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A matter of trust


14 April 2022


 
Pay usury. Not.
Pay usury. Not.
 

Two decades ago, when I was discussing negative interest rates on a message board, someone asked me a question. Why would anyone lend me money without interest? I may not pay it back. You cannot trust strangers. At the time, I did not have the answer. This question touches on a core requirement for interest-free money and negative interest rates. It can only happen if there is a high level of trust in the borrowers and the currency.

At first glance, there is little difference between negative interest rates and inflation. Both reduce your purchasing power over time, and in doing so, they can help keep money circulating in the economy. There is, however, one difference of importance. Negative interest rates signal trust in money, while inflation promotes distrust. The strongest currencies have the lowest interest rates. That is why interest rates are low in Denmark and high in Turkey.

Trust should not be underestimated. A high level of trust means that the economy operates more smoothly. If people and businesses have to deal with theft, graft, lawsuits, unstable financial arrangements, and extortion, that eats up their bottom line.

The article named Saving the Economy and Restoring Financial Sanity explains that interest is a price paid for distrust. Money is loaned into existence by a financial institution that charges interest. If the interest rate is 5% and there is € 100 in circulation, borrowers must return € 105. But there is only € 100. The extra € 5 has to come from somewhere. Otherwise, the financial system could be in jeopardy. That is a reason why central banks print money. And printing money promotes inflation.

Interest is a Ponzi scheme. The cost of this scheme is inflation. Creditors want interest as compensation for the loss of purchasing power. It explains, for instance, the difference in interest rates between Denmark and Turkey. The interest rate also reflects the trust in society. If people, corporations and the government are trustworthy, doing business comes with fewer risks, and interest rates can be lower.

Negative interest rates are possible when creditors are willing to lend at these rates. Trust is important. Trust makes the economy operate more smoothly. Theft, fraud, graft, lawsuits, unstable financial arrangements, and extortion eat up the income of people and the bottom line of businesses. Societies with low levels of trust are high-risk areas for businesses. Interest is also a reward for taking risks. And so, interest rates in these areas tend to be higher.

Usury is the price paid for distrust. You cannot force creditors to accept negative interest rates. They must do so willingly, otherwise they will dispose of the currency and the currency will collapse. Many countries are not ready for Natural Money. The level of social trust in their societies is too low. They have to fix that issue first.