Will crisis give alternative currencies a chance?

A money monopoly is one of the pillars of state sovereignty. But in times of crisis, corporations snatch the initiative from national banks and print their own currencies.

In the middle of the 19th century, thousands of quasi currencies released by individual states, banks, railway companies and even shops and churches across the United States were in circulation alongside the dollar. Or take Soviet food coupons – an alternative currency too, only issued by the government.

During the Great Depression in Europe and America, companies paid salaries to their staff not dollars or pounds but in their own certificates accepted as money in shops run by those same companies. Yuri Danilov, head of the Stock Market Development Center, explores a link between crisis and alternative money.

"At certain critical moments, alternative private money issued by a pool of private financiers may be used as a full or partial substitute for the state money as it happened in Russia in the 1990s. Where there was not enough of the state money, alternative private money stepped in, like invoices, for example."

In the second half of the 20th century, Austrian liberal-minded economist Friedrich von Hayek came up with his own theory of alternative private money. He argued that a state monopoly for money printing caused more harm than good and that only competition between private currencies could guarantee financial stability. But as governments are least likely to cede a good portion of their sovereignty, so the appearance of full-blooded private currencies is highly implausible. The 2008 crisis demonstrated how weak private capital actually is in comparison to state coffers. Private companies and banks queued up for government bailouts. Vladimir Bragin, director for financial markets and macro-economy at Alfa Capital, thinks that alternative money has a right to exist, but its area of usage is quite limited.

"Companies may distribute this currency among their staff or pensioners to stimulate them to buy goods from those same companies. But who will invest in such a currency? There is no point in complicating the system for complication’s own sake."

Modern alternative companies are mostly used as consumer loyalty instruments – all sorts of certificates, coupons and invoices issued by producers and retailers and having a commodity or monetary equivalent.

But will it always be so? Will national banks be strong enough to withstand the next wave of crisis? Despite speculations surrounding theeuro, Yuri Denisov feels that the European currency and financial system are sufficiently strong and have no chance of being outweighed by alternative money. He believes the latter would do better in developing countries with weaker financial systems. As for transnational corporations, there is no need for them to print their own money at all so long as they remain active players on the political scene and have other opportunities to lobby their interests.

Source: http://goo.gl/4j4S9