What's new about bitcoin? We've long had alternative currencies

PUBLISHED : Saturday, 04 January, 2014, 1:07am
UPDATED : Saturday, 04 January, 2014, 3:40am

For all the regulatory crackdowns on bitcoin in recent weeks, the crypto-currency's advocates remain unfailingly optimistic.

Bitcoin, they say, heralds a future where private and stateless currencies will dethrone the dollar and other monetary dinosaurs.

But if you strip away its technological trappings such as the encryption and peer-to-peer networks, bitcoin in fact closely resembles earlier private currencies which circulated alongside government-sponsored money.

For centuries, rulers found it impossible to keep competing currencies out of circulation.

This was particularly true of the sorts of coins that served as small change for the lower classes of society. According to monetary historian Eric Helleiner, merchants in England issued low-denomination coins made out of copper, lead and tin from the 13th century onwards.

By the 17th century, approximately 3,000 different businesses in London alone issued "unauthorised" tokens.

The authorities turned a blind eye, largely because the crown was not able to supply such much-needed small change.

Similar conditions prevailed elsewhere. In Mexico for example, Helleiner estimates that 2,000 shopkeepers in Mexico City issued their own coins in 1766.

Private currencies got a further boost during the industrial revolution, when British factory owners became so desperate for small change to pay wages that they minted their own cash in far greater quantities and at a cheaper price than the government itself could muster. Much of this currency consisted of coins made of copper, or occasionally silver, but by the nineteenth century private paper currencies also became common.

In Tokugawa, Japan, for example, local lords issued their own paper notes, with 1,694 different kinds of currency in circulation by the 1860s.

Likewise in the United States, state-chartered corporations, mostly banks, issued a diversity of so-called "bank notes".

By the eve of the American civil war, at least 10,000 different kinds of notes competed with the coins issued by the US Mint.

In most nations, foreign coins often circulated alongside official coins, sometimes supplanting them. The most famous of these interlopers, the Spanish peso or silver piece of eight, was the de facto currency in America.

Over the 19th century, nationalist politicians in a number of countries came to view the private and foreign currencies circulating inside their borders as impediments to the creation of unified nations and national markets. Reformers pushed for standardisation and control over small change in order to reduce transaction costs. In Britain, the government seized control over the currency from issuers of private tokens as early as 1812, ramping up production of standardised copper coins while banning private tokens.

During the American civil war, far more sweeping monetary legislation put an end of the era of private paper money, which was taxed out of existence by 1866, replaced by uniform fiat currency known as greenbacks.

The creation of central banks gave nation-states even further control over their currency. Even the design of the nation's money, argues Helleiner, came to be seen as a means of instilling allegiance to the state, with nationalist imagery becoming commonplace on currency at this time.