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Alternative currency refers to any type of currency used by a group of people that is different from the national or international standard. It is often used by local governments or groupings of people as a way to stimulate a moribund economy. One of the most common forms of alternative currency is mutual credit, in which two people use a credit system independent of a bank or other financial institution. The use of such currency is usually limited because it would only be accepted in the place from which it originated.
In the modern world, people use currency, such as the dollar in the United States or the Euro in Europe, to establish a standard to ease the process by which goods are bought and sold. Before such monetary systems were devised, people used simple barter systems to trade between one another. This type of simple trading system can be cited as the forerunner of all alternative currency initiatives that crop up in the modern world.
The use of alternative currency often coincides with an economy that is struggling. For example, a town with a large percentage of its population out of work might devise a system by which hours spent helping out in the town doing chores and such can be banked and used to purchase items locally. This is an example of time-based currency, which is one of the most common forms of alternative methods used by local groups.
Obviously, the drawback of such a system is that it does no good to citizens who try to expand its use outside of the boundaries of the locality that created it. Usually, the use of alternative currency dwindles as an economy improves, as people within a town or local municipality can then acquire the currency that is used on a national level. It is important to note that in most cases there is nothing illegal about creating forms of currency different from the norm, but any attempt to pass off such currency as legal tender on a bigger level would prove futile.
Many businesses offer forms of alternative currency to consumers as a way to reward loyalty. For example, a sandwich shop might give a customer a card that may be swiped each time a sandwich is bought to gain extra rewards at the shop. This card becomes a form of currency at the shop. One of the most obvious alternative methods of currency is the practice of airlines offering frequent flier miles to repeat customers, as these miles become valuable as a way of earning customers cheaper flights.