There was a problem with the worth of currencies in different countries after the introduction of Bitcoin. Underdeveloped countries had the most trouble dealing with the volatility of cryptocurrencies.
However, the introduction of stablecoin started to alter the monetary situation. The stablecoin alleviated volatility, and its introduction introduced novel approaches to value maintenance in exchange currencies.
This currency was designed to supplement the quality of the original ones. The name given to these was “complementary currency.” However, we must determine what constitutes “complementary money.”
Alternate Or Complementary Currency?
Any currency other than the country’s official currency that is used in certain niches within the country is considered a supplementary currency. Complementary currencies are established by private persons, advocacy groups, or official regulatory authorities to create alternative markets for particular commodities and goods in a certain geographical region; they are not meant to replace the dominant means of trade in an economy.
Economic regulation or the fulfilment of certain socioeconomic, ecological, or political goals are the primary motivations behind the use of a supplemental currency.
There are some important things to take note of:
Understanding Complementary Currency
It is not the intention of a complementary currency is to supplant a nation’s national currency. There are drawbacks to using a complementary currency instead of a national currency, and these drawbacks vary dependent on the type of auxiliary money and the method through which it is issued. Most supplementary currencies aren’t alternative currencies because they’re focused on narrow societal purposes. BerkShares is arguably the most well-known example of a supplementary currency. Only residents of the Berkshires in Massachusetts can spend their BerkShares. Furthermore, More than 400 companies now use BerkShares, a currency created as an initiative by a charity to promote local investment and expenditure.
Examples Of Complementary Currency
Cap-and-trade schemes for controlling carbon emissions are another type of supplementary currency. Carbon credits, which can be purchased from the European government to legally release carbon by businesses, are one such example. There is now a thriving market for the trading of unused credit between businesses. As a result, carbon credits have emerged as a parallel financial system. For corporations to cut their carbon pollution by government objectives, the value of this currency must be determined by regulators.
Time and skill set complementary currencies can formalize a barter system or channel community efforts toward areas of high need. Japan is the birthplace of unique alternative money called Fureai Kippu. About the same meaning as “coupon for a friendly connection” may be found in the Japanese phrase “Fureai Kippu.” To incentivize participants to assist seniors, a digital currency is given to them for their time. The participant stores their credit in an electronic registry until they need medical attention themselves. Originally implemented in 1995, the Fureai Kippu system is a response to the older population in Japan.
However, the Fureai Kippu system has expanded to other nations in Asia with an older population and is now accepted by hundreds of organizations.
Is Bitcoin a Complementary Currency?
Bitcoin probably does not qualify as either complementary money or an alternative currency, even though these terms are commonly used simultaneously. Bitcoin can be converted into national currencies, but its value is unrelated to fiscal and monetary policy decisions made by governments. Because of its design, Bitcoin can operate in decentralized markets. Because of this, Bitcoin has become a great substitute currency, while its legitimacy as a supplemental currency remains under dispute.
The now-defunct Silk Route was infamous for allowing users to buy and sell prohibited substances and compounds, and this was made possible via Bitcoin. It has supported both child porn and independent journalism.
Importantly, it is not aimed at achieving anything in particular beyond serving as a decentralized currency. As a result, Bitcoin is no longer an alternative currency in the broadest sense. As it has been used to further a variety of goals in the actual world, its ideological value, if any, has faded.
Central bank digital currencies (CBDCs) now have a chance to establish themselves as legitimate forms of supplementary currencies thanks to the ongoing conversations about crypto’s broader applicability. However, many modern senses that they could help supplement currencies were created with a specific goal in mind, including bolstering the financial system.
Most alternative currencies are designed to do more than one thing or address more than one problem. Its consumers modify their spending habits and help communities that lack access to financial resources. Among partnership, micro/small/medium entrepreneurship development, facilitating the domestic market, lowering necessity monetary unit, and community outreach, 94% of participants in a poll of 150 complementary currencies said: “all motives” were chosen in 2006. This was reported in the 2006 Financial Statement of the Global Dataset of Complementary Currencies.
Objective And Aims
Advantages and Disadvantages
Advantages
Some alternative currencies purposefully depreciate rapidly to stimulate the economy. The adoption of a domestic currency termed Freigeld demonstrated the possibility of this high spending during the Wonder of Wörgl. Another perk of using a local currency is that its holders are unable to spend their wealth outside of the country.
Reportedly, the use of alternative currencies helps to stabilize regional businesses. They become more active when the regional economy slows down and less active when it speeds up. A complementary currency can be used as a result of an economic transaction within a firm, as contrasted to a geographic social lubricant, to allow businesses to sell their normally undervalued or useless spare capacity in return for the supplementary currency in a favored source marketplace.
By monetizing their excess capacity, businesses can increase their bottom line, strengthen their financial position, increase their cash flow, attract new clients, and expand their market share, among other benefits.
Disadvantages
When presented as a “local currency” that can’t be used anywhere else, complementary currencies serve a very narrow purpose.
Professor Nikolaus Läufer theorized that the usage of currency values like Freigeld could only enhance economic growth briefly. An economy’s stability can be threatened by the prolonged usage of a single currency. As the total amount of currency in circulation shrinks, its speed of circulation increases.
Frequently Asked Questions
Can complementary currency be used to buy real goods?
A supplementary currency is set up by individual citizens, activist groups, or official regulatory authorities to create parallel marketplaces for certain services and commodities or within a particular region.
Are complimentary coins necessary?
All currencies have the same basic aims. It increases the demand for goods, boosting economic activity. It helps consumers store money for long-term requirements.
Conclusion
The emergence of complementary currency ushered in a time to make an exchange at any time with any existing digital currency, but we need to understand the fact that complementary currency is not like real currencies such as fiat money or cryptocurrencies.