The 5 Prominent Alternative Methods of Currency Exchange
The use of the term ‘currency’ is commonly known as an exchange of ‘fiat currencies’, which are domestic currencies of each country. For example, the US$, EU€, and UK£ are some of the most common ‘fiats’ out there. However, the purpose of this blog is to move away from the above-mentioned definition and look at situations where the use of the word ‘currency’ does not always apply to ‘fiat currencies’.
You have probably already heard of cryptocurrency, which is one example, while in some parts of the world where tribes and cultures do not use ‘money as currency’, they have their own ‘accepted currency’ which could be timber, food, fur, and on so on.
Adding to this, when we hear the words ‘currency exchange’, most people instantly assume we are talking about ‘foreign currency exchange’. It is our common perception of the definition of a word makes the topic/title of this blog not only an interesting one but also one that is difficult one to tackle.
That being said, we are going to step outside of our usual comfort zone and move away from the common topic of currency-to-currency exchange and look at alternative currency exchange methods!
What Are the Alternatives to Using Money?
Now before we get down to the ins and outs of alternative methods of currency exchange, you may also be interested in our blog ‘What are the alternatives to using money?’. This blog is slightly different from the topic we are about to cover. In the alternatives to using money blog, we give you everyday options that you can use instead of money while this blog looks at the bigger picture while we also try to include real-life examples where you can use the concept we outline in your own life.
What is the definition of ‘currency’?
To begin with, let’s take a look at the actual definition of the word ‘currency’. It is important to understand that the word currency may often refer to ‘money’, but there are also deeper definitions of this word, and below we briefly bring these alternative definitions to the surface.
Oxford Dictionary: “The system of money that a country uses”. Arguably this definition is not strictly accurate or true for all people within every country. In our opinion, the use of the word ‘money’ comes under scrutiny. In essence, when we use something in an exchange deal, the ‘item’ of exchange is the currency. That ‘item’ is not always money so we would need to redefine the word ‘money’.
Merriam-Webster: “Circulation as a medium of exchange” or “a common article for bartering”. Now Merriam-Webster is closer to the point here. The latter definition even goes on to say that “Furs were once used as currency”. The fur being the common article for battering.
Cambridge Dictionary: “The money that is used in a particular country at a particular time”. Like the Oxford dictionary, the Cambridge dictionary is still fixated on ‘currency’ being ‘money’. Once again, there are different cultures and past cultures that used a ‘common article for bartering’ which was not money, and so we would also have to disagree with this definition.
The real meaning of ‘currency’ is exactly how Merriam-Webster describes it as a common article for bartering. The US$ is a common currency because it is a commonly accepted article for bartering. If we look at timebanks, the currency used is ‘Time’ using the hour for an hour concept, therefore time is the commonly accepted article for bartering.
Even gold is an accepted currency. Just look at the many governments that weigh their domestic currency against their gold reserves.
So, what have we achieved in this subsection of this blog?
We hope that we have established that although the widespread school of thought and the commonly given definition of the word ‘currency’ is money such as dollars or euros, we also found a deeper meaning for the word in which an item of value can be bartered for another item of value as long as it is accepted within the community that is making these exchanges.
1. Using Time as a Currency
Timebanks use time as an accepted currency exchange. Someone will perform an hour’s work for someone else, and someone else will pay the person that did work in time. The person paying in time will have already worked for someone else to gain the ‘time’ used to pay for the work.
Here is an example of how timebanks use ‘time’ as a currency:
Tom works ‘1 hour’ on Julie’s garden and Julie pays Tom ‘1 hour’
Tom uses the ‘1 hour’ to get his car fixed by paying Gerald ‘1 hour’
Gerald pays Harry ‘1 hour’ to groom his horse
Harry pays James ‘1 hour’ to help him clean out his garage
In this example, the currency exchange is never cash or items. Effectively, this group of people are using an intangible currency that is tax-free to ‘get things done’. This is exactly how timebanks work. They organise communities of people on apps such as the free Nomos timebank app. People join a community via the app and begin to earn ‘time’ as a currency.
For instance, once Tom has earned ‘time credits’ he can begin exchanging time earned to hire other members of the timebank community to help with jobs he is not skilled at or for jobs he needs an extra pair of hands to help him complete.
To see how timebanking works, check out our blog ‘The Timebanking Definition Explained for Beginners’.
2. Commodities as a Currency
We could have just broken this section down and created our 5 alternative methods of currency exchange using various commodities such as gold, silver, rice, timber, and so on. However, we felt that would limit us in our search to crack this topic wide open.
Small Scale Commodity, Produce, and Skills Exchange
One of the oldest forms of ‘currency’ is produce. Exchanging food for food was something was common in the past especially before the concept of money came to light. Now you may hear about a concept known as Permaculture, which is remarkably similar to using produce as an exchange.
Now commodities and produce are one of the most obvious alternative forms of currency exchange. Different people all had their own skills. Some would grow vegetables, others rear animals for food or milk, and there were those great at making herbal drinks, medicines, and there were those that could hunt for both food and valuable furs.
Before money, all of these people within their community had a valuable skill. They would then trade the fruits of the labour for other foods. So, the pig farmer would trade pork for vegetables, a hunter fur for medicines, tea, and herbal drinks to point where you could pay blacksmith for his work using produce. Even today, the very same trades occur in the Middle East, in Africa, South America, Asia, and parts of Europe.
Large Scale Commodity & Produce Exchange
If we travel back in time when there was no such thing as ‘money’, but empires ruled the lands, we have to wonder how these dynasties coexisted. Many of them were at war with each other but they also knew the lands that their enemy occupied was rich in a commodity that they did not have and vice versa.
The currency exchange was usually something like silk in exchange for sand. Back in those days mining or labour costs didn’t come into the fold. It was a simple volume exchange such as 1 cart of silk for 1 cart of sand. For the silk buyer’s domestica economy, the silk is worth the labour of sending the sand, and the sand is worth the value of sending the silk.
Today, the same basic exchanges happen between countries, cities, towns, villages, and communities. This is especially true in places such as Africa where governments use commodities as their currency and exchange those commodities for other commodities their lands are lacking.
However, rather than using the 1 cart for 1 cart concept, these countries can use price indexes that peg the commodities they are trading against the US$, UK£, or Euro. For small towns and villages in places such as Asia, Africa, and South America, these communities have their own systems to value commodities.
How could this concept be applied to time banking?
Timebanking is not a wholly free of money in some cases. For example, you may work an hour and decide to spend that hour on a plumber’s services. However, you may need to replace parts of your plumbing system. The plumber cannot foot the bill for these parts, while you may not be able to afford the parts. Some kind of swap system using a common article for bartering may work.
Sometimes, the plumber can charge an additional hour for the parts without having to work those additional hours. Time is the ‘common article’ used to pay for the plumbing parts in this instance.
Countries still swap commodities as a form of trade
The currency, in this case, is the commodities being exchanged
3. BOOT Infrastructure Projects as a Form of Currency Exchange
BOOT in infrastructure means ‘Build, Operate, Own, and Transfer. What does this mean in the world of currency exchange? It’s a tough one to explain to be honest but bear with us.
Some governments do have the funds or skillsets to build necessary infrastructure such as ports, highways that connect rural areas rich in produce and commodities to land and seaports. There are also instances where a country’s coal reserves are running out.
An infrastructure company can come in, use its skillset to develop the port, road, airport, renewable energy, or whatever it is that is needed to enhance the country's ability to transport goods and trade. This exchange is governments using the skills, knowledge, and finances of large infrastructure frims in exchange for a fully developed infrastructure that the government will eventually own without having to pay for it out of the government's fiscal budget.
Here’s how it works:
Build: The infrastructure company can use the natural resources of the country’s land to build the infrastructure on behalf of the government. For instance, roads that connect to the city, an airport, or wind energy farms.
Own: The infrastructure company owns the infrastructure for a set period of time. The standard is 10 years of ownership. During that ownership period, the infrastructure company is transparent with the government and uses turnkey training projects to prepare the government for the eventual takeover.
Operate: The infrastructure company outs its experts in place and hires the local workforce to operate the infrastructure and maintain it. To make a return on the investment, toll booths will collect money from people that use the road, which is mainly businesses shipping goods by truck or lorry along the road.
Transfer: After the ‘ownership’ period is over, the infrastructure company transfers all operations over to the government. By now, all turnkey projects will mean the government is now able to fully control and profit from the infrastructure using its own citizens.
Are BOOT projects similar to timebanking?
There are not many similarities to timebanking in this form of currency exchange of skill sets and finance in exchange for infrastructure. However, if communities work together to enhance their neighborhood, the government does benefit. Community service projects funded by local government authorities and support of local authorities for fundraising could persuade timebanking communities to form groups for the purpose of ‘giving back’ to the neighborhood through community service.
In theory, someone that does not have the skills to add an extension to their house, could work on other timebanking projects to get enough hours to hire the services of builders, electricians, and plumbers to help build that extension. The value added to the house versus hours spent working on timebanking projects is usually a valuable trade-off.
4. Manufacturing or Mining as a form of currency exchange
In some communities and countries that own raw materials or produce, deals are agreed upon that allow an external company with machinery and expertise to produce, manufacture, or mine the materials to bid for the project. However, the bid is not one that involves ‘cash’ or ‘hard currency’.
The bid is one that requires payment made in the raw materials or produce. The company will then ship those raw materials or goods overseas. Now although the manufacturing firm will eventually manufacture or refine the raw materials overseas to sell for a cash profit, the original deal to acquire them uses those very raw materials as the ‘currency’ agreed upon as payment.
In other words, it is an alternative currency exchange. Expertise and machinery in exchange for raw materials in payment.
Industries these deals are common include:
Aquaponics: breeding fish for food
Animals Farming: food, milk, leather, medicinal etc…
Raw Materials: precious metals, oil, gas, asphalt, timber, and more
Commodities: coffee, tea, cocoa, and more
These types of deals can help a country, town, village, community or even a farmer that may not have the machinery to manufacture raw material or properly grow and store vegetable and so on but have plenty of natural resources or land.
There are several ways this kind of exchange can work:
Rental Exchange: In this version of events, the manufacturing firm provides its equipment and operators. The firm then manufacturers or mines the raw material and in return can ship a percentage of those materials to their operations overseas without cost.
Turnkey: The company gives its machinery away and trains the local workforce to produce it. Either the hired experts take a percentage of the materials or strike up a supply chain partnership deal to receive a steady flow of raw materials as payment for the machinery and training.
Transfer of Machinery: Sometimes the local workforce is already skilled enough to carry operations and just needs the machinery. This may be a harvester, aquaponics equipment, or something as simple as tractors. The firm supplies the machinery and as payment or rent, raw materials or produce are shipped to the company’s factories.
How could this concept be applied to time banking?
Swapping time applies to this concept. Someone could pay in ‘time credits’ for an expert to train them. For example, a farmer may want to try using technology instead of traditional methods and needs training and equipment. Or the farmer may feel aquaponics is more profitable than growing vegetables and require an expert in the field to train him or her in the art of fish cultivation.
5. Part Exchange Deals as Alternative Methods of Currency Exchange
The fifth and final example is an alternative currency exchange we can all relate to. It is when we use something we won as partial payment for goods – otherwise known as part exchange.
We often buy cars on ‘part exchange’ by trading in the old car for a new one. In this case, you and the car sale company are agreeing that the car is a common article for bartering. There are even realtors that offer part exchange deals on property while you also see part exchange deals commonly used in the machinery business whereby a machine is part-exchanged for a new one.
In the shipping business, some large shipping firms will agree to part exchange an old ship for a new one to be manufactured by the shipbuilding firms. The shipbuilding firm will make its money back from the part-exchange deal by selling the old ship as scrap metal!
Summary of Alternative Methods of Currency Exchange
Once we get past the idea of ‘money’ as ‘currency’ and start to view ‘currency’ as the agreed-upon goods as part of a trade, then we can uncover hundreds of ways currency exchange is extensively used without the exchange of money.
There are 2 main variants of alternative methods of currency exchange we covered above:
Survival: Some of these deals such as the exchange of food is an alternative method of currency exchange for survival. For example, there are hundreds of markets in Africa where people do not trade money but instead trade produce, fur, materials, and clothes.
Profit: We also saw that there are plenty of non-monetary trades out there that do not require money, but the ultimate goal later on down the line is to make money. Manufacturing and mining firms introducing their machinery in exchange for raw materials are doing so because the company will eventually turn those raw materials into goods sold for a profit.
How we can apply the concepts in this blog to our everyday lives will take a little imagination, time, and effort. It is certainly difficult to live in a cashless society, but we can try by using examples here and modifying them so later on down the line, there is no need for money or the use of money is limited.