Instead of being backed by a specific precious metal or by a government's fiat power to collect taxes, a time-based currency is a sort of money in which the value is based on units of time. The basic premise behind this concept is that one's time at work may be converted into a standardized unit of economic worth that can afterward be traded for other things.

Understanding Time-Based Currency

Historically, monetary systems have been founded on physical commodities or abstract concepts. For instance, the value of gold and silver coins was based on the precious metals they contained. As gold's value determined the worth of the US dollar for decades, so did Congress mandate the amount of gold that could be exchanged for one US dollar. When exchanging dollars for other currencies, the dollar's value is determined by the market's equilibrium between supply and demand. In contrast, the value of most fiat currencies stems from citizens' confidence in their government's ability to raise taxes and manage the money supply.

On the other hand, time-based currencies are valued according to the amount of work put in. Time banks are a common source and backer of time-based currencies. People who want to build economies based on mutualism and equality rather than profit and loss start time banks. Adam Smith, David Ricardo, and Karl Marx, three early political economists, all concluded that working time is the most common source of economic value. The earliest political economists may be responsible for this concept.

How Time-Based Currency Works

Time banks are the institutions that issue time-based currencies to their members to make it easier for members of the time bank to trade products and services with one another. Time banking and other time-based currencies need a few more limits to be imposed on a currency to safeguard the principles of mutual assistance and equality. For illustration's sake, let's assume that a time bank assigns a one-time dollar equivalent to one hour of human work. Let's also suppose that two people are participating in the time bank. One of them is a doctor, and the other is a carpenter.

To take part in the time banking scheme, the carpenter and the doctor have to agree to provide a certain number of hours of service to the community in exchange for time dollars. These time dollars can then be exchanged for other services the participants require to perform on their behalf. Let's imagine that the cabinet the carpenter makes for the doctor takes him five hours to complete. Let's also say that the doctor orders it. Even if the carpenter and the doctor would make quite different wages on the free market, he would still be able to utilize the money he earns from the job to pay for medical services from the doctor. He will earn five times the normal time of money.

The notion that the nature of the societies in which we live is determined by the characteristics of the financial institutions, markets, and currencies that we use stems from where the concept of time banking originated. When markets are impersonal, and the value of a person's work is established based only on what a stranger believes it is worth, it might encourage an impersonal society where deep relationships are not created between neighbors.

Edgar S. Cahn, a prominent legal scholar who was instrumental in establishing the Antioch School of Law in Washington, D.C., is the most recent proponent of the idea of time-based currencies. Cahn presented four fundamental principles for time banking in his book No More Throw-Away People. Later on, he added a fifth principle to the list. They are as follows:

• We Are All Assets: Every one of us has something valuable to offer
• Redefining Work: Give due credit for all labor, including unpaid and volunteer effort
• Helping each other create solid ties and trust within the community is an example of reciprocity.
• Online Social Communities: Being a part of a social network infuses our lives with additional significance.
• Respect: The foundation for a happy and loving society, as well as the values that lay at the center of democracy, are respect and dignity for all members of the community.

Time-Based Currencies in Modern Economy

Although time-based currencies are rare, they are used with local currency initiatives. Around 200-time banks were operating in the United States in the year 2021. For example, in 1991, the town of Ithaca, New York, situated in the state's upstate area, instituted the Ithaca HOUR to help stimulate local economic activity and preserve the community's economic worth. An HOUR's worth has been established as $10 under a time-based monetary system whereby one hour of any effort equals another hour of work and vice versa. At this time, more than $100,000 worth of Ithaca Hours is available for use. The Fureai Kippu is a sectoral currency used in Japan, with one hour of caregiving for an older adult as the basic account unit.