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Jan 18th 2023

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.

  • 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.

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.