Demurrage is a deliberate decrease in the purchasing power of money over time, discouraging hoarding and promoting economic activity. Negative interest rates have potential benefits, but opponents argue they have not been extensively studied and proven. Funds generated from demurrage fees can be used for operational costs or redistributed equally to currency users.
Demurrage, as far as finance is concerned, is an expense related to holding or reserving currency for a period of time. Similar to inflation, demurrage deliberately decreases the purchasing power of money over a period, thus discouraging money hoarding and, in theory, promoting economic activity. While increasing the money supply by the government or central banks leads to inflation, which also devalues the currency, the delay encourages spending and investment by imposing regular, fixed fees or taxes on the money withheld. For example, if a fee of four percent were applied each year to an account with 1,000 units of currency, then the value of the account would decrease by 40 units of currency per year. This negative interest provides an incentive for someone with more money than they can use to lend it out, even at an extremely low interest rate.
Proponents of a negative interest rate currency cite a number of potential benefits of this system. The delay accommodates borrowers over lenders, making it easier to obtain credit and lower interest rates. It encourages the active circulation of money instead of accumulation. In contrast to the current interest-based system, where simply having wealth produces more wealth due to interest, in a tenure-based money system, there is no advantage in accumulating wealth, which lessens wealth polarization. . Unlike inflation with its upward spiral of costs, the stay does not hurt people with limited resources.
Opponents of negative interest systems point out that the presumed beneficial effects of such a system have not been extensively studied and proven. There has been a huge increase in the use of local currencies, many of which use the fee system, in the last 20 years, but local currencies are only accepted within the community, interfering with the potential greater efficiency of large-scale operations. Barter systems, with a direct exchange of service for service or product for product, are emerging, which can facilitate tax evasion. Also, in a world with different forms of currency, holders of money can easily dodge demurrage fees. For these reasons, renowned economist John Maynard Keynes favored inflation over stay to stimulate the economy.
If a central authority charges and charges negative interest rates, the resulting funds are used to cover operational and administrative costs. When a government administers the delay currency, the fees are used as tax revenue to fund government programs and services. Some proposed systems provide for the redistribution of funds equally to the population of currency users. Alternatively, the fees may cover the actual costs of storing goods or gold.
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