My mom does some community development type stuff, and she recently asked me to take photos of some time dollars, which she will later use in a presentation. We then got into a discussion of why time dollars are useful, and here's an outline of what we talked about.
Q: Why use an alternate currency? Printed pieces of paper representing some amount of time and work is exactly what current money symbolizes. It seems unnecessary to devise a second system to do exactly the same thing.
A: These people have they skills and the time, but they are not necessarily employable by the outside world and have limited money. By joining the community and receiving some time dollars to start with [think passing Go in Monopoly], they can work towards living better. Since the community trades in time dollars, they can get other members to do things for them with the time dollars they have, and can similarly help others and receive time dollars in return.
Q: This can also be done with real currency though. If people don't have money, they don't have to pay market price. They can agree to pay, say, a dollar for ten minutes of work, and achieve the same results.
A: But then the currency earned can be spent elsewhere. A second purpose of programs like these is to build community, so you not only find out more about people living in the same way, but you're also more actively contributing back. If you don't, eventually you'll run out of time dollars and have to pay the much higher market price.
Q: This means that these programs cannot be widespread, because once they are the sense of community is lost. That seems really counterintuitive.
A: Well, there are programs which have the cooperation with some merchants. For example, some farmers are working with the community to sell their produce at prices half in real currency and half in time dollars. Members are therefore paying less for the food. There are benefits for the farmer too; they may need some help watering the fields, and they can use the time dollars they've accumulated to hire others to do that for them.
Q: That creates a problem though. Since time dollars are initially given out, and anyone can join the program, they are worth less that real currency. By including merchants in the program and offering to sell items half paid in time dollars, you create a conversion rate. Economically, someone has to lose something; from the examples you gave, it seems to be the farmers.
A: I guess that's true, but both parties are doing so willingly.
Q: That doesn't solve the problem of losing real money...
Really, I think the use of time dollars is more psychological than anything else. Creating a new currency just allows people to be open to trade services, at what are otherwise ridiculously low prices. I think there should be regulation with regard to taxation and printing, since there is an implicit exchange rate. Despite all this, however, it just seems like a second consensual mass delusion based on fictitious valueings of abstract assets.