Function

Money is generally defined by the fact that it performs three functions.

A community currency, however, does not need to be bound by this definition and can even aim for different functions altogether. Designing a currency involves looking at these functions individually and deciding whether or not, or to what degree, it should perform each of them.

Money as a unit of account represents a standard numerical unit of measurement and, as such, enables a uniform interpretation of value and cost. Without a widely agreed upon unit of measurement, money cannot be used to settle debts between different parties and effective price systems cannot be established – both of which are key elements of market economies.

In practice, only certain community currencies operate with their own unique unit of account, since it is hard to establish these in a voluntary environment with a large enough constituency of people.

This means that many currencies stick to the national unit of account, typically with a straightforward one-to-one valuation, and only change the name of the currency unit – pound sterling, for example, functions as the unit of account for the Bristol and Brixton Pounds, among others.

The units of account of various community currencies can be seen in table 1 on page 103.

Money’s function as store of value means it can be kept for a long time without losing its purchasing power. In practice, the extent to which this is true varies: the value of most types of money does fluctuate with time, typically diminishing as result of inflation or market demand.

Complementary currencies almost never facilitate this function – with some even deliberately designed to prevent common practices such as hoarding. A popular tool for this is demurrage, which acts a sort of ‘negative interest’ rate that depreciates the value of the currency when it is not spent.

As a medium of exchange, money allows different parties to perform economic transactions beyond the limits of simple barter systems. Unlike barter, money overcomes what economists call the ‘double coincidence of wants’, which requires both parties to offer a specific good or service that the other desires.

The medium of exchange function of money enables people to conduct efficient transactions and trade with each other without this ‘double coincidence’.

The majority of community currencies seek to act as media of exchange for the users for which they are intended. This tries to remedy the problem of money becoming more scarce in times of austerity or crisis – when the national money supply shrinks or when much of it accumulates in the hands of a few at the expense of the many – even though, in many communities, the capacities to produce and contribute on the one hand, and demand and needs on the other hand, remain the same. As an alternative medium of exchange, a community currency can connect supply and demand when mainstream money is scarce.