Monetary Revolution Begins With Competing Currencies

In recent interviews, Congressman Ron Paul has been promoting the idea of legalizing competing currencies in the process of diffusing the Federal Reserve's monopoly over money.

As the Fed's strongest political critic, Paul will now be in a position as the new Chairman of the House Subcommittee on Domestic Monetary Policy to enforce more transparency and push for alternative currencies to compete with the dollar.

Already, his unprecedented measure to audit the Fed was passed in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Despite being a watered down version from the original with 300-plus cosponsors in the House, it will still accomplish more transparency of the Fed. Paul has also introduced a lesser-known piece of legislation that he says is vital to reforming monetary policy and restoring economic freedom: the Free Competition in Currency Act of 2009 (HR 4248).

The premise of this bill is that private or public monopolies are naturally destructive to freedom, especially when that monopoly can legally counterfeit the nation's currency with little oversight. Paul says during his floor statement to introduce the bill that the Federal Reserve is a "dangerous organization" that "does not allow competition because they know they can't compete."

Bill HR 4248 will essentially do three things: 1) repeal legal tender laws to remove the monopoly control of the Federal Reserve, 2) legalize private mints to issue coins to be controlled by anti-fraud and anti-counterfeit laws, and, 3) remove taxes from precious metal coins to ensure fair competition among new currencies.

Paul adds that it will provide a smooth transition away from the Fed, pointing out that "if nobody wanted to use them (competing currencies), they wouldn't have to, and everybody could be happy with the Federal Reserve. But if the situation gets so chaotic that the people are looking for an alternative, they can go over to start operating in another currency."


Obviously, coins made with precious metals will maintain, or increase, in value should the world reserve currency, the U.S. dollar, continue its decline. It is this store-of-wealth component and Constitutional obligation to pay all debts in silver or gold coinage that drives Paul's monetary philosophy. And although he prefers the private production of coinage, his proposal to de-monopolize the Fed through competition does not discriminate against paper or public alternative currencies.

Some regional paper currencies have already been in circulation for years such as Ithaca HOURS and BerkShares. According to the HOURS organization, local currencies are perfectly legal "as long as it does not look like dollars, as long as denominations are at least $1.00 value, and if it is regarded as taxable income." In other words, they are essentially tied to U.S. dollars and must be taxed the same.

Ithaca 2 HOUR Note

Ithaca HOURS, based in Ithaca, N.Y. were one of the first local currencies founded in 1991. HOURS are considered "local tender rather than legal tender, backed by real people, real labor, skills and tools" and are based on one hour of labor valued at $10. With around $100,000, or 10,000 HOURS now in circulation, they've been used for millions of dollars in trades by over 500 businesses and organizations.

The organization offers one-year, interest-free loans to local businesses. The supply of HOURS increases with these short-term loans, by issuing grants for local nonprofit organizations, a 5% annual operating/printing fee paid to a local printer, and when members sign up or renew memberships where they receive 2 - 4 HOURS for doing so. HOURS are not redeemable for dollars in banks in order to encourage local commerce.

In contrast, BerkShares, used in western Massachusetts, are directly redeemable in dollars at several participating banks. Their official website describes them as:

BerkShares are a tool for community empowerment, enabling merchants and consumers to plant the seeds for an alternative economic future for their communities. Launched in the fall of 2006, BerkShares had a robust initiation, with over one million BerkShares having been circulated in the first nine months and over 2.7 million to date. Currently, more than four hundred businesses have signed up to accept the currency. Five different banks have partnered with BerkShares, with a total of thirteen branch offices now serving as exchange stations.

BerkShares Being Printed

Anyone can purchase 100 BerkShares for $95 at partner banks. These 100 BerkShares are equal to $100 purchasing power at participating shops and restaurants. These businesses can then either spend the 100 BerkShares back in the marketplace, or convert them into $95 at the bank. Therefore, they give a 5% discount to BerkShare customers to encourage local consumption. The program is so successful that other cities like Baltimore are modeling their BNote currency after it.

Although Ron Paul specifically mentions allowing private coinage of precious metals, these regional paper currencies provide an important alternative exchange structure should the dollar collapse. It is said that these competing currencies are backed by local relationships and labor, but it seems it was their peg to the dollar that helped early skeptics trust their value. Now that the motivation for creating currency alternatives to the Federal Reserve note is rooted in the instability of the dollar, it will be interesting to see if these communities maintain faith in their value should the dollar fail in dramatic fashion.

Western Michigan is one region that has been increasingly accepting silver or gold as a competing currency for local goods and services. A man even paid for $25 of gasoline with a half-ounce silver "barter medallion" bearing Ron Paul's likeness:


Another benefit of using gold and silver as a regional competing currency is that their value is border-less, whereas a new paper-currency may have difficulty expanding trust in times of lost faith in the fiat dollar. However, the established infrastructure for alternative paper currencies may prove to be a quicker regional solution should a dollar crisis unfold rapidly.

Ultimately, the principle of competition is of utmost importance for monetary reform. The argument is that when free market principles take hold, the most stable and trustworthy alternative currencies will likely grow in scale and coverage, yet their competition will continue to keep them honest.