the standard unit of value in a country. As a result, these currencies are not legal tender.
What is an example of a private currency? ›
These include commercial trade exchanges that use barter credits as units of exchange, private gold and silver exchanges, local paper money, computerized systems of credits and debits, and digital currencies in circulation, such as digital gold currency.
Is private currency legal in the US? ›
Private currency is not illegal. It is just not legal tender. Private currency is a value token that is issued by a private organisation.
Is bitcoin a private currency? ›
As a decentralized system, bitcoin operates without a central authority or single administrator, so that anyone can create a new bitcoin address and transact without needing any approval. This is accomplished through a specialized distributed ledger called a blockchain that records bitcoin transactions.
Is it illegal to create your own currency? ›
Under 18 U.S. § 486, it's a criminal offense to make or pass any metal coins "intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design." An offense is punishable with up to 5 years in prison, a fine, or both.
Is it legal to exchange currency privately in the US? ›
Law. The MTA provides that a person shall not engage in the business of money transmission in California unless the person is licensed or exempt from licensure under the MTA, or is an agent of a person licensed or exempt from licensure.
Which US Coin is currently illegal to own? ›
Currently, with the exception of the one sold on July 30, 2002, 1933 double eagle coins cannot be the legal possession of any member of the public, as they were never issued and hence remain the property of the United States government.
Can anyone create their own currency? ›
Because blockchain-based cryptocurrencies are open-source, virtually anybody with basic programming skills and an understanding of the technical infrastructure can create and market their own private digital currency.
Can you still pay with old money? ›
All U.S. currency remains legal tender, regardless of when it was issued.
How much does it cost to create your own currency? ›
Creating a cryptocurrency might cost anywhere between USD1,000 to USD5,000 depending on the features and built. Developers understand the need of rich features and customised build that your digital currency will need. However, you will need complete guidance while developing digital currency.
Based on our previous top 10 list of the most stable currencies, we'd like to share our view on the best ones to invest in.
- European Euro. ...
- Swiss Franc. ...
- Japanese Yen. ...
- Swedish Krona. ...
- Norwegian Krone. ...
- British Pound Sterling. Currency code – GBP. ...
- Australian Dollar. Currency code – AUD. ...
- Singapore Dollar. Currency code – SGD.
It wouldn't be historically unprecedented. In fact, it's been done many times in the past. But nothing comes free, and though printing more money would avoid higher taxes, it would also create a problem of its own: inflation. Inflation is a general increase in the prices of goods and services throughout an economy.
What happens if Bitcoin replaces the dollar? ›
Economic Implications
2. Impact on Inflation and Interest Rates: Without central control over the money supply, traditional tools like adjusting interest rates to control inflation would be ineffective. This could lead to economic instability in scenarios where monetary policy adjustments are needed.
Who is really behind Bitcoin? ›
Satoshi Nakamoto created Bitcoin in 2009. The name "Satoshi Nakamoto" is the pseudonym for the person or people who introduced the concept of Bitcoin in a 2008 paper. 1 Nakamoto remained active in the creation of Bitcoin and the blockchain until about 2010 but has not been heard from since.
How many people own 1 Bitcoin? ›
Summary: As of 2024, there are about 420 million cryptocurrency users globally. Of these, approximately 1.5 million individuals possess more than 1 Bitcoin, which is just 0.36% of all cryptocurrency users.
What are examples of private crypto currency? ›
Some of the popular private coins are Monero, Zcash, DASH and Horizon. The government has no control over transactions using private cryptocurrencies, and fears that the secrecy these coins allow could encourage money laundering or other illegal transactions.
What is an example of private wealth? ›
How private wealth management works
- Cash.
- Equities (such as private equity, home equity, and brand equity)
- Fixed-income (such as corporate bonds or treasury bonds)
- Trusts and estates.
- Alternative investments (such as real estate investing with Yieldstreet, or cryptocurrency investing with EToro)
Privacy coins are a type of cryptocurrency that uses advanced cryptographic techniques to create a type of digital money that is completely anonymous or nearly so.
What is private money vs public money? ›
In essence, public money is backed and guaranteed by state institutions, offers a high level of security and is used as an official means of payment. Private money is issued by private companies, is based on trust and is often used for electronic transactions and complements public money.
