A currency whose value is guaranteed by a direct correspondence with a product or service (e.g. the gold standard for 19th century U.S. dollars, barter).

There are only 3 ways of designing a currency system:

• fiat (i.e. without reference to anything else);

  valued by a commodity, when its value is expressed of terms of the value of that commodity (whether or not it is redeemable in that commodity--e.g.: Bretton Woods dollar-gold equivalence standard; airline miles); or

• backed by a commodity when the currency is in fact a claim to a given quantity of that commodity (which typically requires having a stock of that commodity on hand to meet such requests).

The direct exchange of goods and services unmediated by any type of currency.

Private organization located in Basle, Switzerland, owned by the eleven key central banks in the world. Initially designed as a clearing house for transactions among central banks, it has evolved into a "neutral" meeting ground for the Central Bankers and a repository for research about issues of interest to the monetary system as a whole.

Township in New Hampshire where the "Bretton Woods Agreement" was finalized after World War II after negotiations mainly between the British and the U.S.. The system agreed upon has also been called the "dollar-gold equivalence standard", because it gave the status of official global reserve currency to the US$, on the condition that the U.S. guarantee the convertibility of dollars into gold on demand of other Central Banks. In August 1971, President Nixon unilaterally reneged on that latter clause by "closing the gold window" when France and the UK requested such redemptions. This also inaugurated the era of "floating" exchanges in which the values of each currency and of gold would be left free to be determined by market forces.

Organization which is officially in charge of managing a national currency. Some Central Banks are owned by private banks (e.g., The U.S. Federal Reserve Bank and the Deutsche Bundesbank); some owned by the government (e.g.: Banque de France, the People's Bank of China, and the Bank of England since its nationalization in the 1950s); some are mixed (e.g.: the Belgian Central Bank and the Bank of Japan). All Central Banks are responsible for the internal stability (i.e. inflation-fighting) and external stability (i.e. value compared to other national currencies) of their national currency. They have a variety of means at their disposal to achieve these aims, including intervention (buying or selling the national currency in the market in exchange for other national currencies); interest-rate fixing; or fixing reserve requirements for the private banks. All these techniques really boil down to fixing the maximum quantity of fiat currency that the private banks will be capable of issuing and at what cost.

A currency whose value is guaranteed by the physical availability of the commodity (or service, more recently) which backs the currency. The owner of a backed currency can normally ask for delivery of the physical good or service in exchange for the currency. Backed currency (e.g.: 19th century gold standard, backed by gold; Time Dollars backed by hours of community service) is issued by whoever owns the product or service accepted as backing.

There are only 3 ways of designing a currency system:

• fiat (i.e. without reference to anything else);

• valued by a commodity, when its value is expressed of terms of the value of that commodity (whether or not it is redeemable in that commodity--e.g.: Bretton Woods dollar-gold equivalence standard; airline miles); or

• backed by a commodity, when the currency is in fact a claim to a given quantity of that commodity (which typically requires to have a stock of that commodity on hand to meet such requests).

A currency is said to be valued by a commodity if its value is tied directly to the value of that commodity. For instance, under the gold bullion standard, the value of each currency was expressed in terms of the value of a fixed quantity of gold.

There are only 3 ways of designing a currency system:

• fiat (i.e. without reference to anything else);

• valued by a commodity, when its value is expressed of terms of the value of that commodity (whether or not it is redeemable in that commodity--e.g.: Bretton Woods dollar-gold equivalence standard; airline miles); or

• backed by a commodity, when the currency is in fact a claim to a given quantity of that commodity (which typically requires having a stock of that commodity on hand to meet such requests).

See Complementary Currencies and Exchange Systems page. We are accustomed to considering only our national currencies as 'real' money. However, national currencies have been designed for specific purposes only, and cannot fulfill certain social objectives (such as fostering trade and cooperation, or ecological sustainability). Some currencies already operational today or being proposed for the future are designed to fulfill such objectives, and operate best when they are used in tandem with the national currencies.

An agreement between different currencies or currency systems setting a ratio for exchanges between their units. They can be formal agreements (such as when an airline decides to make its frequent-traveler "currency" convertible with a telecommunications company's long distance phone calls) or left to an open market (such as the exchange rates obtained in the global market for most national currencies). When regulations are introduced to make a currency not convertible into another, and if people have an interest in converting it, black markets are to be expected.

Money (emphasizes the medium of exchange function of money).

A time-related charge on outstanding balances of a currency. Acts similarly to a negtive interest rate, and was designed to give a disincentive to hoard the currency. Savings would then occur in forms other than accumulation of the medium of exchange. Silvio Gesell developed the theory that money is like a public service (like public transport), and therefore a charge is justified. Both John Maynard Keynes and Irving Fisher provided theoretical foundation for this approach, and it was implemented in the "stamp scrip" of the 1930's. For a more detailed description of how demurrage charges can be applied to today's currencies, see Bernard Lietaer's "Community Currencies" article.

A negative-interest currency--like any commodity that has a significant storage cost--becomes automatically more valuable over time (a look at the price of future delivery of gold or copper in the financial pages compared to today's "spot" price shows that effect)....
There is an additional beneficial effect with regard to the environment. The higher the money rate of interest, the stronger is the pressure to discount the future and to place immediate gains ahead of long-term concerns. With negative-interest currency, this pressure is not only absent but even reversed, and more environment-friendly priorities automatically prevail.
During the economic depression of the 1930s, Europe saw a number of practical monetary experiments with negative-interest alternative currency. The device worked splendidly. The alternative currency (typically issued by a small city or region) had many times the rapidity of circulation of the official currency, and the anticipated employment and environmental benefits were actualized. In Worgl, for example, people spontaneously started replanting forests just to dispose of their negative-interest currency in anticipation of future cash flow to be expected from the growing trees.

                                 --Bernard Lietaer

                          "A 'Green' Convertible Currency"

Synonymous with devaluation: Reduction in value of one currency in terms of another currency or standard, or over time.

Calculates the value of a future cash flow in terms of an equivalent value today. For instance $100 a year from now is the same as $90.909 today if one uses a discount rate of 10%, because $ 90.909 dollars invested for 1 year at a risk-free rate of 10% will yield exactly $100. Thus interest-bearing currencies favor today's money over tomorrow's resource, while demurrage charges encourage investment in sustainable productive resources.

Currency created by fiat (Latin, "let it be made" or "let it be done") whose value is guaranteed by the authority issuing it rather than by any external reference or backing. All national currencies today are issued and managed by Central Bank fiat. Ithaca HOURS is also issued by fiat (when you join the HOURS community, you agree to accept HOURS and pay $20 U.S. and are issued two HOURS in return) and managed according to policies set at monthly HOURS community potlucks. For more information on fiat currencies, see Beyond Greed and Scarcity.

There are only 3 ways of designing a currency system:

• fiat (i.e. without reference to anything else);

• valued by a commodity, when its value is expressed of terms of the value of that commodity (whether or not it is redeemable in that commodity--e.g.: Bretton Woods dollar-gold equivalence standard; airline miles); or

• backed by a commodity, when the currency is in fact a claim to a given quantity of that commodity (which typically requires having a stock of that commodity on hand to meet such requests).

Rate fixed by an Authority at which one currency can be exchanged against another. The Bretton Woods agreement from 1945 to 1971 instituted fixed rates, which were replaced with "floating" exchange rates after the agreement was abrogated.

Rate at which one currency can be exchanged for another as determined by the free bidding and asking in the foreign exchange market. This has been the regime for most national currencies since 1972.

Economy based on the exchange of gifts. Anthropological research has shown a direct relationship between gift exchanges and community building. The word "community" itself shows this connection: cum = "together, among each other"; and munere = "to give"; Hence community, "to give among each other". See "Internet Currencies for Virtual Communities" by Bernard Lietaer for more information on how gift economies may be cultivated on the Internet.

A proposed currency which would use a fixed basket of a dozen commodities as a reference and backing of a currency designed for international trade. The cost of storage of the commodities backing would be passed along to the bearer, and functions therefore as a built-in demurrage charge. This features reverses the tendency to discount the future, and therefore realigns corporate financial interests with long-term sustainability.

Depreciation over time of the value of a currency in terms of goods and services. An excess of money supply will tend to create inflation.

Time-related income for the holder of a currency, or time-related charge for the borrower of a currency. Charging interest was prohibited by all three major religions: Judaism, Christianity and Islam. Today, only Islam enforces this rule (hence "Islamic banking", which is banking where interest charges are replaced with other types of fees). Interest is one of the key ingredients in the Discounted Cash Flow, which provokes discounting of the future.

International organization based in Washington D.C., which administers the Bretton Woods Agreement. The U.S. is the only country with veto power over IMF decisions.

Means that if I owe someone something, and I offer to pay her with this currency; if she refuses the currency I can declare my debt void and have the courts support me (particularly important in tax payments, and in all other legal settlements).

Refers to loans in small amounts to small-scale entrepreneurs. The Grameen Bank in Bangladesh has been a model of success in such activities.

"Healthy economies depend on the vitality of small communities, just as healthy lungs depend on the vigor of tiny air sacs which form them.

Dollars will thus be strengthened when backed by energetic local currency communities, rather than by the depletion of natural resources and social decay."

                          --Paul Glover, creator of Ithaca HOURS

Synonymous with currency. Our definition is: an agreement within a community to use something as a medium of exchange.

A system in which the currency necessary to mediate a transaction is created at the time of the transaction as a corresponding credit and debit in the balances of the two parties. These systems (LETS and Time Dollars, and the proposed ROCS), unlike fiat currencies, do not require any centralized money supply management.

"... I--who with others 'coined' the LETSystem word to express the ideas of consent, collaboration, invitation, possibility--regret the extent to which others restrict their understanding to the local. Certainly, local is good, local is essential, and local will happen--but let's not lose sight of the bigger pictures....

I don't just care about local people - I also care about my childrens' childrens' children (none yet born), and about trees, who don't seem to give a damn about me, and about international and inter-community harmony. I care about the weather.

The essence of a LETSystem is that it tends to generate positive social behaviours amongst its users. It makes it possible for us to deal equitably with all sorts of people. In my own little world and system, there are plenty of people that I don't 'care' about, nor want to care about. I wouldn't trust them for a second in a situation where they might rip me off--and I don't have to.

You don't have to care -- it is only necessary that we act as though we do, and that's the behaviour that a mutual credit system develops in its users. So act now, then you will be able to care as much as you choose, later, if you like. "

                                 --Michael Linton

Systems with negotiated exchange rates, as opposed to fixed exchange rates (as were attempted in the former Soviet Union, and more successfully in small Time Dollars communities) under which the value of the currency is negotiated as part of the transaction itself. Currently under floating exchange rates, all national currencies have negotiated exchange rates among each other. Similarly, with ROCS the value of the HOUR is negotiated at the moment of a transaction: a dentist may charge 5 ROCS hours for each hour of work for example.

Procedure by which the transfer of a currency is executed from one person to another. (Also see our payment methods directory.)

A currency that is capable of withstanding external shocks (such as acute inflation or the global system going into meltdown) as well as internal management errors (which include particularly the oldest hurdle in money management: overissuing of the currency leading to devaluation).

Private currency usually initially issued in the form of a paper IOU (I Owe You) note by a corporation or an individual. For instance, frequent traveler miles are evolving to become a corporate scrip issued by airlines.

Money can be used as store of value, i.e. a way to accumulate value until one wants to use it. Historically, there have been many cases where money was *not* a store of value (e.g.: before the Industrial Age, the main storage of value was land, land improvements, and livestock; and today people store value in stocks in companies investing in assets that keep (or increase in) value over time, such as forests, etc.). There is a social cost in using currency as store of value, because when currency is stored it is unavailable for transactions by other people. Demurrage is a way of encouraging people to use the currency not as a store of value but only as a medium of exchange.

One of the functions of of money in many (but not all) money systems: the unit by which value is accounted and thus compared. For instance: if pears are at $3 per pound, while apples are at $2 per pound, the common unit, in this case the $, allows an easy comparison of the prices or values of the two items. Within an individual money system, the unit of account may or may not be relevant: WIR, for example, uses the Swiss Franc as unit of account, but WIR as means of payment; while Time Dollars, by contrast, are both measured and exchanged as hours of service.

A currency is said to be valued by a commodity if its value is tied directly to the value of that commodity. For instance, under the gold bullion standard, the value of each currency was expressed in terms of the value of a fixed quantity of gold.

There are only 3 ways of designing a currency system:

• fiat (i.e. without reference to anything else);

• valued by a commodity when its value is expressed of terms of the value of that commodity;

  or

• backed by a commodity, when the currency is in fact a claim to a given quantity of that commodity (which typically requires having stock of that commodity on hand to meet such requests).

Velocity of money is a term coined by Irving Fisher in the 1930s, and refers to the speed at which a currency circulates. It can be expressed for instance as "$5 bill denominations circulate 50 times per month", which means that on the average a $5 bill would be traded 50 times per month generating a total of $250 in trades.