Choosing Mechanisms: Standard of Value
Functional Considerations
The three most important functions of money according to classical
economics are standard of value, medium of exchange and store of
value. In most of history these three functions were not played by the
same currencies. For instance, many cultures have had standards of
value different from the medium of exchange. One important unit of
value in ancient Europe used to be cattle — Homer (8th century BC)
would invariably express values in oxen. However, payments were
often made in a more practical media such as standardized bronze
ingots, gold or silver bars and later coins.
All currencies can therefore be classified in terms of the number and
kinds of functions they are designed to fulfill: Standard of Value,
Medium of Exchange, and Store of Value.
Standard of Value
The first classical function of money is to play the role as a standard of
value that enables to compare prices of the proverbial apples and
oranges. The majority of complementary currencies actually don’t
attempt at playing a role of standard of value at all, leaving the
monopoly of that function to the conventional national currency by
denominating their unit of account in terms of the conventional money.
There are of course exceptions, examples of which will be listed
below.
All currencies can be classified as follows in terms of their function as
a standard of value.
Reference to Conventional Money: Many local complementary
currencies use as unit of account conventional national currency. Most
systems use logically the currency of their own country as reference,
but in case of trouble with the national currency some other country’s
can also be used.1 The former is the case for instance for most LETS-
type systems (e.g. “Green dollars” in Canada or Australia, or
“bobbins” in Manchester), and also for the majority of the systems
where local businesses participate. Examples of the latter include the
dollar being used in South America, or the Euro in ex-Yugoslavia.
Time Denomination: Currencies denominated in time (hours,
minutes). This is the second most popular unit of account. It is of
course by nature the one used by Time Dollar systems, or by the
Japanese Fureai Kippu for instance.
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