Private Currencies

I've been interested for some time in private currencies, under the principle that anyone should be able to standardize a unit of exchange. At present, there seem to be three major classes of such currencies. The largest of these is company scrip, a commitment from a company or group of companies to provide equivalent goods or services to the scrip-holder at some later date. This includes airline miles, for example; airline miles are already considered to be the second-most popular form of currency, after government-issued fiat money.

Second is private currencies backed by precious metals. These include Gold Money, E-Gold, and Liberty Dollars. Most of these are purely digital currencies, but Liberty Dollars are primarily used in physical form (silver coins and redeemable notes) and are meant to replace dollar bills in daily use. At the same time, it has a significant markup over the cost of the underlying silver (ten Liberty Dollars are backed by one ounce of silver, currently going for about $7 on the spot market). Much of the Liberty Dollar's value is derived from the voluntary acceptance of it as a fungible medium of exchange.

Third is regional currencies, often used in individual cities or counties; for example, the Ithaca Hour, currently valued at $10 and defined as the going rate for one hour of average work.

Each of these has problems that limit their attractiveness in comparison with the USD or other government-issue currencies. Company scrip is limited to use with that company, obviously. Similarly, regional currencies are only honored within that region (indeed, many of them are specifically intended to suppress long-distance trade and encourage local industries). Gold-backed currencies, while much more liquid in theory, expose the holder to the uncertainties of the commodities market. While aficionadoes argue that the USD is just as exposed, and subject to inflation to boot, the average shopper suffers relatively little damage if the USD should depreciate against other currencies, since the bulk of our commerce is still domestic. And inflation has been low enough, at least officially, that the expected gain is not worth the uncertainty for most people. (That said, gold money should be quite attractive to those with less stable currencies.)

But what if you could use a liquid private currency that was guaranteed to appreciate against the dollar?

I am considering setting up something along these lines. Without spilling the beans, the basic framework would be that when you convert USD into this currency, there would be a small transaction cost (say 2%). The remainder would then appreciate by about 4% per year. The currency could be redeemed at any time for USD, or it could be transferred between account-holders for a small transaction fee. (In many ways the system is modeled after Gold Money, except that its underlying asset would be dollar-denominated, not a commodity.) There would be no annual storage fees as for gold-backed currencies.

The details are still in the very early stage, but at this point, risks to the depositor would be negligible (aside from the risk of me taking the money to Vegas...). More details as I hash them out.

EDIT: It has come to my attention that Paypal is currently paying depositors 3.27% interest, without charging an upfront fee. Therefore I would have to have significant benefits above and beyond what Paypal offers, which will be tricky. Back to the drawing board!