15.2 Private currencies

Freedom to issue a currency

Any person or organisation is free to issue a private currency. The issuer need not be a commercial bank and does not require a State licence, statutory charter, or permission from the Central Bank. Individuals, companies, cooperatives, associations, investment funds, foreign organisations, and automated systems may all offer monetary instruments on whatever terms willing participants accept.

The currency might consist of transferable contractual claims, physical tokens, cryptographic units, commodity certificates, service credits, or another scarce and recognisable instrument. Its issuer may choose a fixed or variable supply, discretionary or algorithmic issuance, and centralised or distributed record keeping. VoTa does not prescribe the form that privately issued money must take.

Redemption is determined by the issuer's promise

A private currency may promise redemption in Central Bank currency, gold, commodities, securities, foreign currency, goods, or services. Redemption may occur on demand, after notice, on a maturity date, in proportion to available assets, or only when specified conditions are satisfied. The issuer may instead offer a non-redeemable currency whose value depends entirely on scarcity, usefulness, and voluntary acceptance.

No particular redemption design is required. A fixed-rate promise, a floating asset value, and an instrument with no redemption promise are all legitimate when described honestly. A contractual promise by a private issuer is not an official peg and does not bind the constitutional Central Bank. If an issuer promises more than it can deliver, the consequences are determined by the contract and the ordinary law governing breach, fraud, property, and insolvency.

Governed only by the general rule of law

There are no currency-specific capital requirements, reserve requirements, issuance limits, portfolio restrictions, licensing rules, or State-approved business models. The same NAP-based law that applies to every person and enterprise applies to a currency issuer. It must obtain property by consent, represent material terms honestly, refrain from fraud, and perform valid contracts.

General law does not guarantee commercial success. A court may determine ownership, interpret a redemption promise, enforce a valid obligation, remedy fraud, or distribute an insolvent issuer's assets according to contractual priority. It does not preserve the market price of the currency, replace an investment loss, or convert an unsuccessful instrument into Central Bank currency.

No State insurance or rescue

The issuer and its users bear the risks they voluntarily accept. These may include loss of market value, failed redemption, illiquidity, insolvency, theft, defective software, loss of confidence, failure of collateral, or collapse of the supporting payment network. Participants must assess the issuer, code, assets, governance, accounts, and contractual protections for themselves or employ private experts and insurers to do so.

The State provides no deposit insurance, minimum price, conversion guarantee, lender-of-last-resort facility, or bailout. The Central Bank does not create currency, lend currency, acquire the private instrument, or spend public funds to protect its users. The failure of a large or widely used issuer does not make it too big to fail; size increases the importance of understanding the exposure but does not transfer its losses to people who did not accept it.

Legitimate, but not commercial money for VoTa citizens

A private instrument does not need to qualify as money in order to be legitimate. It may be a redeemable claim, investment asset, commodity certificate, service credit, cryptographic token, or unit of account. Its owners may value and transfer it under its terms even if they cannot use it as the medium of exchange for ordinary commerce.

Whether it is economically described as money depends on how and where people can use it. It may function as money in a foreign economy, an external community, or another setting in which people can lawfully accept it in commerce. Within the VoTa constitutional economy, however, citizens must use Central Bank B-accounts and R-accounts for commerce. A private instrument cannot replace that settlement and therefore does not function as the money used in commerce by VoTa citizens. For them, it will normally remain a private financial asset or contractual claim.

Austrian economists use the term fiduciary media for claims to an underlying currency that are accepted in exchange as substitutes for that currency but are not fully backed by it. A bank liability is therefore not fiduciary media merely because it is redeemable in Central Bank currency or because the bank holds less currency than the face value of its claims. The claim must also circulate as a medium of exchange. An ordinary loan, bond, investment balance, or other IOU is not fiduciary media merely because it creates an obligation to pay currency later.

Lawful fiduciary media cannot exist within commerce between VoTa citizens. The Constitution requires citizens to use Central Bank currency through B-accounts and R-accounts, so a private claim cannot lawfully circulate as a substitute payment medium. Banks may still issue callable claims, investment balances, bonds, and other IOUs, but these remain financial assets rather than transaction money. Fiduciary media could exist outside the VoTa constitutional economy, or through unlawful evasion of its commerce rules, but not as part of lawful domestic commerce between citizens.

The instrument must remain clearly distinguishable from Central Bank currency. An issuer may not falsely claim that its units are Central Bank balances, carry a State guarantee, or possess constitutional properties they do not have. A redeemable token is a claim against its issuer; a non-redeemable token may have no debtor at all. Neither becomes Central Bank currency merely because its issuer calls it a currency.

This substantially limits the usefulness of private currency in ordinary domestic commerce between citizens. It may still be held as savings or an investment, traded against other currencies, used as a unit of account, represent a claim within a fund, support transactions outside the scope of the constitutional commerce rules, or be used by people who are not bound by the citizenship contract, subject to the rules applying when they transact with compliant citizens and businesses.

Citizens cannot evade consumption tax by describing a sale as barter, settling an invoice in private tokens, exchanging reciprocal gifts, or placing a private-currency transfer beside an artificially small Central Bank payment. Where an exchange constitutes commerce for which B-accounts and R-accounts are required, its proper commercial value must be processed through the Central Bank Payment System under the constitutional tax rules. The detailed valuation and boundary rules must be general and currency-neutral so they do not privilege or prohibit a particular private currency.

Every exchange rate floats

Private currencies float against Central Bank currency and against one another. Their exchange rates can reflect supply, demand, confidence, redemption terms, asset backing, convenience, liquidity, technical reliability, and the issuer's solvency. People may trade at any mutually acceptable rate.

An issuer may contractually offer redemption at a stated rate, but the issuer alone must honour that promise from its own assets. The State does not compel others to accept the stated value or require Central Bank currency to trade at parity with the private unit. If confidence falls, the market rate may diverge from the promised redemption rate before insolvency or formal default occurs.

Private currencies may produce private credit cycles

A private currency or redeemable claim may expand purchasing power within the network that accepts it. An issuer might create units and lend them into circulation without first receiving an equal amount of Central Bank currency from savers. If recipients treat the new claims as money, they can use them to bid for assets, finance investment, or support leverage within that network.

Rapid issuance can lower lending rates expressed in the private currency, raise the prices of assets for which it is accepted, and encourage projects that depend on continued issuance and confidence. Maturity mismatch or a promise of redemption can add liquidity risk. If acceptance later declines or holders seek redemption together, credit can contract, asset prices can fall, and the issuer and its users can suffer a private boom and bust.

VoTa does not make speculation, poor investment, private monetary expansion, or private financial failure impossible. It confines their consequences. The quantity of Central Bank currency does not change; its accounts and payment system continue operating; no public institution guarantees conversion; and losses remain with the issuer, investors, creditors, and users who accepted the instrument. The constitutional currency need not be contracted or manipulated to rescue a failing private system.

Competition determines usefulness

Private currencies are not prohibited merely because they may be less safe than Central Bank currency. Nor are they protected merely because an issuer describes them as innovative. Their continued use depends on voluntary acceptance. A well-designed instrument may offer privacy, international reach, specialised contractual features, or exposure to an asset that users value. A poorly designed or dishonest one may trade at a discount, lose acceptance, or fail.

Central Bank currency has powerful advantages for lawful citizens: direct ownership without issuer default risk, a constitutionally conserved supply, free accounts, and required use in constitutional commerce. Those advantages do not make competing currencies illegitimate. They explain why a private currency must provide some additional benefit if people are to accept its additional risks and limited domestic commercial use.