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demurrage currency

September 1st, 2009 (06:46 pm)

Interesting concept for the week: demurrage currency, or money which accumulates negative interest.

The conceptual key to understanding this shift involves changing the "arrow of time" in the investment process. Under the present system, the discounted present value of any investment has to be higher than the interest rate of a risk-free government bond. This implies that anything that produces value more than twenty years in the future is basically worthless today, thus providing a systemic incentive not to care about the long-term consequences of our actions. With demurrage, the incentive works in the opposite way: income in the future would become more valuable than income today, thereby automatically prioritizing the long-term implications of today's actions.

Once the basic necessities of life are covered, the logical uses of money in this new context would include investing in ways that will reduce expenses in the future (pay back mortgages, improve home insulation, improve energy efficiencies, start one's own food gardens) and investing in anything that will keep, or increase in, value (land improvements, trees and forests, and anything else that grows over time).

See also: Kondratiev wave. New culprit for the recession: Science!


Posted by: Will Warner (ww0308)
Posted at: September 2nd, 2009 08:48 pm (UTC)

Heh, be careful what you wish for. If inflation outpaces interest on risk-free government bonds, demurrage currency would pretty much happen, and if the US federal government decides just to print more dough to pay for wars, bailouts, social programs, and repaying our foreign debts to places like China, very high inflation is a real possibility. Of course, that would hit the wealthy much harder than the poor, but even the poor would have to contend with prices rising very rapidly and wages probably being more sluggish to respond and rise. Also, the wealthy would probably be able to transition fairly quickly to foreign currencies, commodities, and commodities futures, although no currency is guaranteed to be stable, and commodities do have storage costs, just as commodities futures have to be sold and new ones bought every so often, which does create frictional costs.

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