Policy Spotlight
The Phenomenon of Complementary Currencies

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Author: Christian Gelleri 

The Phenomenon of Complementary Currencies

In times of crisis, people often become creative in order to ensure the survival of themselves, their family, their peer-groups and their environment. Unconventional ideas, which are considered strange and weird in normal times, appear in a completely different way in times of need. When a collective creates its own currency, it tries to solve problems in a material world by definining a unit of account and medium of payment accepted by everyone within that community (Desan 2014, S. 6). Governments have often held a monopoly on the design and issue of money. In modern history, however, a private-public-partnership model has emerged in which the state defines the currency, but delegates most money creation to commercial banks (Desan 2017). Monetary policy in this framework aims to secure the value of a currency over time and foster high employment, economic growth and other goals of the state.

What motivates people to initiate complementary currencies? A common motivation is a sustained economic shock on the demand side, leading to low turnover and unemployment. A complementary currency offers the possibility of self-help by the participants buying goods from each other using a clearing unit. In this case, the complementary currency only serves to fill a gap in demand. Yet, people who create complementary currencies often have further aspirations. They dream of fair exchanges, of sustainable ways of life, and are critical of money-making for its own sake. These dreams result in very diverse complementary currencies reflecting different visions of their founders and different economic realities. The founder of American time banks, Edgar Cahn, fought for a lifetime against poverty and the deprivation of poor citizens. Cahn had the vision that, through his time bank, differences in the worth of labour could be mitigated, and thus community could be strengthened. Other visionaries in the field of complementary currencies were Margrit Kennedy and Bernard Lietaer, who dreamed of a resilient economic system without the compulsion to grow. For them, money was to serve people through tailor-made design and constant circulation (Kennedy et al. 2012).

When it comes to complementary currencies, one may first observe their variety on a spectrum between idealism and pragmatism. Communities make complementary currencies for many different reasons and according to a wide range of designs. Complementary currencies can be regarded as social innovations that respond to economic, social and environmental challenges. They must be distinguished from other parallel currencies which primarily pursue the objective of maximising profits. Those are not the object of this article.

We can distinguish between five types of complementary currencies (Kennedy et al. 2012; Gelleri 2008; Martignoni 2012; Seyfang und Longhurst 2013)

  1. mutual credit currencies,
  2. reserve-backed complementary currencies,
  3. fiat complementary currencies,
  4. digital peer-to-peer currencies, and
  5. sectoral currencies.

1. Mutual credit currencies

Mutual credit currencies are the “mother of complementary currencies.” They are created within a community without the need for an external reference or reserve currency. They are used locally in noncommercial settings, between companies or in different areas of social life. Mutual credit currencies provide access to credit and liquidity for all those who can and want to contribute to the community. Credit creation is carried out by the participants themselves, but the credit limit is set by the joint institution. The more participants take part the higher is the potential limit. It’s mutual because the limits are mostly oriented on the capacity to perform for other participants.

1.1 Noncommercial mutual credit currencies

Local exchange trade systems (LETS) and time banks focus on the informal and noncommercial sector. The idea is to connect people beyond the logic of economic markets and match their respective capacities with their demand.

Both systems generally define one working hour as the internal accounting unit. Most exchange is done using this unit to measure exchange value. In times when conventional family structures and village communities are dissolving, LETS offer an opportunity to build social networks on a reciprocal basis. Participants start with accounts set at zero and get a credit limit to “buy” services from other participants. The community defines the limit for each participant. When the limit is ten hours you can buy goods and services that are worth ten hours of work.

When Scotsman Michael Linton introduced the first LETS system in 1983 he used a simple folder in which the hours were accounted for as “minus” for the buyer and as “plus” for the seller. Each booking was personally signed by the other participant. Today software is used for this bookkeeping purpose but the principle remains the same: With a minus, I owe services to other participants with a plus. There are a few thousand LETS worldwide, each with between 10 and a few hundred members. A spectacular development took place in Argentina in 2002, when exchange rings took over the function of official money with millions of people trading within LETS (Colacelli und Blackburn 2009).

Many participants in LETS reject the designation of their system as “money”. They perceive the current monetary system as highly unfair and prefer the term “exchange” or “barter”, even though the concept of barter does not really capture the kind of exchange facilitated by LETS. In fact, credit units are being created and circulated.

Time banks set the value of the internal currency unit to one hour of work and try to motivate participants to exchange one hour for one hour. They cooperate more often than LETS with local government agencies and philanthropic foundations. There are large timebank networks in the US, as well as in Australia and the UK. Statistics in the US on timebanks show more than 2.5 million hours worked over a fifteen-year period. British timebanks have run up more than 4 million hours in the last ten years. Some participants report that they have lived completely from such noncommercial mutal credit systems not using any official money for several years.

The work exchanged through time banks includes care work for the elderly and children, assistance for people with special needs and neighbourly exchanges. In many places, time banks operate to redefine the concept of work and to strengthen social cohesion.

1.2 Commercial mutual credit currencies

Commercial mutual credit currencies are often used to “fill the economic gap” in times of deeper recessions. Usually they are called “barter systems”. Again, the term is as misleading as in the case of LETS. Sometimes commercial mutual credit currencies are also designated as counter trade exchange or credit-clearing exchange. Typically these systems have no central lending authority, which distinguishes these mutual credit currencies from credit moneys produced by banks.

Most of these systems refer to the national currency as the unit of account. Internal credit is created by the act of purchase. Each participant is accorded a purchase limit that is based on simple criteria, like the number of their employees or the expectation of future performance in the network. While the buyer incurs a liability, the seller receives a transferrable general claim which cannot be exchanged into national currency. The purchase of goods results in a minus (mostly interest-free) for the buyer and a plus for the seller. This process can be described as an act of decentralized money creation insofar as the positive balance can be used to make further purchases from other participants. Once the network reaches a critical mass, the possibilities for reusing the credit currency multiply and the system becomes more efficient. Large networks use digital platforms with trading and marketplace features that have low transaction costs — lying between the costs of debit cards and credit cards. The ongoing exchange gives the internal unit the character of money. The process of credit creation and currency circulation only comes to an end when all participants spend their positive account balances matching exactly the negative balances of the other participants.

Successful networks often work with personal intermediaries that bring supply and demand together. They operate mostly on the national level or in larger geographical areas. Examples are Bartercard in New Zealand and Australia with about 6,000 businesses and a turnover of $150 million per year, and the Sardex in Sardinia with more than 3,000 businesses and a volume of more than $50 million in 2019. A few hundred commercial mutual credit currencies exist globally. Most of them operate digitally only. Many are members of the International Reciprocal Transaction Association.

The oldest system in this field is the Swiss WIR, which is licensed to operate as a bank under Swiss law. The cooperative was founded in 1934 and is still active with many thousands of businesses participating. The currency creation of the WIR bank approaches that of a conventional central issuer. Participants borrow the internal currency from the WIR bank and circulate it within in the network. With more than 60,000 small and medium enterprises, the network reached turnovers of more than two billion Swiss francs and relevant shares of GDP in the 1990s when Switzerland was in a recession. Several studies have documented the anticyclical effect of mutual credit currencies (Stodder und Lietaer 2016).

The advantages of such systems are the synergies arising from network effects. Businesses can optimize their sales by using the possibilities of the regular market while also benefitting from secondary market of the network. Difficulties in the regular market can thus be bridged and compensated in many cases.

2. Reserve backed complementary currencies

Reserve-backed complementary currencies operate with the national currency or certain goods functioning as a reserve in order to enhance confidence in the complementary currency.

2.1 Regional currencies

Reserve-backed regional currencies are the most common form. They are emitted by local associations mainly to promote local business cycles, but also to promote further social aims.

Most initiatives begin with paper currencies set at an exchange rate of one-to-one against the national currency. Citizens buy the regional currency from the issuer and bring it into circulation by using it for purchases from local businesses that have agreed to accept the regional currency. The national currency serves as a reserve. Only businesses, not citizens, can exchange the regional currency back into the national currency. When they do so, they are charged a fee between zero and ten per cent, part of which is sometimes used for donations to local organizations. Re-exchange draws on the regional currency’s reserves. Therefore credit can only be extended up to a fraction of the reserves. Small systems often take no risks, and therefore usually hold reserves at 100%. Some regional currencies cooperate with cooperative and savings banks to use the reserve as a basis for loans to businesses.

Most regional currencies are time-limited and have maturities that are comparable to purchase vouchers. Individual regional currencies, such as the Chiemgauer, also operate with a negative interest rate, a strategy recommended for national currencies by Silvio Gesell (Gesell 1958/1916) a hundred years ago and advocated today by some economists, like Kenneth Rogoff (Rogoff 2017). The time limitation is used to keep the circulation of money high and stable. Comparisons of the speed of money circulation (“velocity”) show that regional currencies circulate at higher speed than national currencies (Gelleri 2009). Unlike national currencies, regional currencies do not function as a store of value, but only as a means of payment.

Regional currencies have shown their greatest benefits in times of deflation and depression. In 1932, a regional currency was created by the municipality of Wörgl. The city hired unemployed workers to repair streets and buildings, and paid them in the newly-created currency. Workers had the incentive to spend the currency, which was losing value because it was subject to a negative interest rate of one per cent per month. Local businesses could use the local currency to pay municipal taxes. Thus, a local business cycle was established. Nobody was interested in hoarding the local currency. Within a very short period of time, unemployment was reduced by a quarter (Broer 2013). A legal ban, however, ended the experiment, prevening its spread to other municipalities.

Today, regional currencies still face legal hurdles. The key to the success of regional currencies is often that municipalities accept and make payments in them. Those actions may, however, put a municipality at odds with state authorities. When local taxes can be paid with local money, the importance of a reserve decreases. Digital forms have evolved in addition to the paper currencies, but only few regional currencies are digital only, such as the Sarubobo Coin in Japan.

2.2 Complementary currencies backed with energy or other goods

Some regional currencies do not use the national currency as reserve, but real goods such as food baskets or raw materials. In times of high inflation in the 1920s, some local communities in Germany issued emergency currencies (German “Notgeld”), backed by cereals. In the 1930s, a proposal was drafted to cover the currency with a basket of goods and ressources. Bernard Lietaer has taken up this idea again with his proposal of the global “Terra” (Kennedy et al. 2012). Individual regional currencies also use this idea and, for example, write a specific shopping cart of regional products on the back of a paper note. Another popular idea are energy-backed currencies going back to Shann Turnbull’s idea regarding a “renewable energy dollar” in 1977. The distribution is currently very limited because it is difficult to convince businesspeople to use currencies that require their own pricing. Digitalization may overcome this hurdle.

3. Fiat complementary currencies

Fiat complementary currency are the most difficult complementary currencies to imagine. Most national currencies can be understood as fiat currencies. They gain value because they can be used to pay taxes (Grubb 2012). In addition, there is the legal requirement in most countries that tax debts can only be paid in the national currency (Desan 2017).

We can thus imagine a community issuing a complementary local currency that it accepts (in addition to the national currency) for tax payments.

The American colonies made use of “colonial scrips” since the end of the 17th century, thus providing the basis for a regional economic upswing. In the beginning, guarantees were given for redemption, but these were abandoned over time because the provinces rarely had the means to make a material guarantee, while confidence in a currency that could be used for tax redemption increased (Grubb 2012). Similarly to taxation, faith could be a strong anchor insofar as it created demand for coins that were certified by temples and could be used as a means of sacrifice (Braun 2014). For complementary fiat currencies, it is therefore most important to have a working anchor like taxes.

4. Digital Peer-to-Peer Currencies

Peer-to-Peer-Currencies are the youngest type of complementary currencies. They are a variant of fiat currencies, but with decentralized money creation and circulation. Cryptocurrencies are fiat currencies and derive their value from the participants’ trust. The model is cash passed from one person (peer) to another person (peer). No third party is needed to execute the transaction. It was a long dream of complementary currency pioneers like Michael Linton and Bernard Lietaer to implement digital peer-to-peer-currencies that would be easier to use than centrally-organized systems. Since the 1990’s, cryptographers like Whitfield Diffie and Ralph Merkle have proposed different software solutions, though none have gone into effect.

The inventor of Bitcoin drew on these ideas and proposed a technological solution based on distributed ledger and blockchain technology. Currently, cryptocurrencies are the dominant technical form for the implementation of peer-to-peer currencies. The rules are implemented in the software algorithm and they can only be changed within this design framework. Initially, only few people believed in bitcoin and 10,000 bitcoin were paid for two pizzas. Today, bitcoin is used as a store of value and is compared to “digital gold” because of the limitation on the creation of bitcoin. To the extent that this form of currency serves only to increase inequality and dependence on power structures, a purely technology-oriented debate leads to a dead end.

Peer-to-peer currencies are sometimes used to address social challenges. The point of departure for such currencies is not the technical creation of money, but a collective agreement on shared objectives and values. This agreement is then followed by the design of a currency as an instrument to achieve these objectives. In this process the community may opt for a design that allows for P2P transfers.

Currently, a few hundred cryptocurrencies with distributed ledger technologies are used to promote social purposes. A basic income, for example, could be easily implemented through a decentralized distribution option. The Mannabase project based in Virginia distributes a basic income weekly to all who register for the currency project. According to coinmarketcap, more than 660 million Manna are in circulation. However, a Manna is worth less than a thousandth of a dollar. Currently, only few business accept payment in Manna.

A lurking problem for cryptocurrencies is that the added value of the technology currently does not, in many cases, exceed the costs of technical implementation (Pinos 2019).

5. Sectoral currencies

Sectoral currencies are issue-specific currencies aiming, for example, to finance care for the elderly, environmental protection, youth work and incentive schemes. They operate in a similar manner as the systems described. Like time banks, sectoral currencies counteract individuation and forge community and social networks (Kennedy et al. 2012). They differ from LETS and time banks in their design for particular problems like education, care work or their temporary deployment in the event of a crisis.

An example is the Torekes in Ghent in Belgium. The city rewards social and environmental work with a paper voucher that can be spent in rent for a garden plot or organic food. In the Japanese “Hurei Kippu” or Austrian “Zeitpolster” system, hourly credits are earned through work for the elderly. The credits can be redeemed in old age for care work or they can be transferred to relatives for immediate use. Other schemes include bonus systems, such as a climate bonus, where customers collect bonus points and redeem them for goods and services.

In times of disasters, sectoral currencies have been used repeatedly, for example within refugee camps to organise mutual aid. The prospect of receiving valuable recognition for one’s own actions motivates people to participate. Issuers are often aid organisations, municipalities and grassroots initiatives. There are also combinations like the Banco Palmas initiative in Brazil. They sometimes cooperate with local authorities to pay subsidies to poor families on prepaid accounts. The families can spend the money in the local area with a smartphone or card.

Sectoral currencies are the specialists among complementary currencies because they often cover only a manageable sub-range, but can therefore be very effective.

The following table provides an overview over the characteristics and differences in the universe of complementary currencies:


While it is helpful to categorize complementary currencies in order to understand their commonalities, it is also clear that the borders among the different types are fluid. Successful complementary currencies take advantage of the features of different types, and constantly adapt their design to collective goals and challenges. The Chiemgauer, for example, is a reserve-backed system and is currently developing a sectoral currency to promote climate protection. The Sardex engages consumers via a bonus system and tries to activate euros for the network. Consumers make purchases with the official currency and get a bonus in Sardex. This “top-up currency” can be spent within the network without having to offer a good or service for sale like a business. The colonial scrip in the US and the example of Woergl paved the way for integrating regional currencies into state structures, thus alleviating the need for reserves.

When complementary currencies pursue social objectives, they should be supported by a tolerant legal framework and incentives. In some places, cooperation between complementary currencies and public institutions already exists as “public-commons-partnership”: timebanks are used as an instrument to promote social cohesion and are exempt in some countries from taxes. Some regional currencies are recognized by municipalities that allow payments of taxes in the local currency. Other sectoral currencies are promoted by local governments in order to help them achieve their objectives.

An important aspect of complementary currencies is their constitution. If they are to make a contribution to society, they must be participatory and democratic, so that they can contribute to raising awareness of a society’s monetary system. If the complementary currency is directly in the hands of a municipality, decisions are made within the existing democratic structures. If associations or cooperatives are chosen as the organizational, then their members set the rules of participation. Guaranteeing inclusive participation becomes more difficult when the service structures are managed by private companies, and the question arises as to how the character of social innovation can be sustained in the long term. Geographic reach also plays an important role in this context. A smaller area constrains the number of exchanges but increases the impact of individuals in the democratic decision-making process.

Complementary currencies may work successfully if the following conditions are met:

  1. Existing productive capacities are underutilized or can be further developed.
  2. A deficit exists in purchasing power.
  3. A critical mass of participation is reached and revenue exceeds transaction costs.
  4. An accommodating/non-prohibitive legal framework exists.


Complementary currencies offer the opportunity to pragmatically expand the concept of money. Money, as made by state monopoly or conceptualized as a purely competitive medium, does not exhaust the potential of monetary design for social innovation. Complementary currencies can expand our capacities. They can also prompt new forms of value creation based on social justice and sustainability. They may serve to forge financial citizenship and democratize society. Of course, to achieve these aims, complementary currencies have to be supplemented by other policies and reforms. Yet, the stakes are too high to wait for “one big solution”. With decentralized monetary forms, we can start to transform society right now.


Further Reading on Complementary Currencies

Bernard Lietaer et al: Money and Sustainability

International journal of community currencies

People Powered Money



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