Demurrage currency

{{economics}}
A '''demurrage currency''' is one in which the value of units of currency (as distinct from the value of the currency unit as a {{wpl|unit of account}}) is designed to fall over time at a fixed rate. Note that this effect is in ''addition'' to any [[inflation]] or deflation that the currency may experience (not to mention any exchange rate variations, if the value of the currency is not fixed to the value of another currency), not some [[magic]] "substitution".

In essence, the currency issuer applies a fixed "[[tax]]" rate to all currency-holders at fixed intervals, such as once a year or once a month. Note that this can be seen as an extremely crude kind of "wealth tax" — a tax on wealth ''solely'' in the form of a ''particular'' form of [[money]] — and is ''not'' an income tax. However, it should be immediately obvious that as a wealth tax, it is extremely ineffective, as it is trivial to circumvent.<ref group=note>And by that, we mean that this flavor of wealth tax is ''more ineffective'' than the usual implementation, which only really fails because of [[Tax haven|very stubbornly maintained loopholes]].</ref>

In early 20<sup>th</sup> century examples of demurrage currencies (such as the town of {{wpl|Wörgl|Wörgl's}} short-lived local currency), this "tax" was achieved by means of stamps which had to be applied every month to a physical monetary token in order for the token to remain valid, and which had the effect of cutting the value of the token. 

The most notable 21<sup>st</sup> century example is probably the {{wpl|Chiemgauer}} that has operated in Germany since 2003. By 2011, it has annual revenues of the equivalent of €6 million. It is now part of a larger Regional Currencies network that operates across Germany.

==What's good about them==
Demurrage currencies are expected to, and do in fact, experience a relatively high velocity of money, due to the "hot potato effect" — everyone wants to pass on the money to someone else before it gets "taxed" (note: "taxed" is not the word that advocates of demurrage currencies use!). This is said to be good because it stimulates economic activity by encouraging people to spend or invest their money. It is generally agreed that increased economic activity is badly needed whenever there is a [[recession]], to create jobs, yet quite often people and politicians don't seem to do anything effective about it (not surprisingly in the case of individuals, as their efforts would be insignificant).

Economist [[Keynes|J M Keynes]] looked at demurrage currencies, and decided that simply allowing currencies to experience a reasonable rate of [[inflation]] was preferable, and had the same effect of promoting investment and spending.<ref name='keynes'>John Maynard Keynes, [http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch23.htm#vi The General Theory of Employment, Interest and Money]</ref> This is quite interesting because inflation is commonly thought of by most non-economists as an inherently bad thing,<ref group=note>Possibly not the [[Japan]]ese, though, since they have experienced how damaging {{wpl|Deflation|<u>'''de'''</u>flation}} can be.</ref> even though [[central bank]]s actually do in practice follow Keynes' advice to the extent that they try to avoid letting inflation get too close to zero.

(Side note: So, if moderate inflation is good because it stimulates spending and investment, is more inflation better — at least until a certain point? This is essentially the thinking behind [[market monetarism]] — another fringe economic idea, but one that is less obscure than demurrage currency.)

Complementary currencies which use demurrage, do not benefit the local economy as much as the observed "hot potato" effect might suggest. This is because when someone spends demurrage currency to get rid of the "hot potato", in the absence of that demurrage money, they might have spent ordinary money on the same thing in the same way instead.

==Dubious claims made about them==
Proponents of demurrage currencies tend to say:

* It will replace the uncertainty of inflation with the certainty of a fixed demurrage rate (i.e. tax on cash). Not true. How are they going to fix inflation at zero? This is always assumed and never explained. In fact, it is impossible to fix inflation at zero in a real economy, assuming that you don't sneakily substitute a 19<sup>th</sup>-century definition for inflation ("total quantity of money") as the [[Austrian economics|Austrian]]s do. And that's just word games.

* It discourages "money hoarding" (i.e. ''saving'') and encourages investment. Again, not true. A savings account is (at least in conventional theory, and sometimes in practice) a way for savers to delegate investment to a bank or other body in a "protected" way, trading off lower risk for lower profits. So saving is a form of investment, and could no doubt be structured in such a way that it was treated as such by the demurrage system. But that is actually irrelevant, because there is a much simpler objection: the easiest way to save the money that you possess that is denominated in demurrage currency is to exchange it for a non-demurrage currency (or other asset), so that shouldn't even be necessary. So demurrage currencies don't discourage saving ''per se''.

* That they could have additional rules added to reward warm fuzzy things like pro-social investment (whatever that means!), and punish bad things such as [[pollution]]. But why should demurrage currencies be any better at this than, say, ordinary Pigovian taxes, or cap and trade systems? Moreover, why wouldn't they be ''worse'' if introduced on a local level and/or on a voluntary (i.e. non-legal-tender) basis, because people and companies would have to consciously decide to opt in to using them? Why not just reward good things and penalise bad things using existing economic and legal techniques? Why bring demurrage currencies into it?

==Banned demurrage currencies==
The Austrian central bank banned demurrage currencies on 1 September 1933 after the Austrian town of Wörgl successfully introduced such a local currency.<ref>{{Cite book|last=Boyle|first=David|url=https://books.google.com/books?id=glqnzC-TLPMC&dq=worgl+miracle&pg=RA1-PA237|title=The Money Changers: Currency Reform from Aristotle to E-cash|date=2002|publisher=Earthscan|isbn=978-1-85383-895-8}}</ref><ref>{{Cite book|last1=Helleiner|first1=Eric|url=https://books.google.com/books?id=gJX1buNKHj0C&dq=worgl+miracle&pg=PA159|title=The Making of National Money: Territorial Currencies in Historical Perspective|last2=Helleiner|first2=Faculty of Arts Chair in International Political Economy Professor Eric|date=2003|publisher=Cornell University Press|isbn=978-0-8014-4049-6}}</ref>
President [[Franklin D. Roosevelt]] also banned US cities from adopting them "by executive order" when over 100 of them were using complementary currencies in an attempt to end the Great Depression.<ref>{{cite web |url=https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/economic-commentary/2008/ec-20080401-stamp-scrip-money-people-paid-to-use-pdf.pdf |title=Stamp Scrip: Money People Paid To Use |last=Champ |first=Bruce |date=April 2008 |website=Federal Reserve Bank of Cleveland |publisher=Federal Reserve Bank of Cleveland Research Department |access-date=21 April 2025}}</ref> It's possible that these bans on complementary currencies may have prolonged the Great Depression. These currencies were banned nevertheless, since the governments wanted to maintain their monopoly on currency and legal tender.

These claims have unsurprisingly led to some interest in demurrage currencies from those drawn to conspiracy theories, but surprisingly, not ''that'' much interest. Perhaps this is because, unlike with the [[gold standard (economics)|gold standard]] conspiracy theories, there are no seedy demurrage currency sellers online seeking to drum up interest in their products.

==Contemporary attempts==
A 2012 attempt to raise $28,000 to start a new electronic demurrage currency, that would be similar in some ways to [[Bitcoin]], is currently headed for failure — barring a last-minute massive donation. Perhaps not many people wanted to pay for the privilege of creating a system where they could pay more tax.

The [[cryptocurrency]] Freicoin uses demurrage.<ref>[http://freico.in/ Freicoin: a peer-to-peer digital currency delivering freedom from usury]</ref>

During the final months of 2018, a new German charity organization, Access to Basic Income E.V., was founded, with ties to the Social Impact Lab Leipzig. They created a digital currency (widely believed to not technically be a cryptocurrency, though it resembles one in many ways); this digital currency, called Palai, is both a non-governmental form of [[basic income]] and a demurrage currency; however, the Palai documentation, and the small community of users, avoid the word "demurrage" completely, instead using a euphemism that appears to be exclusive to the Palai currency; "evaporation". Evaporated units of the Palai currency end up in the basic income pool and get recycled and redistributed, evaporation happens a tiny bit per day (though people with millions of Palai will see larger numbers getting subtracted than someone with a smaller amount), and the more active verified users there are on the Palai network, the fewer units per active user are given as basic income. <ref>[http://palai.org/faq Palai: Let's Make Money Fair, Questions and Answers]</ref>

{{wpl|Demurrage_(currency)#List_of_demurrage_currencies|Wikipedia has a list of demurrage currencies}} that are known to have been used at one point or another, including ongoing usage.

==Notes==
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==References==
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[[Category:Conspiracy theories]]
[[Category:Cryptocurrency]]
[[Category:Currency]]
[[Category:Economics]]
[[Category:Environmentalism]]
[[Category:Tax]]

Categories: Conspiracy theories, Cryptocurrency, Currency, Economics, Environmentalism, Tax