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This article is written by Meera Patel, from Maharaja Sayajirao University, School of Law, Vadodara. This article explains the pros and cons of using private currency during the COVID-19 pandemic.


The ongoing coronavirus pandemic has set off a major line of problems but one of the most triggering problems of them all is the financial back scaling of global economic progress. Hegemonic countries like the US are facing a major economic crisis which could lead to the redefinition of the global monetary system.

The world is facing the broken supply chains, piles of bankrupt companies, unemployment issues, etc. 

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Even before this pandemic hit us, the intellectuals around the world have been insisting upon monetary reform in the financial systems. The free market principles are juggling with two different ideas for reform. 

One such reform idea leads us to return to the gold standards and the other one revolves around the idea of private currency competition in the free market.  

The latter idea advocates a much stronger and logical case for itself as it is a more achievable goal out of the two. The private currency can help us develop a better development of supreme monetary standards as well as an excellent base for the practical implementation of a monetary system.

What is a private currency

Private currency is simple units of value which are usually issued by private institutions and organizations ranging from nonprofit enterprises and corporations. In simpler words, it is an alternative to the government-issued currency that is not affiliated to any other commodity which also includes gold or silver. 

In conclusion, these currencies are not exactly the standard country currency or hold any unit of value in a country therefore making it an illegal mode to settle any legal or public financial debt.


The concept of the use of money has evolved excluding the centralized issuance of money as people sought better and effective ways to facilitate money exchange amongst each other.

The whole concept of private currency allows independent bodies to develop private currencies under their discretion. In simpler words, the government will not be the only body that will be allowed to issue money. 

Back then, gold and silver were the most resourceful commodity used for exchange even though the transportation of these metals was altogether another risky task. The system of issuing certificates for the redemption of the metals took the wheels of the ongoing monetary experiment but it failed because of all the scams and increment of unauthorized certificates without exchanging any metals.

Therefore, due to backed up certificates and debt, the lack of alternative solutions for the increasing financial problems, the government claimed the reins of issuing the centrally administered money.

In the US, since 1820, various private transportation individual merchants, companies, and working-class people issued their small denomination currencies. This went on till 1875 till the government treasury decided to mint its three-cent coin so that the small denomination problems could be uplifted.

Other than that, in the US, the system of free banking went on from 1837 till 1866. During these years, almost anyone was able to issue paper currencies in the countries. Almost all the states, private banks, stores, restaurants, etc had a private currency of their own by 1860. More than 8000 different types of cryptocurrencies were printed till then.

Similarly, people from Australia too started issuing private money until 1788 before the practice was shut down by the government in 1910.

Another example includes the fact that even though the government of Hong Kong holds the monopoly of issuing the currencies around the city island, the private currency is a rather famous and more wanted medium of exchange.

Irrespective of the above-stated examples, there are various countries where the issuance of private paper-based currencies is a criminal act. For example, The US does not allow its citizens to issue private paper currency which is stated in the 18 U.S Code and 486 of their Constitution. 

Today, there are more than four thousand private currencies that are issued in the above 35 countries. This system inculcates the practice of commercial trade exchange in the context of the barter system and credit units, private gold and silver exchange, digital credit and debit system, digital currencies, digital gold currencies.

Who needs private currency

Below listed are the various businesses/organizations who use private currencies:

  • State bank
  • Banks established by the federal charter
  • Transportation suppliers 
  • Railroad companies
  • Coal mining companies
  • Lumber companies
  • Merchants 
  • Farmers 

Reasons for using the private currency 

The above-stated examples of various social groups, who use private money, started to use private money because their needs were not fulfilled by the government provided money. The purpose behind using these currencies was to make small purchases, generate an accessible medium that can be accessed in remote areas, and always have a financial backup during economic crises.

Private currencies were used in the US in the mid-1800s and it is used in various locales even today. 

Although issuance and usage of private currencies have been banned in various countries including India, thousands of such currencies are being circulated in various countries globally.

For example: even though the Hong Kong government issues its own minted currency, the currency issued by the bank is the dominant of both and overall the ATMs dispense private currencies. Similarly, in the UK, various local currencies are circulated for exchange in the form of Totnes Pound.

The private currencies always seem to struggle to survive because of the trust deficit, slimming range of business and consumer choices, and mainly because it has to compete with two parallel/ complementary currencies. 

Private currencies usually have a backbone in the form of any type of physical commodities which are usually either gold or silver. With the back up from these physical commodities, the private currency issuers can bag security and feasibility for their assets, while constricting the repercussions of the value of the currency during inflation because these commodities are usually prone to fall in the line with inflation.

Private currencies during the financial crisis

According to recent news, the National Statistical Office of India (NSO) has stated that the April to June quarter GDP contracted by 23.% for the year 2020. The overall GDP shrank to 4.5% in 2020. The above-mentioned statistics prove that India has faced one of the worst economic dips this year. 

Similarly, not just India but the whole world has gone through a major financial crunch this year due to the coronavirus outbreak. According to the Global Economic Prospect 2020 report by the World Bank, it has been stated that almost all the countries worldwide will suffer from a contraction of 3 – 8% economic loss due to the pandemic situation. 

The COVID-19 pandemic has pretty much burnt the bridge between the countries worldwide and their financial goals. 

The fiscal crisis has invoked the need for the depositors to convert their deposits into currency and due to the mass amount of depositors flooding the banks to do the same, the banks usually tend to refuse the withdrawal of cash from the bank accounts due to the lack of unliquidated cash. The suspension of withdrawal of payments usually leads to money hoarding, bank failures, shortage of cash, etc.

When financial upliftment is the need of the hour, the banks need to rethink their decision of using digital private currencies to dig their way out of the economic pressure that has been building up since the pandemic began. 

The refusal of using cash has been one of the major concerns ever since the pandemic situation accelerated while the Central Bank digital currencies have been emerging with a potential plan to end the global economic hierarchy.

The lockdown and social distancing have promoted less physical interaction which leads to the less physical use of cash because there are various serious concerns and questions if the physical form of currency exchanging can transmit the coronavirus. With the immensely huge amount of money exchanges per day can be considered a huge risk for the spread of the virus.

The need of the hour

When financial upliftment is the need of the hour, the banks need to rethink their decision of using digital private currencies to dig their way out of the economic pressure that has been building up since the pandemic began. With the tremendous development of computers and blockchain technology, the digital currency has replaced some functions of the legal tenders. 

Even with the existence of the digital currency, there is a strong need for the government to rethink their decisions that banned private digital currencies such as cryptocurrencies. The technology has the power to bring many benefits that could lead to various great financial access for millions of people, it could reduce the white-collar crimes and become a mode for a more efficient trade system.

Even though there would be various technological barriers that a country might face but the process of taking baby steps should be established as the greater picture should be the target for now.

Use of private currency in the technologically equipped world

Overseeing the advances that have taken place in the technology we use today, one of the most brilliant forms of technology comes in the size of the thinnest chip which is used in our credit cards. Because of such transaction alternatives, it was obvious that new and better alternatives would be used instead of the paper currencies and coins. The lack of cash took the expectations of the internet users to new heights where they needed some strong foundation for the emergence of electronic currency instead of cash.

Liquidated money is used for day to day transactions and their value will never be endangered but the small denomination notes created a problem as that amount wasn’t available in liquid.  

The purchases over the internet have been growing at a very high rate over the past decade where major purchases have been made using credit cards despite all the security concerns put forward by the very same customers. Another problem faced by internet shoppers is that they are teenagers and low-income households do not use credit cards therefore new methods of payments should be legalized that can ensure that the exacting forms of money continue to provide sufficient liquidity to the consumers worldwide.

Private digital currency

A cryptocurrency is a new model of a digital asset that is based on a network that runs globally across a huge number of computers. The lack of a decentralized structure helps them to exist outside of the reins of government interference and the government central authorities.

The etymology of the word cryptocurrency means that these are organized modes used to ensure a secure network.

These blockchain technologies are organized systems to ensure the integrity of any transactional data but it is believed that this technology will disrupt many industries and finance laws of the countries. 

Even though the digital cryptocurrency is sometimes considered as an asset instead of a currency for its:

  • Portability
  • Divisibility
  • Transparency 
  • Accountability 
  • Inflation resistant features

But most of the times, it faces much criticism because it may include:

  • Illegal activities.
  • Vulnerable information about organizations and infrastructure who use this technology.
  • Exchange rate inconsistency.

For example, cryptocurrency is a legal asset in the US but is an illegal currency as it isn’t a legal tender. Other than that, cryptocurrency is illegal in many other countries including India.

Private digital currency competition

There are various legal barriers on the road of establishing private digital currencies but these barriers demonstrate the idea of the potential to affect the sovereign’s monetary policies. The rationale behind the entrance of these barriers is to protect the necessary yet obligatory rates of return. While respecting monetary policies, these barriers often compete with other types of private currencies that compete with the Central Bank’s currency.

Laws related to private money

The Supreme Court passed a verdict on March 4th, 2020 which depowers the SC decision it passed in April 2018 where it prevented the RBI from providing services that favor cryptocurrencies in India. 

The Supreme Court has argued that anything that will be considered as a threat or may have a negative future impact on the financial system of India will be prohibited by the Reserve Bank of India even if the concerned activity isn’t a part of the credit system of India.

Other than that, cryptocurrency has always been a subject of concern due to its legality which is a huge mystery to the public. The cryptocurrency known as bitcoin is not considered as a legal tender in various countries including India.


Although private currency plays the role of a devil in the eyes of the Indian judiciary because that is the reason why India has banned the production and issuance of private money, it plays a major role in the economy of various countries. 

The global private currency competition is not new but the consumers and businesses may not prefer a system where many kinds of currency are circulated in the name of trade at different prices. The consumers prefer the currencies to be reliable and valued therefore this might be the reason why the government has been constantly providing back support to continue global monetary stability which will eventually give a stable currency to the world.


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