The answers given below are based on the situation in the European Union. Note that, although the legal conditions in your country (even within the EU) may differ, the patterns throughout the global finance system are surprisingly similar – if one law doesn’t apply to your jurisdiction, chances are there will be another one serving the exact same purpose.

 
Q: Isn’t creating currencies legal already?

A: No.

In the countries belonging to the global finance system, money creation requires a banking licence, as does issuing e-money or keeping payment accounts (and that is by no means an exhaustive list).

Stating that something requires a license, however, is equivalent to saying it is illegal – unless, of course, you hold said license.

Obtaining a banking license is subject to a number of requirements. These include initial capital of several million dollars, a non-refundable investment of at least 700.000 USD and around six months of time to follow through with the application (at least in Germany).

The claim that banking regulations serve primarily to protect customers seems highly doubtful, and not just since the financial crisis of 2008, when several big financial institutions abused their monopoly to strong-arm governments into rescuing them (“too big to fail”). In fact, unlicensed money creation (see below) is by no means an unregulated affair, as customers and business partners are already protected comprehensively by other areas of law (civil and commercial code). Banking regulations, in comparison, also allow practices which would be considered fraud in other business sectors, and specifically ensure that issuing money remains a privilege of those who have already been working in the existing banking system for years.

 
Q: But if creating a currency is illegal, then what about alternative and regional currencies?

A: To the financial authorities, these creations aren’t actual currencies, but “limited networks”. Once alternative currencies are considered “open networks” which can be widely adopted, they become illegal. To determine the scope of applicability, authorities evaluate criteria such as geographical reach, the number of acceptants, the type of products and services which can be purchased, the currency’s term of validity and possible payment caps.

In other words: Creating alternative currencies is illegal once they are able to compete with legal tender.