the plan for the future
15 October 2020
The makers of the book Poor Because of Money of the Social Trade Organisation wrote that if you look at our money from the perspective of a Martian, the first thing you will notice is that money organises the economy least where organisation is needed most. Money leaves areas where it is already in short supply. Monetary deserts pop up where mutual trade disappears and with the money, the entire economic organisation vanishes.
The underlying cause they believed to be the current monetary system that imposes interest charges on the poorest. Interest is demanded on money that is created out of thin air. The effect of interest charges is bigger than most people realise because we do not notice how interest charges are hidden in the prices of all products. The money taken from the poor by interest accumulates in the hands of people who already have more than they need.
This is a reason to introduce interest-free local currencies. The success in Wörgl has inspired people all over the world to start a local or regional currency. A few are more widely known, for instance the Brixton pound, the Chiemgaur and BerkShares. But these currencies didn't produce an economic miracle like in Wörgl. They are now called complementary currencies, which means that they can supplement the existing financial system but are not expected to replace it.
Local and regional currencies are aimed to keep money circulating within the local community or region. Exchanging complementary currencies for regular currencies often comes with exchange costs so if you own such a currency then you are more willing to spend it on local or regional products. There may be a holding fee or demurrage to stimulate spending. The reasons why the economic miracle in Wörgl was never replicated probably are:
Counterparty risk stands in the way of developing financial markets in complementary currencies at competitive prices. In other words, the interest rate on these loans would be higher if the lender is to be compensated for the risk of default. But interest charges in financial markets were a reason to start these currencies in the first place. And so it appears that local and regional currencies do little to fix the issue of interest charges.
This brings us at the explanation why that might be so. It is not the monetary system that imposes interest. There are two reasons for interest to exist. The first has to do with supply and demand for money and capital. The second had to do with risk, for instance counterparty risk. The people from the Social Trade Organisation are still busy finding ways to make local and regional money work for people. Natural Money takes a different approach and deals with the issue of interest.
It is the abundance of capital in the global financial system in combination with efficient financial markets that drive interest rates to zero. Interest rates can even go below zero if zero interest isn't low enough to clear the excess of savings. It appears that people, businesses and governments can get access to these low interest rates if their creditworthiness is good. Important prerequisites for ending usury therefore are financial integrity and access to financial services.
Natural Money aims to apply a holding fee or demurrage in the global financial system, for instance on currencies like the US dollar and the euro. To end usury altogether borrowers in financial markets must be trustworthy and high standards of integrity need to apply on governments. Issues like fraud, tax-evasion and corruption should be tackled, and every country in the world must become like Denmark or New Zealand, at least with respect to these issues.