Standard of Value
= one of the 3 classic Functions of Money
Introduction
Bernard Lietaer:
"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.
Typology
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 LETStype 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.
* Physical Unit Denomination:
Currencies denominated in some physical unit, such as is the case for the best known commercial loyalty currency: the Airline Mile system, where the unit of account is a flight of the distance of one mile. Among other contemporary examples let us mention some Japanese models: the WAT (whose unit is equivalent to the value of 1 kWh of electrical current generated by citizens’ cooperatives through renewable energies such as wind, water, sun); the gram of charcoal used as bio-regional unit in Osaka or the crop denominated currencies of the “leaf” unit in Yokohama or Kobe. Historically, the Wara currency in Germany in the 1920s and early 1930s was similarly denominated in kg of coal."
Discussion
On the relative advantage of each type:
"Comparisons of Different Standards of Value
The currencies referring to the conventional national currencies have familiarity as their main advantage. They also avoid forcing shops and businesses to deal with multiple pricing systems – one in dollars, one in local units. Particularly when the national currency is a stable one, such a choice makes a lot of sense (e.g. the WIR currency in Switzerland is equivalent to one Swiss Franc). The downside is of course that if the national currency gets into a major crisis (e.g. the Russian Ruble in 1998), the complementary currency risks going down with the national currency.
Currencies using time as unit of account make most sense when services
are the most typical use of the complementary currency. Sometimes there is a
misunderstanding that “everybody’s time is supposed to be of the same value”
for such a unit to work well. This isn’t actually true: nothing impedes a dentist
to ask customers for instance five hour units for one hour of work as his
activity obviously requires a longer training and expensive equipment
compared to one hour of unskilled labor.
Time currencies also automatically avoid being caught up in a crash of the national currency, and can make it easier to make exchanges with other timebased systems. Their downside is that it may require multiple pricing (how many hours for a dozen eggs?) something that businesses in particular don’t like. One easy way to solve this problem is to ensure that the time unit is roughly equivalent to a round value in conventional money (that is why one Ithaca Hour is equivalent to US$10; or one WAT in Japan to 100 Yen).
Currencies using a physical unit of account such as miles, pounds, grams,
or kilos of something, etc. have advantages similar to the time currencies.
Often such units provide a “real physical connection”, and if the product involved is widely used and produced in an area, they can be considered as logical bioregional currencies. But they have also the same issues with pricing as time currencies, and the potential solution is also the same - in Osaka, for example, one gram of charcoal is considered equivalent to 1 Yen." (http://www.global-community.org/gc/newsfiles/25/Community%20Currency%20Guide.pdf)
More Information
The two other functions are: