A History of Alternative Money

History of Alternative Currencies

Tyrone Friday May 2, 2014

The history of private and alternative monetary systems goes back a very long way. We certainly don't need to go back to the writings of Herodotus to find the origins of today's currency and payment tools. However, we probably should go back before the development of the world wide web to the 1990 edition of FA Hayek's "The Denationalization of Money."

Hayek is widely, but somewhat mistakenly, associated with the "currency unification" project of the euro. In fact, rather than promoting a common currency for Europe, Hayek wrote extensively on competing currencies, arguing that many different banks should issue their own money based on various policies. Competition in a free market would identify those currencies with the best features.

In his essay on denationalizing money, Hayek suggests that some banks will have a fractional reserve approach, others backing by gold, still others backing by a basket of commodities, and some being mere promises to pay. In the absence of actual experiments with many competing currencies, Hayek seemed to think it unlikely that anyone could predict which ones with which features would gain market share.

Since the early days of the Internet, many currencies and payment systems have been developed. Also, many systems have proven to be scams, meant to defraud users. Several very prominent systems have been targeted by governments, attacked, and demolished. No doubt, more government actions are contemplated now and for the near future.

If we are to understand the business of competing currencies and online exchange, we should understand the cases of digital gold currencies like e-gold, GoldMoney, Pecunix, gold Globals, and the e-Liberty Dollar. We should examine fakes and scams such as apparently fraudulent OSgold, evocash, and the strange case of e-Bullion. We should also look at WebMoney, PayPal, and BitCoin, which are each major players in online exchange. Understanding why e-gold and the Liberty Dollar were attacked in April and September 2007 by government actions is key to understanding what motivates government interventions in currency systems.

No doubt these examples are not the only possible ones to examine. We could spend time with beenz and flooz, 1MDC, and dozens of others. Perhaps a definitive history of currency experiments from 1993 to 2014 would be useful. However, from the outline above, there are a great many entries for this blog.

Let's begin with a brief overview of e-gold. In its sixteen years of operation, 1996-2012, e-gold had at one time an exponential growth curve of users, a similar growth in total transactions, and exponential growth of its total gold and silver bullion backing the currency. It is an early story of excellence in online currency. It is also an important case study in government action, with a federal investigation in December 2005 resulting in a dramatic seizure in 2007. Since that year,
e-gold founder Doug Jackson was put in the position of pleading guilty to a federal crime, was punished with house arrest, and has completed his sentence. Various new requirements have been imposed on e-gold users, and the use of the e-gold system fell dramatically. It seems that e-gold was a brilliant system, widely accepted, and thoroughly attacked by government. It seems that it has not survived.

So, what really happened?