the plan for the future
9 May 2012 - 1 March 2016
In the French village of Lignières-en-Berry a scheme was devised that may work even better. Copying this idea may create a more efficient financial system. Less efficient systems will be destroyed by the laws of competition and the interest based economy may not be able to compete with the interest-free economy.
In the future there may be no more economic crises. There may be better jobs. The economy may become sustainable. Governments, banks and multinational corporations may have less influence. The interest-free economy may be just around the corner. More information about Natural Money can be found in Money Of the Natural Economic Order. Is it possible to start an experiment like in Wörgl that will surprise the world and mark the beginning of a new era?
Issues to be fixed
The world could be a better place if a number of issues are fixed. Those issues are the following:
* unemployment is lost potential so everyone may be better off when more people have a job because more work gets done.
* the capitalist economy could mean a collective suicide of humanity as it is based on the idea of everlasting economic growth while resources are limited.
* wealthy people have a lot of money and capital while many others are in debt, so there is little room for growth.
* globalisation can hurt local economies so that a counterbalancing force may be needed to support local communities and employment.
* there has been a lot of debt-fuelled speculation in recent decades that can destabilise the economy.
It has been the aim of the community currency movement and organisations like the Social Trade Organisation to look for answers to these challenges. Their research and experiments could be important for the future. Natural Money builds on their work but adds two important observations. First, interest is a reward for risk so that banning interest on loans could curb risky lending and make the financial system more stable. Second, the combination of a tax on money and a ban on interest could improve the economy and make higher returns on investments possible.
Natural Money is money with a holding tax on cash somewhere between 0.5% and 1% per month and a maximum interest rate of zero on loans. It is however possible to have rents on real estate and dividends on shares in corporations. The holding tax on cash will provide an constant stimulus to spend and keep the economy going without the need for growth. The maximum interest rate of zero will curb reckless lending and economic booms based on borrowing. This can make the economy do better. There can be fewer economic crises and there will be more employment.
The amount of Natural Money in circulation is constrained by the maximum interest rate. If the economy is doing well the value of the Natural Money currency can rise. It may rise faster in value that interest can accrue on deposits in the current financial system. This may mean the end of the financial system of positive interest rates with a minimum of zero as it may be replaced by a financial system of negative interest rates with a maximum of zero. Natural Money doesn't need governments and central banks to manage the economy while local currencies can give more power to communities.
The best formula
There are numerous interest-free currencies, currencies with a holding tax, and LETS systems, but most of them have a limited reach. Even though there are some successful local currencies like the Chiemgauer in Germany and the Brixton Pound in Great Britain, most local currencies didn't achieve the success of Wörgl and Lignières-en-Berry. Discovering a way to make local currencies a success can make it possible to enforce the changes that are needed for a better future.
A local currency requires a community that supports the currency. It also requires a committed group of people that want to turn the local currency into a success. A local community can provide only a limited range of products and services at competitive prices. Markets often offer a better deal with regard to price and quality. Only if a community is committed to a goal such as improving community relations, increasing employment or reducing dependence on the outside world, a local currency can become a success.
In order to introduce a local Natural Money currency successfully, the following conditions must be met:
- the currency must be exchangeable in regular money but exchanging it should be less attractive than keeping it.
- there must be a bank that can make zero interest rate loans so that depositors can fetch a better rate at the bank than the holding tax.
- at least initially the currency has to be backed with regular money.
- local businesses must accept the currency.
- the local government must accept the payment of taxes in the local currency.
This currency can be either a public currency issued by a local government like in Wörgl that can be used as a payment for taxes  or a private currency issued by a community, a corporation, or a group of people like in Lignières-en-Berry . It is not the aim of this document to detail how a local currency can be started. There is good documentation on the internet and there are organisations like Qoin.org that can help with setting up a local currency.
Making it attractive
The Wörgl currency was a success because Schillings where hard to come by . It was not really an attractive currency but other money was hard to come by, so it was called an emergency currency. For this reason this idea may not work as well now as it did during the Great Depression. In Lignières-en-Berry a clever scheme was devised to make the money attractive that may work well today . The scheme was the following:
- people could buy the money at 95 cents to the euro.
- they could spend it as 1 euro because businesses accepted the money at that value.
- after four months the money could be exchanged at 98 cents to the euro.
- people could also buy a stamp of 1 cent to make the money valid for another month and spend it as 1 euro again.
The local currency of Lignières-en-Berry soon became a great success because:
- people bought the money because they could spend it at a 5% profit or exchange it at a 3% profit after four months.
- businesses accepted the money because it generated extra business and it could cost them no more than 2%.
- if businesses did spend the money then there was no loss at all.
- the money circulated because spending was more attractive than keeping the money.
- many people chose to buy the stamp even though they could get back 98 cents because by buying the stamp they could spend the currency unit as 1 euro.
- the income from the stamps covered the loss of exchanging the money at 98 cents.
The experiment in Lignières-en-Berry was a success. Many communities moved to copy the system. This alarmed the Bank of France so much that in July 1957 it sent a team of police specialists to investigate what it saw as a virus about to contaminate the whole country . For this reason the government of France banned this type of currency.
Capital and profit
To set up a Lignières-en-Berry currency you do not need much capital. If you intend to issue 100,000 euro of currency units you only need 3,000 euro. People will buy the currency at 95 cents so they bring in 95,000 euro while you need 98,000 euro to pay them back.
It is possible that the operation will run at a profit because people have to buy the stamps to keep the money valid. The profit can be used to the following ends:
- to issue additional currency so that the local currency will spread. If the market becomes saturated more and more people will return the money for 98 cents so the profit will disappear and the situation will stabilise.
- to build capital for a bank to support making loans in the local currency at 0%.
- for the benefit of the community, for example poverty relief.
- it can be added to the value of the currency so that the value of the currency will rise. This can make the money attractive for investors as lending out money at 0% interest can generate a positive return.
- a dividend for shareholders. In a free market a corporation could issue currency alongside public and community currencies.
For the community there are a number of benefits, but more employment is the most important one. In Wörgl unemployment dropped during the time the currency was used, while unemployment rose in the rest of Austria.
If a consortium of local business owners issues the currency then the operation can run at a loss but still be profitable to the local business owners overall because it generates more business for them. In Lignières-en-Berry salaries were exchanged into the local currency and this generated more business locally.
Essential for the success of the Lignières-en-Berry scheme was that local businesses could pay salaries partially in the local currency. Employees who worked at participating businesses could buy the money at 95 cents. Businesses that depend heavily on local revenue should be able to ask their employees to exchange a part of their salary in local currency. This can be attractive for both the business owner and the employee. If the community council accepts the money for taxes, this will increase the acceptance of the money.
There are some issues that should be addressed:
- the government has a monopoly on issuing money so the currency may need to be named gift certificates or vouchers.
- the organisation behind the gift certificates must be trustworthy and transparent. This may require independent oversight and auditing.
- before the experiment starts a significant number of businesses must be willing to accept the gift certificates.
- if too many gift certificates are issued the chance increases that gift certificates are returned, creating a loss for the issuing organisation.
- people who sell gift certificates should not be allowed to buy new gift certificates at a lower price at the same time.
It may be a good idea to make some adaptations in the scheme like the following:
- interest rates are lower now than they were in France in 1956, so a lower return profit of 2 cents in four months (6% annually) can still be attractive.
- the buyback price can be made one cent lower (97 cents instead of 98 cents). In this way it will be more attractive to buy the stamp.
- employees of participating businesses could exchange a part of their salaries into the local currency at an exchange rate of 98 cents to 99 cents depending on the validity of the stamp, so the business owners can reduce their local currency surplus at a smaller loss. This can also be attractive to employees because their employment may also depend on the local currency.
After the initial set up phase, the local Natural Money currency could float against regular currencies in a free market. As long as the local Natural Money currency needs to be backed with regular currency, some of the proceeds of the holding tax can be used to increase the value of the local interest free currency. This will make 0% loans an attractive investment relative to bank loans in the interest based financial system. If capital can be invested in the local currency, this will make the local interest free currency more attractive, and it may even become possible to pay rents and mortgages in the interest free currency.
1. Laboratory readings: Wörgl's Stamp Scrip – The Threat of a Good Example?, Martin Oliver, Newciv.org, 2002: http://www.newciv.org/nl/newslog.php/_v105/ __show_article/_a000105-000002.htm; backup copy: http://www.naturalmoney.org/example.html
2. Scrip / France, Martin Oliver, Barataria.org: http://qoin.org/the-barataria-exchange-projecti/5/i.5.4.htm; backup copy: http://www.naturalmoney.org/stampscrip.html