Complementary Currency: What It Is, How It Works, and Examples

What Is a Complementary Currency?

A complementary currency is any currency or exchange medium that is not a national currency but is accepted for use under specific conditions in a nation. A complementary currency is not intended to be used as the primary means of exchange in an economy; it is set up by private citizens, advocacy groups, or public regulatory bodies to create parallel markets for specific goods and services or within a specific geographic region.

The goal of a complementary currency is to regulate a local or regional economy or achieve a particular social, environmental, or political purpose.

Understanding Complementary Currency

Complementary currencies are not intended to replace a nation's fiat or national currency. Depending on the type of complementary currency, there are several distinct disadvantages compared to a national currency, including the fact that they may be limited in terms of usage and, depending on the issuing process, prone to volatility and inflation.

Instead of offering a true alternative currency, most complementary currencies have social or local economic goals that are limited in scope.

Examples of Complementary Currencies

One of the most famous examples of a complementary currency is BerkShares. BerkShares are a local currency that can only be used in the Berkshire region of Massachusetts. Set up as an experiment by a nonprofit organization to encourage local spending and investment, there are now more than 300 businesses that accept BerkShares as a form of payment.

BerkShares are sometimes called a community currency, which can be considered a sub-category within complementary currencies. Community currencies are complementary currencies that are explicitly aimed at supporting a local or regional economy and its goals.

Carbon Credits

While not specifically labeled or designed to be used as a currency, cap-and-trade systems for regulating carbon are similar to complementary currencies as they can have value that can be transferred. The European government, for example, issues carbon credits that companies purchase for the ability to emit carbon legally. A market has grown for selling excess credits between industries. Regulators work to set the price of this currency so that it encourages companies to reduce their carbon emissions in line with government targets.

Fureai Kippu

Complementary currencies can also be time- or skills-based and, in effect, form a barter system or direct community efforts to areas of great need. The Fureai Kippu system is a type of complementary currency started in Japan. "Fureai Kippu" can be roughly translated as "ticket for a caring relationship." Participants earn an electronic currency for every hour of labor they spend helping an older adult. Credit is then held in an online clearinghouse and can be redeemed when the participant is in need of care themselves (or passed on to someone else who needs it).

The Fureai Kippu system was first introduced in 1995 to address Japan's aging population. Now, hundreds of institutions participate in the system and accept the credits, and the system has spread to other countries in Asia with aging populations.

Is Bitcoin a Complementary Currency?

The terms complementary currency and alternative currency are often used interchangeably, but they differ somewhat in that alternative currencies are generally defined as mediums of exchange other than fiat currencies; complementary currencies are created to advance the social or economic goals of a community, group, or organization. According to some, Bitcoin, as a payment method, meets both definitions.

Bitcoin has been used to finance journalistic freedom and as a payment method in war-torn areas where traditional banking was unavailable. It is also highly used in remittances, where people work in one country and send money to family in another. Bitcoin is accepted by businesses globally, and there are even Bitcoin ATMs worldwide. It addresses social and economic needs and is recognized as a medium of exchange in nearly every country.

However, there are arguments against Bitcoin meeting the definition of either type of currency. To this side, there is no longer a unifying goal other than to act as a currency free from the influence of central banks or to hold on to it as an investment. So, to some, Bitcoin doesn't fit the definition of a complementary currency anymore, and possibly not that of an alternative currency. The belief is that even if it was part of a greater ideological goal in the past, its real-world uses have been diminished because it is used more to advance a wide range of agendas.

Whichever side of the argument you fall on, it's important to note that discussions about the broader applications of crypto have created an opportunity for central bank digital currencies (CBDCs) to position themselves as accepted forms of complementary currencies in the future.

The Bottom Line

Complementary currencies are currencies or mediums of exchange considered to be complementing the official currency of a country. They are usually designed with a social or local economic incentive in mind but do not take the place of an official government-recognized and backed currency.

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