The almighty dollar has lost a bit of its power lately, as central bankers diversify to other currencies in their reserves. Here are some of the options — both
practical and absurd — to replace the greenback.
They’re not exactly the U.S. dollar. Or the Japanese yen. Or even the British pound. The global recession and the weakening U.S. dollar have brought increased attention to local currencies, virtual currencies and units of accounts that don’t quite make it as official tender. Unlike the almighty greenback, most alternative currencies have not been recognized by national or local governments as the official means of exchange.
Special Drawing Rights
It’s not exactly a currency, but a growing number of policymakers and economists say Special Drawing Rights (or SDRs) should replace the volatile U.S. dollar as the world’s main reserve currency. SDRs were developed by the International Monetary Fund in 1969. It’s neither tangible like cash nor used by everyday consumers to buy goods or services.
So what good are SDRs? As a lender to member nations, the IMF typically lends countries funds denominated in SDRs. They represent potential claims on currencies of IMF members and can be converted to whatever national currencies the borrower desires at various exchange rates developed by the IMF.
But a recent United Nations report recommends that SDRs — and not U.S. dollars — should make up the majority of the world’s reserves. Because the value of SDRs is linked to the average value of key international currencies (U.S. dollars, yen, euros and pounds), they argue that SDRs can counter the volatile highs and lows that the U.S. dollar has undergone during the past few years.
Nevertheless, many experts say this is not going to happen anytime soon. The idea would likely need backing from the majority of IMF members.
Nevertheless, depending who you ask, they have purchasing power and fulfill a niche — whether for an investor looking for a safe investment, a small baker looking to draw local customers or a jet setter in search of work space virtually anywhere in the world. Fortune takes a look at some currencies that aren’t quite currencies.
No matter how it’s viewed, the value of gold seems almost timeless. Recently, Abu Dhabi’s Emirates Palace hotel opened a vending machine that dispenses gold bars, making the United Arab Emirates the first country outside Germany to install the machine.
Despite its allure, gold as a direct means of exchange lacks the relative power and convenience of national as well as local paper currencies. For one, gold is heavy and hard to carry around. If the precious metals are stored in a U.S. bank, it’s difficult to access it if you’re on vacation in Spain. Converting gold into cash also has its hurdles.
Nevertheless, the precious metal has its appeal. Investors typically see gold as a safe investment and a hedge against inflation. Though gold prices have fallen in recent weeks, prices have risen by about 24% since last July as investors flock to the previous metal as a safe haven.
In the digital age, it seems that so-called social currencies have naturally followed social networking circles. Ven, developed in 2007 by a group called Hub Culture, is used among a global network of mostly business jet-setters (although Hub Culture says membership is not necessarily restricted to corporate executives, but also the highly mobile). Unlike most other alternative currencies, Ven’s value fluctuates depending on the values of a basket of international currencies, commodities and carbon futures. At today’s exchange rate, $1 could buy approximately 10 Ven.
The currency is not tangible. Think of Ven as almost an accounting book. Rather than the physical exchange of money between buyer and seller during a transaction, it is instead logged and recorded into a virtual account of sorts. Hub Culture’s approximately 20,000 global members buy, sell and trade through the Ven not only goods and services (ranging in everything from private jet services to a bottle of juice), but it also offers what the organization calls `knowledge’ — such as members’ skills in copywriting, media consulting and such.
More than 1.2 million units of Ven circulate the globe today. Although membership is free, it appears quite exclusive as it is by invitation only. And though it’s not required, virtually all members use one of Hub Culture’s pavilions around the globe (used as everything from workspaces to private party venues), which range from $65 to $1,000 a month.
Musician Jay-Z might be rapping about the monetary glitz of George Washington in a U.S. dollar bill, but if he was in the tiny county of Berkshire in western Massachusetts, he’d probably be paying homage to writer W.E.B. Du Bois and painter Norman Rockwell. The famous former residents are featured in BerkShares, the area’s alternative currency. It’s not nationally recognized as the official tender, but instead used in area businesses that choose to accept the colorful bills.
Here’s how BerkShares work: Go to any one of the county’s five participating banks (there are 13 branches in total). If you hand the teller $95, you’ll get back $100 worth of BerkShares — a discount intended to lure users. The currency can be used at bakeries, dentist offices and some 400 other businesses that recognize the multi-colored bills. Founded in 2006, BerkShares are based on the idea that local currencies help local economies thrive.
More than $2.5 million in BerkShares has been issued since inception, but the currency has gone through setbacks amid the economic downturn. Out of the 835,000 BerkShares printed, only 135,000 are circulating today, says Susan Witt, executive director of the nonprofit New Economics Institute, which has been behind the currency.
Since the days of the Great Depression, local currencies have been known to flourish during tough economic times, but BerkShares have become the exception.
Instead of “In God We Trust,” Ithaca Hours puts its faith in the tiny Central New York town known for being home to Cornell University. The currency, which carries the logo “In Ithaca We Trust,” was created during the 1991 recession and used among a vast network of approximately 50 locally-owned businesses that have chosen to accept Hours as payment for goods or services.
Ithaca Hours isn’t intended to replace the U.S. dollar, supporters say. It works similar to other local currencies that have developed in areas such as Ojai, Calif. and Greensboro, N.C. The idea is to give local businesses that extra edge to compete with big-box retailers, which Ithaca had for years resisted. What puts Ithaca Hours apart from others is that it also aims to encourage local employment by matching job seekers with employers within a network of about 500 members.
Here’s how it works: $10 will buy one Ithaca Hour, $20 will buy two hours, and so on. Members can then list a specific service they’d like to advertise to a network of about 500 members. So a member in search of a dog walker can hire someone from the network and pay that person in Ithaca Hours. There’s isn’t necessarily a need to buy more Hours. Those who pay for services can also offer their own services to members and earn more Ithaca Hours.
To date, there is $130,000 worth of this currency in circulation, says Stephen Burke, one of four members of the board of directors of Ithaca Hours. He added that usage of the currency has grown amid the weak job market.
“We’re trying to create employment for people,” he says.
- Protect Yourself from the Dollar’s Decline (fool.com)
- IMF urges overhaul of global monetary system (financialpost.com)
- IMF calls for dollar alternative (money.cnn.com)
- IMF should include the yuan in its Special Drawing Right (theglobeandmail.com)
- FOREX-Dollar firm in Asia; Aussie eyes cenbank testimony (reuters.com)