The opposite of an interest-bearing currency is a demurrage-charged currency. Demurrage is a time related charge on outstanding positive balances of a currency. It can be visualized as a parking fee on the currency. It operates exactly as a negative interest rate, and is used as a disincentive to hoard the currency. John Maynard Keynes, Silvio Gesell, Irving Fisher, and Dieter Suhr provided a strong theoretical foundation for this approach, and it was extensively implemented in the form of “stamp scrip” in the 1930’s. Today, the most successful grassroots complementary currency in Japan, the Peanuts, charges a demurrage of 1% per month.

Demurrage is a cost associated with the ownership or possession of currency in a given period of time in relation to commodity money such as gold. The demurrage is nothing more than the cost it incurs to keep it safe.

Money has different but more common functions as a unit of account, an intermediary of exchange, store of value. And according to Keynes, economic agents hold money to its liquidity (Keynes cites three reasons why the cash is preferred: transactional, precautionary and speculative reasons).

Silvio Gesell on the other hand was a supporter of the benefits of a tax system that imposes a cost of demurrage on the coin. Silvio argued that in a system with a devalued currency there are incentives for long-term investment (and saving).

To this end, he theorized the introduction of the so-called free money having a default maturity. The taxation of the currency would cause a more rapid movement and therefore result in a higher inflation.

The demurrage of the cost would be borne by the cash held, not on wealth and trade. The populists consider the taxation of money as a key to redistribution. Holding just money, the holders of liquidity could easily transfer their goods to different forms of investment or to other countries.

The current proponents of demurrage currency do not consider that the original theory was more than one hundred years ago in a completely different economic environment.

Whatever the criticisms of Keynes, which are still present in modern economies, the monetary base (M0 monetary aggregate) constitutes a negligible part of the total means of payment liquids. Moreover, during the nineteenth century foreign transactions were controlled, which is vaguely the same in today’s global marketplace.

A currency subject to taxation can be in danger of losing the liquidity premium, which makes it desirable in the eyes of economic agents: therefore, excess taxation would induce workers to shift their resources to other liquid financial instruments such as foreign currencies and precious metals.

Keynes argues that the increase in real capital is hindered by the rate of monetary interest, and that if you took away this brake, the increase of real capital would be much faster in the modern world, probably to justify a monetary interest rate equal to zero within a relatively short period.

So the overriding need is to reduce the rate of interest, and he indicated that this goal can be reached. The can be subject to maintenance costs the same way as other stocks of sterile goods.

This idea led him to the famous prescription of money “printed” to which his name is chiefly associated and which has been endorsed. According to this proposal, the paper money (although the method should obviously also apply to at least some form of bank money) would maintain its value only if applied each month, as in a book of insurance.

Obviously the cost of the brands could be set at any amount deemed appropriate. According to this theory, this cost should be equal to the wholesale level.

© 2011 Collaborative Finance Suffusion theme by Sayontan Sinha

site tracking with Asynchronous Google Analytics plugin for Multisite by WordPress Expert at Web Design Jakarta.