the plan for the future

Natural Money and complementary currencies

15 October 2020 (latest revision: 27 September 2022)

Wörgl currency

The case for complementary currencies

The makers of the book Poor Because of Money of the Social Trade Organisation wrote that if you look at our monetary system from the perspective of a Martian, the first thing you will notice is that money organises the economy least where it is needed most. Money leaves areas where it is already in short supply. Monetary deserts pop up where mutual trade disappears, and with money, the economic organisation vanishes.

The underlying cause, they believed, is the current monetary system that imposes interest charges on the poorest. It charges interest on money created out of thin air. Most people do not realise the enormous consequences because we do not notice how interest charges increase the prices of all products. The money taken from the poor by interest accumulates in the hands of the rich.

It was a reason to introduce interest-free local currencies. The success in Wörgl has inspired people all over the world to start local or regional currencies. 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. They can supplement the existing global financial system, but they cannot replace it.


Issuers of local and regional currencies aim to keep money circulating within the local community or region. Exchanging complementary currencies for regular currencies often comes with exchange costs. If you own complementary currency, you are more willing to spend it on local or regional products. There may be a holding fee or demurrage to stimulate spending. But the miracle in Wörgl was never replicated. The reasons probably are:

  • When you are employed in the regular economy, you are less willing to work for complementary currency. Many people in Wörgl were unemployed and had skills to offer that would have been in demand if the economy wasn't in a depression.
  • There is little demand for complementary currencies as long as governments aren't backing them by making them legal tender or accepting them for taxes. The municipality of Wörgl promoted its currency by accepting it as payment for taxes.
  • Operating complementary currencies requires considerable effort and organisation. In Wörgl the municipality performed this task.
  • Switching to local or regional products can entail a reduction in economic efficiency. Economic efficiency is often realised by division of labour via international markets. There may be cheaper or better producers elsewhere so complementary currencies may give you less value for your money.
  • Complementary currencies are small-scale so there are only a few potential borrowers and lenders. The counterparty risk for potential lenders is high. Therefore, financial markets in those currencies are non-existent.

  • Proponents of complementary currencies argue that social benefits in the form of more vibrant communites offset the drawbacks of reduced economic efficiency. In reality, most people prefer the benefits of economic efficiency in the form of cheaper or better products. Only when the regular economy fails, as was the case in Wörgl during the Great Depression, complementary currencies can become a success.

    And counterparty risk stands in the way of developing financial markets in complementary currencies if they are successful. In reality, lending and borrowing in these currencies hardly materialises. In other words, interest rates on loans in complementary currencies would be higher if lenders are 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.

    The case for global markets

    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 has to do with risk, for instance counterparty risk. The Social Trade Organisation is still busy finding ways to support local and regional economies. The research of Natural Money deals with interest in market economies.

    The abundance of capital in the global financial system combined with efficient financial markets drove interest rates to zero. Interest rates can even go below zero if counterparty risk is minimal. It appears that people, businesses and governments can 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.

    With Natural Money there is a holding fee or demurrage in the global financial system, for instance on currencies like the US dollar and the euro. To end usury, borrowers in financial markets must be trustworthy and high standards of integrity need to apply on governments. Issues like budget deficits, fraud, tax-evasion and corruption should be tackled, and every country in the world strive to be as free from corruption as Denmark or New Zealand.

    To collapse or not to collapse?

    The future is anyone's guess. Current trends of resource and fossil fuel consumption in the global economy are unsustainable. The availability of energy sources is crucial. With unlimited and nearly-free energy, it may be possible to recycle natural resources in a global economy with a high standard of living. If energy becomes scarce, the global economy may disintegrate, and world markets may only trade products with significant economies of scale.

    Nowadays, local markets for most products do not exist because of the availability of cheap energy. Cheap energy is the basis of our current wealth, but also of specialisation and long-distance trade. Produce is transported to every corner of the world so we can buy crap and then throw it away. We depend on fossil fuels and deplete the resources of our planet at an unprecedented speed. Something has to give, and probably soon.

    Standards of living may drop. Global markets may disintegrate. The reach of governments may decline. People may have to fend for themselves and move from the cities to the countryside. Communities may fill the void once markets and governments retreat, so complementary currencies may have a bright future. Only, that may be far too optimistic. A collapse of civilisation is likely to cause anarchy in which gangs and warlords take over.

    Civilisational collapse appears less likely when interest rates are negative. An underlying reason for a breakdown may be a shortage of energy and resources. The immediate cause could be diminishing returns on investments in social complexity, which is organisation and specialisation. With negative interest rates, it makes economic sense to invest in projects with low returns like production and storage of renewable energy, resulting in a graceful transition rather than a collapse.

    The future of complementary currencies

    If energy becomes expensive, production will likely localise regardless of the currency system. The costs of energy, not transaction costs, drive this development. Complementary currencies can help to mitigate the impact of a failing currency system or a collapse. During the Great Depression, the currency system failed because interest rates could not go below zero. In Argentine, complementary currencies helped people cope with hyperinflation after a financial collapse.

    The Social Trade Organisation recently issued the Money Multiplier that can increase the impact of money in poor areas. Using their award-winning FinTech software package Cyclos, communities and regions can reprogramme money to make it circulate in the community or region. These solutions require a commitment within the community or region, including the local or regional government. In other words, you need strong communities. That can be an obstacle.

    The economic future of complementary currencies likely remains marginal. In the case of a global financial collapse or even a collapse of civilisation, communities will probably not fill the void. It is more likely that crime and lawlessness will increase. Economics is not all that matters. Communities are crucial for complementary currencies, but vibrant communities do not come easy. And a global collapse will not always bring out the best types of human sentiments.

    And to avoid a global collapse or mitigate it, negative interest rates in the global financial system can help. After all, if the cost of energy and other natural resources rises, the marginal return on investment in complexity drops. If these returns are low or negative, it might lead to collapse. Joseph Tainter points this out in his book the Collapse of Complex Societies.1 Preventing breakdown and performing a graceful simplification might require negative interest rates.


    1. The Collapse of Complex Societies. Joseph A. Tainter (1990).