Complementary currency and its impact on the economy

Abstract

The paper aims to show the impact that a complementary currency may have on a national economy from a theoretical point of view. A system dynamics model is created to describe the mechanics of money issuance in capitalist economies as well as in economies where there is no inside money. As an example, the first outcomes of a barter network implemented in 2008 by the STRO foundation in El Salvador (called Punto Transacciones) are presented and analyzed. Finally, using data from a complementary currency experience in El Salvador the spending multiplier is calculated. The main result shows that there is a greater spending multiplier in digital community currencies systems than in regular money market. Although the magnitude of PT network is still negligible from a macroeconomic point of view, the result is a desired outcome which may help to cushion the impact of macroeconomic shocks on labour market, contributing to stabilize aggregate demand.