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Economics - Jan 20

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Monbiot: If the state can't save us, we need a licence to print our own money

George Monbiot, The Guardian
It bypasses greedy banks. It recharges local economies. It's time to think seriously about an alternative currency
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... During the Great Depression, businesses in the United States issued rabbit tails, seashells and wooden discs as currency, as well as all manner of papers and metal tokens. In 1971, Jaime Lerner, the mayor of Curitiba in Brazil, kick-started the economy of the city and solved two major social problems by issuing currency in the form of bus tokens. People earned them by picking and sorting litter: thus cleaning the streets and acquiring the means to commute to work. Schemes like this helped Curitiba become one of the most prosperous cities in Brazil.

But the projects that have proved most effective were those inspired by the German economist Silvio Gessell, who became finance minister in Gustav Landauer's doomed Bavarian republic. He proposed that communities seeking to rescue themselves from economic collapse should issue their own currency. To discourage people from hoarding it, they should impose a fee (called demurrage), which has the same effect as negative interest. The back of each banknote would contain 12 boxes. For the note to remain valid, the owner had to buy a stamp every month and stick it in one of the boxes. It would be withdrawn from circulation after a year. Money of this kind is called stamp scrip: a privately issued currency that becomes less valuable the longer you hold on to it.

One of the first places to experiment with this scheme was the small German town of Schwanenkirchen. In 1923, hyperinflation had caused a credit crunch of a different kind. A Dr Hebecker, owner of a coalmine in Schwanenkirchen, told his workers that if they wouldn't accept the coal-backed stamp scrip he had invented - the Wara - he would have to close the mine. He promised to exchange it, in the first instance, for food. The scheme immediately took off. It saved both the mine and the town. It was soon adopted by 2,000 corporations across Germany. But in 1931, under pressure from the central bank, the ministry of finance closed the project down, with catastrophic consequences for the communities that had come to depend on it. Lietaer points out that the only remaining option for the German economy was ruthless centralised economic planning. Would Hitler have come to power if the Wara and similar schemes had been allowed to survive?

The Austrian town of Wörgl also tried out Gessell's idea, in 1932. Like most communities in Europe at the time, it suffered from mass unemployment and a shortage of money for public works. Instead of spending the town's meagre funds on new works, the mayor put them on deposit as a guarantee for the stamp scrip he issued. By paying workers in the new currency, he paved the streets, restored the water system and built a bridge, new houses and a ski jump. Because they would soon lose their value, Wörgl's own schillings circulated much faster than the official money, with the result that each unit of currency generated 12 to 14 times more employment. Scores of other towns sought to copy the scheme, at which point - in 1933 - the central bank stamped it out. Wörgl's workers were thrown out of work again.

... But even before you consider how it could be improved through modern information technology, several features of Gessell's system grab your attention. We need not wait for the government or the central bank to save us: we can set this system up ourselves. It costs taxpayers nothing. It bypasses the greedy banks. It recharges local economies and gives local businesses an advantage over multinationals. It can be tailored to the needs of the community. It does not require - as Eddie George, the former governor of the Bank of England, insisted - that one part of the country be squeezed so that another can prosper.

Perhaps most importantly, a demurrage system reverses the ecological problem of discount rates. If you have to pay to keep your money, the later you receive your income, the more valuable it will be. So it makes economic sense, under this system, to invest long term. As resources in the ground are a better store of value than money in the bank, the system encourages their conservation.
(20 January 2009)
Totnes Pounds, anyone? KS



Russians hoard cash as fear of crisis takes hold

Heather Stewart and Kathryn Hopkins, Observer (UK)
Muscovites are hoarding thousands of dollars in safety deposit boxes, as fears intensify that Russia is teetering on the brink of a full-blown economic crisis, after the government devalued the rouble five times in six days.

World oil prices have plunged from almost $150 (£102) a barrel to below $35, pushing the country to the brink of recession. "Russia is a volatile economy at the best of times: it's heavily dependent on commodity prices - on oil and gas," said Nigel Rendell, senior emerging markets analyst at RBC capital markets.

... The currency has shed 7% of its value in just five days, ending the week at 37.32 versus a euro-dollar basket. It has lost a fifth of its value since August, and Russian stock markets have lost 70% of their value since May.

Moscow has blown over a quarter of its foreign currency reserves over the last five months in a desperate bid to ensure that depreciation is gradual.

... Former Soviet leader Mikhail Gorbachev yesterday joined a chorus of influential Russians criticising the handling of the economic crisis. "Resources are directed not so much at protecting the interests of a majority of citizens as at saving the assets and property of a narrow circle of influential businessmen," said their letter, published in the Vedomosti newspaper.
(18 January 2009)



Financial crisis shows how economics can threaten democracy

Harold James, Taipei Times
The history of finance is partly the history of a struggle for a stable, secure way to measure value. And, like any quest for certainty in our unpredictable world, it was doomed to failure.

The latest financial crisis powerfully highlights this vulnerability, as it destroys any sense that we can put an accurate price on assets. Most people are now convinced that this shortcoming is inherent in the financial system. But uncertainties about value also expose deep problems in the political order...
(20 January 2009)

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