Negative interest rates are very different from a demurrage currency


With the prospect of New Zealand one day going as far as negative interest rates, we need to examine the consequences of that. The trouble is that those of us who know a little about demurrage currencies tend to think they are the same, whereas they are very different.

First of all what is a demurrage currency? In Dynastic Egypt there were essentially two currencies. Gold and silver were used for trading with other nations and there were the ostraca, or pottery chards that were used for local trading. When a farmer took ten bags of corn to the storehouse the guard gave him a receipt in the form of an engraved piece of pottery, showing how much he had deposited and what date it was. But when he came back to collect them a year later the guard only gave him nine bags. In other words he was charged for the storage, keeping rats away etc. It was later described as a demurrage currency because demurrage is the term used is a charge payable to the owner of a chartered ship on failure to load or discharge the ship within the time agreed. In other words it is your penalty for delaying. The farmer’s currency lost value over the year. It was his penalty.

The period was one of prosperity, abundant food, a sophisticated selections of wines, good irrigation, high yields, excellent maintenance of equipment like water wheels and wine presses.  There was a high degree of literacy, there were significant advances in mathematics, astronomy, medicine, agriculture. There was an eight hour working day and many holidays. (There was one area which was an exception).

Then in the Central Middle Ages or High Middle Ages, according to author Margrit Kennedy, there was another example of this.

“Between the 12th and the 15th century in Europe a money system was used called “Brakteaten.” Issued by the respective towns, bishops and sovereigns, it not only helped the exchange of goods and services but also provided the means of collecting taxes. Every year the thin coins made from gold and silver were “recalled,” one to three times re-minted and devalued on an average about 25 % in the process.

Since nobody wanted to keep this money, people instead invested in furniture, solidly built houses, artwork and anything else that promised to keep or increase its value. During that time, some of the most beautiful sacred and profane works of art and architecture came into existence. “For while monied wealth could not accumulate, real wealth was created.”

We still think of this time as one of the cultural culmination points in European history. Craftsmen worked a five-day week, the “blue” Monday was introduced and the standard of living was high. In addition, there were hardly any feuds and wars between the various realms of power.”

The third period was very much shorter – in Austria during the Great Depression in Austria from 1932-1933 for fourteen months. Faced with 25% unemployment and declining funds, the Mayor of the small town of Wørgl thought he would put Silvio Gesell’s ideas into practice. So he put 20,000 Austrian schillings aside to back it with (I understand the local doctor contributed here) and spent a new currency into existence. They paid their workers in Work Certificates rather than Austrian schillings and on the back were 12 spaces. Every month the holder would need to stick a one penny Austrian stamp on the back to validate the note. This monthly stamp requirement was sufficient to act as an incentive to spend the note on things that were going to be useful in the future. Back taxes were paid and there was growing council spending on infrastructure like bridges. People came from miles around to witness what they called the “Miracle of Wörgl”. However, soon the banks put enough pressure on the Austrian government to make the whole scheme illegal, and Wörgl went back to unemployment.

So there are three examples of demurrage currencies and they all took place in a context of being a second currency, a currency for local people to do local trades. They are all elements of a dual currency system and by the way all existed in times where the main tax was a tax on land.

There are two other ways of naming demurrage currencies. Margrit Kennedy preferred the term ‘circulation incentive’ instead of penalty for hoarding. Charles Eisenstein in his book Sacred Money preferred the term ‘decaying money’ arguing that we need to reclaim the word decay as it is a natural process and it indicates that because money is something with which we buy goods, it should decay  like goods. This was the theme of Silvio Gesell in his book Natural Money where he wrote “Money should rot like potatoes, rust like iron and evaporate like ether if it is to be useful as a means to exchange potatoes, iron and ether.”

I will use the term “decaying currency” from now on.