Choosing Mechanisms: Store of Value
Medium of exchange
For currencies that are not playing the role of standard of value (i.e. the
majority of the complementary currency systems), the function of medium of
exchange is the most important one. The ease and costs of their use as medium
of exchange depends predominantly of the support medium used in the
currency. Hence, this aspect has already been dealt with above, when we were
describing the different supports.
Store of Value
The last classical function of money is as store of value. As noted before, it
may be desirable to have as complementary currency one that is not used as a
store of value. Currency was indeed not the preferred store of value in most
civilizations. For example, the word capital derives from the Latin capus,
capitis, which means head. This referred to heads of cattle and still is used
today in Texas or among the Watutsi in Africa — “He is worth one thousand
head”. In the Western world, from Egyptian times through the Middle Ages
and until the late 18th century, wealth was stored mainly in land and
improvements, that’s why it’s called Real Estate (irrigations, plantations, etc.).
Specifically, if one desires to encourage circulation of a currency, one good
way to do so is to discourage the hoarding of that currency through various
mechanisms such as demurrage or expiration deadlines as will be explained
next. Therefore, classifying currencies in terms of their function of store of
value is in fact the same as analyzing the way they relate to time.
Interest bearing currencies: One way whereby one can encourage people
to save in the form of a currency is paying interest. This is the typical situation
with all conventional currencies because they are created by bank debt.
Interest is a charge that is proportional to the length of time involved in the
loan. In this type of currency, one receives interest by making a deposit in that
currency; and one can borrow money by paying interest.
Zero-interest: The vast majority of complementary currencies are simply
operating without interest. For example, loyalty currencies or mutual credit
systems don’t accrue interest, and for those systems where one can borrow
complementary currency typically no interest is being charged either.
Demurrage charged currencies: The opposite of an interest-bearing
currency is a demurrage-charged currency. Demurrage is a time related charge
on outstanding positive balances of a currency. It can be visualized as a parking
fee on the currency. It operates exactly as a negative interest rate, and is used
as a disincentive to hoard the currency. John Maynard Keynes, Silvio Gesell,
Irving Fisher, and Dieter Suhr provided a strong theoretical foundation for this
approach, and it was extensively implemented in the form of “stamp scrip” in
the 1930’s. Today, the most successful grassroots complementary currency in
Japan, the Peanuts, charges a demurrage of 1% per month.
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