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Gesell's interest-free money is the future replacement of usurious interest.
Money. What is money? It seems that everyone knows what it is. Does he know money that loses its value every week? No, no inflation. And simply because a special coupon is pasted on them. What about interest-free money? Are you familiar with Gesell's term money? Do you know what demurrage is?
About all this in the material of the candidate of economic sciences Alexei Evgenievich Sosnin, who sent his article for publication on the resource nstarikov.ru.
Gesell's money and the reformatting of the financial system
Interest-free money based on demurrage - a theoretical abstraction or a real plan to reformat the global financial system?
Recently, pessimistic forecasts of economists and analysts about the inevitable collapse of the modern financial system have begun to sound more and more often. The debate is, perhaps, only about which segment of it will collapse first - the US dollar, the euro, the options and futures market, or the US government debt pyramid.
At the same time, it is known that the foundations of the modern financial system were laid more than a hundred years ago - the US Federal Reserve banking system was created in 1913. The idea that a group of private banks take over the circulation of money in the United States, and then practically the whole world, is striking in its boldness and breadth of intent. As a result, lending to the US government and the use of the dollar as a world currency for almost a century led to an unprecedented redistribution of national wealth and its concentration in the hands of a very narrow group of people. According to Credit Suisse, by 2016, 1% of the population in a number of countries owned 40-75% of the national wealth. For the US, this figure was 42%.
At the same time, the debt pyramid is growing. Public debt, for example, the United States in 2017 reached 20 trillion. dollars, this is more than the GDP of this country. The prospects for its redemption do not look realistic. At the same time, its further exponential growth is obviously not a good idea either. The situation is not much better in other countries. Today we can state that the main goals of the authors of the plan to dollarize the world economy on a percentage basis have been achieved, and now they are faced with the question of curtailing this system. And it is unlikely that these people have not thought out ways out of this situation that are safe for their capital. Some events taking place in the last decade in the world financial and money markets give reason to believe that this option will be the replacement of modern interest-based money with a new monetary unit - the so-called. "interest-free" money.
Economists have long been exploring the possibilities of creating a monetary system based on non-usurious principles. An increasing number of them begin to hold the opinion that interest on loans and the use of money as a means of accumulating capital leads to irremovable contradictions in the economy. These include redistribution of national wealth in favor of creditors, inefficient distribution of production resources, regular economic and financial crises, as well as predatory and consumerist attitudes towards the planet's ecology.
The old economic paradigm is being replaced by a new one - the concept of "interest-free" money. Moreover, it is not a bare theoretical development. In recent years, in the developed countries of the world, we have seen more and more signs that the global financial system is consistently, albeit quietly, moving in this direction. The main markers visible to us on the roadmap of this movement are as follows:
— Limiting the circulation of cash, withdrawing large denomination banknotes from circulation, increasing the share of non-cash payments;
— Reduction of interest rates to almost 0%;
— Appearance on the market of financial instruments with negative returns.
We are already observing all these processes in many economically developed countries today. Since 2016, the European Central Bank has stopped issuing 500 euro banknotes. In 2018, they will be completely withdrawn from circulation. Negative interest rates on deposits are already being offered by banks in Switzerland, Sweden and Denmark. Since 2016, the ECB key rate has been 0%. The discount rate of the US Federal Reserve since 2010 does not exceed 1-1.5%. A decade ago, falling below zero government bond yields was an impossible event. Today, the volume of such government bonds in the world exceeds 10 trillion. dollars, and among them there are papers with a circulation period of several years. Thus, the reformatting of the global financial system in the direction of abandoning the principles of interest income is in full swing. In this regard, the study of interest-free money is of great interest. To do this, first of all, you need to familiarize yourself with the concept of demurrage.
Demurrage is an economic concept according to which money should gradually lose its value. Demurrage defines money as a means of circulation and payment, and does not assume that they perform the functions of a means of accumulation.
General concept of demurrage
There may well be monetary systems in the world that are not built on the principles of interest income. The first versions of such systems already existed at least a hundred years ago. However, because they run counter to the foundations of modern economics, they are usually cast in a bad light as the ideas of the marginalized. At the same time, a number of ideas for the development of a new type of economy were outlined, for example, in Paul Hawkin's book "The Ecology of Trade" (2010), as well as in the works of such innovators as E.F. Schumacher, G. Daley, M. Kennedy and a number of others. According to these authors, the new monetary systems will revive the economic activity of local communities, and will also help create conditions under which economic growth will be directly related to improving the well-being of people and preserving the ecology of the planet. The main principle of these alternative systems is the refusal of the monetary units to perform the functions of a store of value.
It was precisely such a radical solution that, at the beginning of the last century, was proposed by the economist Silvio Gesell in his book The Natural Economic Order (1916). Gesell's "free money" meant a negative cost of ownership, known as demurrage. Every week, a coupon must be glued to the bill, having a value of, for example, 0.1% of its face value. In fact, this coupon is a payment for the use of money, in other words - the money begins to depreciate over time.
Although this idea sounds strange, if not radical, it was supported by John Maynard Keynes himself - a recognized authority in economics. Moreover, this system has been tested and shown positive results. The experiment on the use of such money in the Austrian city of Wörgl, conducted in 1932, is widely known. As part of the experiment, local money was issued, on which their owners had to stick special stamps every month, worth 1% of the face value. Money ceased to bear interest and function as a store of value. The accumulation of money has become a kind of burden, like an excess of perishable goods. Therefore, people spent money faster, contributing to the growth of economic activity in the city. Unemployment fell sharply there, while the rest of Austria slipped into recession.
This system made it possible to carry out a number of necessary public works in the city. A year later, the unemployment rate in Wörgl fell by 25%. The volume of work performed in the urban economy increased by 220%, while the whole of Austria was in deep crisis. The experiment was terminated in 1933 when the local currency was banned at the behest of the country's Central Bank, which saw it as a threat to its monetary policy.
Demurrage has a number of important economic and social effects. Initially, it is designed to "equalize" material goods, which lose value as a result of natural depreciation, and money, the value of which increases over time. A demurrage-based currency is based on the fact that the same laws apply to money as to any other commodity that requires special effort to preserve.
Jordan McLeod, author of The New Currency: How Money Is Changing Our World (2009), explains it this way: “We view the existing form of money as giving its owners a wholly unwarranted power to market goods and services. This power is able to withdraw money from circulation in order to gain an advantage over suppliers of goods and over debtors. To solve this problem, he proposes to apply a scientific approach that will allow the development of a monetary system that reflects the natural laws of nature.
The author proposes to consider a basket of goods used in a conditional economy, which contains x centners of wheat, y liters of oil, and so on. Assume that the cost of storing a given basket of goods is 5% per year. Then it would be advisable to establish a fee of 5% per year for the withdrawal of money from circulation. By this we will equalize the rights of the owners of money and suppliers of goods, creating incentives for mutual trade. As a result, the speed of turnover and market liquidity will increase, and most of the money will always be in circulation. Due to the 5% storage fee, the money received in the future will be of more value than the money currently available. This will change the current situation in which future payments are discounted in relation to the present.
The fee for holding money, called demurrage by Gesell, will encourage people to spend as much as they need and look for other ways to accumulate and save, such as investments in the real sector, loans, etc. The owner of the excess money will now have every motive to give it out as interest-free loans. The fee for holding money will cause the interest income to disappear.
Gesell wrote: “Commodities in general, such as feed, fuel, fertilizer, etc. can enter the market circulation only on the condition that it is indifferent for the participants in the trade whether they own money or goods. And this is possible only under the condition that money has the same properties and disadvantages as goods. Goods rot, deteriorate and rust. Therefore, money can quickly and efficiently perform the function of a medium of exchange and payment only when it acquires the same properties and requires expenditure to maintain its value. Such money will never be preferred over commodities.” (Gesell, Silvio. Natural Economic Order, 1916).
There is certainly logic in this. The question arises whether this idea will work in practice and whether there are any hidden "pitfalls" in it?
How is demurrage different from inflation?
The term "demurrage" comes from the Latin word "delay", "delay". It is a legal term meaning a statutory fee. In relation to monetary policy, this fee is levied in favor of the issuer of money. If money is issued by the state, then demurrage becomes a kind of tax. Whether money is issued by the state or by a local community, demurrage can act as a means of redistributing public goods and purchasing power. It leads to a reduction in the amount of money in circulation, which is usually accompanied by deflation - a decrease in prices. In addition, in the absence of the need to pay interest on loans, entrepreneurs and companies will no longer shift this burden onto the shoulders of consumers (according to M. Kennedy, in European countries the share of interest costs reaches 30% of the cost of any product or service). Thus, demurrage stimulates consumption and inhibits the accumulation of money.
Inflation, on the contrary, causes an increase in prices due to the depreciation of the currency - a decrease in its purchasing power. Inflation leads to a redistribution of purchasing power from the population to the issuer of money. It encourages saving and discourages consumption. These two phenomena, demurrage and inflation, are opposite in their essence.
While the concept of interest is about discounting future payments, demurrage does not separate present and future cash flows. For example, currently a forest area that could generate $1 million in revenue each year for the foreseeable future would be valued as a bad asset if it could be cut down and generate an immediate $50 million return. (Present value of a $1 million annual payment stream. discounted at 5% is $20 million.) This approach encourages the shortsightedness of businesses willing to sacrifice even their own long-term interests for immediate short-term gain.
Such behavior is considered quite rational from the standpoint of an economy based on loan interest. Discounting future streams of payments makes it possible to "cash out" all the natural resources of the planet by arranging their wholesale sale. Under the conditions of demurrage, business interests, on the contrary, will require the preservation of the forest as a source of future income.
Interest income contributes to the concentration of capital, while demurrage stimulates its redistribution. Interest income, like demurrage, is a payment for the use of money. However, the key difference between them is that in the first case, this fee goes to the owners of money - the owners of financial capital. In the second case, this fee is paid by the owners of money, contributing to a more equitable distribution of national wealth.
What happens to savings under demurrage conditions?
Gesell wrote: “Contrary to the predictions, “free” money has refuted all the negative predictions of the critics. They argued that there would be no opportunities for savings, that the amount on deposit would decrease over time under the influence of the demurrage rate. But it's not. Now I can get much more than before. Yes, I no longer receive interest on the deposit. But this is even better, because there are much greater opportunities to increase my savings.”
Today we save the money we have left after paying a large share of interest expenses directly and indirectly. Indeed, in a modern economy based on interest, the cost of servicing debts is included in the cost of goods and services of all state and municipal organizations, as well as private companies. According to estimates, only the cost of servicing state and corporate debt is at least 10% of the value of the gross domestic product of the Russian Federation. The average debt burden (PTI index, payments to income) of individual borrowers in Russia exceeds 25%. When interest rates are lowered or zeroed out, prices in all sectors of the economy will have to fall, proportionally increasing your savings rate. Losses on unearned interest on the deposit will be more than offset by the growth in your consumption and savings.
As Gesell wrote, “Rentier will most likely not like a cut in the interest rate, but we working people will welcome this move. We will never be able to accumulate enough capital to live on the interest income from it. But we can live comfortably on our savings. We will not leave to our descendants money capital as an ever-increasing source of income. But is not the transfer to them of economic conditions in which the labor of people will be valued fairly, is not more than a fair substitute?
Thus, the contours of a possible new financial system are gradually beginning to take shape. The modern financial system, based on loan interest, seems to have fulfilled its tasks in full. A significant part of the world's industrial and financial assets, as well as real estate, is already controlled by a relatively small group of owners. In this regard, for the regulators of this system, it is extremely important to prevent its catastrophic collapse and a consistent, gradual transition to a new type of money that is not associated with the need for an exponential growth of debts.
Bibliography
Margrit Kennedy (2011). Money without interest and inflation. M.: Samoteka MFA "Awareness".
Credit Suisse Research Institute. The Global Wealth Report 2016. URL https://www.credit-suisse.com/us/en/about-us/research/research-institute/news-and-videos/articles/news-and-expertise/2016/11 /en/the-global-wealth-report-2016.html
Jordan Bruce MacLeod (2009). new currency. Integral Publishers.
Paul Hawken (2010). The Ecology of Commerce Revised Edition: A Declaration of Sustainability. Collins Business Essentials.
Silvio Gesell (1916). The Natural Economic Order. Translated by Philip Pye MA, TGS, edition 2007.
P2P Foundation Website Materials URL http://wiki.p2pfoundation.net
Sosnin Alexey Evgenievich, Ph.D.
On monetary policy in the context of economic sanctions
... This was the case in the Soviet Union, which was under a permanent economic blockade. Through trial and error, the Soviet state arrived at a three-loop monetary model.
The first circuit is external, serving the country's economic relations with the rest of the world. Here foreign currency was used exclusively. The second circuit - non-cash money, ensuring the functioning of enterprises, the reproduction of fixed and working capital. The third circuit - cash circulation, serving almost exclusively the population (retail trade in goods and services). Between each circuit of money circulation there are "gateways" and "valves" with the help of which inter-circuit relations are regulated. ...
...
The model of the Soviet economy was not created by revolutionaries from 1917, but by professionals.
...
here
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This can be schematically represented as follows :
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At the start :
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Challenge: 100 times the starting deposit.
At the start :
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Part I of a conversation with Noam Chomsky. One of America's greatest intellectuals, a professor of linguistics at the Massachusetts Institute of Technology, wrote a book called Requiem for the American Dream. In it he formulated ten principles of concentration of wealth and power, which guide the global elites of the West to consolidate their domination. In an interview with Gotcha Contact host Chris Hedges, Chomsky goes into detail on each of these principles.
https://doc.rt.com/filmy/10-principov-noama-homskogo/
Part II of a conversation with Noam Chomsky. One of America's greatest intellectuals, a professor of linguistics at the Massachusetts Institute of Technology, wrote the book Requiem for the American Dream. In it he formulated ten principles of concentration of wealth and power, which guide the global elites of the West to consolidate their domination. In an interview with Gotcha Contact host Chris Hedges, Chomsky goes into detail on each of these principles.
https://doc.rt.com/filmy/noam-homskij-chast-2/
Lately there have been some dashing cavalrymen on the forum, eager to crush the hell out of forex. But they have no idea what forex is all about.
For such "invaders" for a start, before attacking, in order not to break their neck (although they will break it anyway), it is highly recommended to read the article:
On manipulation of the global currency market
In his article "On currency policy in the face of economic sanctions", he made a clear thesis: the Russian rouble must in no way become an international currency with which Russia could settle its accounts with other countries. And this was the interpretation of a recent statement by Deputy Foreign Minister Sergey Ryabkov, who said that with the tightening of economic sanctions, efforts should be stepped up to free Russia from its dependence on the dollar. This dependence should certainly be lifted, but not by replacing the US dollar with the Russian rouble in international payments.
Moreover, the Russian ruble should be forbidden to leave the borders of the Russian Federation at all; it should be exclusively the national currency unit. Such a prohibition is an important, but not the only condition for the financial and economic stability of the state.
My thesis is based on the tried-and-true practice of the Soviet Union as a state currency monopoly: the Soviet rouble was an exclusively domestic money, and the external payments of the USSR were made mainly by the dollar, franc, pound sterling and other freely convertible currencies. Later, in economic relations with the countries of the socialist camp,the convertible rouble, a supranational currency within the Council for Mutual Economic Assistance (CMEA), became the main currency. The currencies of economically less developed countries and gold could be used as exotic means of payment. Bilateral and multilateral clearing was used in most cases, reducing the need for currency. Exporting the Soviet rouble outside the country was forbidden.
To provide a better understanding of the threats posed by the ruble leaving the country, I will briefly describe the structure of the modern currency market. It is also called the FOREX market, or FOReign EXchange, a market for inter-bank currency exchange at free prices. Operations in this market may be trading, speculative, hedging (leveling out risks) and regulatory (currency interventions by central banks). The enormous impulse for the rapid growth of the foreign exchange market came from the transition from the Bretton Woods to the Jamaican monetary system in the 1970s. At the Jamaican Conference in 1976 it was decided to move from fixed exchange rates to market-based exchange rates. Fluctuations in exchange rates complicated world trade and economic development on the one hand and on the other hand served as a breeding ground for speculative profits. Under Bretton Woods system a currency market also existed, but it was strictly regulated to exclude large-scale speculations. Currency transactions on it accounted for 90 per cent of world trade and related economic activities.
In 1977, according to Bank for International Settlements (BIS), daily turnover on the world foreign exchange market amounted to $5 billion. Ten years later, in 1987, daily market turnover increased by a factor of 120, reaching 600 billion dollars. At the end of 1992, daily turnover passed the $1 trillion mark. In 1997 the figure was $1.2 trillion and in 2000 it was $1.5 trillion. In 2005-2006 the volume of daily turnover in the FOREX market fluctuated, according to various estimates, from $2 trillion to $4.5 trillion, and in 2010 it was $4 trillion. In the first half of the current decade, daily turnover, accordingto the BIS, hovered around the $5 trillion bar. That is, in three to four decades, currency market turnover has increased by three orders of magnitude (1,000 times!). Experts estimate that by 2020, the daily turnover in the FOREX market may reach $10 trillion.
Transactions in this market are carried out through a system of institutions: central banks, commercial banks, investment banks, brokers and dealers, pension funds, insurance companies, and transnational corporations. FOREX is vastly different from other financial markets; it assumes no government intervention in exchange transactions (there is no official exchange rate, no restrictions on the direction, price and volume of transactions). Some rules govern primarily the relationship between the client (trader) and the intermediary (broker). On the whole, the currency market can be hardly called an over-the-counter and global market. Unlike, say, the credit or stock markets, which are still controlled by the national supervising bodies and maintain some autonomy. You can enter the stock market if you have at least $100 in your pocket, things are different on the currency market. The minimum transaction size on the FOREX market ranges from 500 thousand to 1 million dollars. Many Russians have no idea that their money deposited with a commercial bank can be manipulated by that bank. Since the FOREX market is almost entirely speculative, as a rule, people do not play here for their own money but for borrowed ones.
The currency market closely overlaps with the derivatives market: a great part of transactions here is registered not as spot transactions (immediate delivery of currency, direct conversion of currency), but as options, futures, swaps, etc. This is something like gambling, a betting game. A bet is made to receive a premium, and the actual delivery of the currency takes place as an exception. Nevertheless such virtual operations can (and do) have a significant influence on currency quotes.
The game in the FOREX market is fierce. It is believed that up to 80% of new Forex traders lose their deposited money within half a year. And within a year, about 96% of market investors lose all their investments. Recently I came across an even stricter estimate: the number of losersranges from 97% to 99% of the total mass of traders in this market. That said, ensuring a constant influx of newcomers is essential for the smooth functioning of the market.
And the market is won by those who have insider information, who plan and organise transactions. All the talk about the foreign exchange market being the freest and most unregulated is aimed at the millions of potential newcomers who will have to bring in money and voluntarily give it to the market-makers, which are the central banks and some of the biggest private banks. Turning to the question of market-makers,according to the BIS survey as of April 2016, individual currencies accounted for (%): US dollar, 40.30; euro, 18.70; Japanese yen, 10.80; British pound sterling, 6.40; Australian dollar, 3.45; Canadian dollar, 2.55; Swiss franc, 2.40; Chinese yuan, 2.0. The Russian rouble was 17th on the list with a share of 0.55% (between the Turkish lira and the Indian rupee).
The main players in the global currency market are the US Federal Reserve, the European Central Bank (ECB), the Bank of England and the Bank of Japan. Currencies issued by these central banks account for 76.2% of all transactions in the global foreign exchange market. These central banks coordinate closely (with the involvement of an intermediary such asthe Bank for International Settlements in Basel). In particular, measures are taken to minimize exchange rate volatility within their "currency pairs": US dollar to euro, US dollar to British pound; euro to British pound, US dollar to yen, euro to Swiss franc, etc. One instrument to reduce currency volatility among the Gilded Billion countries iscurrency swap(currency exchange) agreements between their central banks to quickly intervene in the foreign exchange market and stabilize exchange rates.
Until 2011 unlimited swaps between major central banks were open for 7 days. In autumn 2011 the US Federal Reserve, the European Central Bank (ECB), the Bank of Japan, the Bank of England, the Bank of Switzerland and the Bank of Canada (the "six") agreed to coordinate actions to ensure liquidity in the global financial system by extending currency swaps for up to 3 months. Finally, on 31 October 2013, the Six agreed to make interim currency swap arrangements permanent. In effect, an international currency pool was born. The world's six leading central banks have created a coordination mechanism that will allow for a rapid build-up of liquidity in participating countries in the event of deteriorating market conditions and major currency market turbulence. Some refer to the G6 agreementas a global monetary cartel of central banks, which could be the prototype of a future global central bank. "The P6 has consolidated itself in relation to countries outside the club of the "chosen few". Sceptics, not unreasonably, believe that there is no point in discussing a single monetary policy within the G-20. The volatility of currencies outside the G6 is considerably higher than that of the currencies of this cartel. Moreover, the volatility of peripheral currencies, which include the Russian ruble, is deliberately stimulated, which makes a lot of money. And the insecurity of the peripheral currencies makes the economies of the respective countries unprotected.
The central banks of the "six" act in close coordination not only with each other, but also with the largest private banks, funds and other participants in the currency market. The leading traders in the interbank FOREX marketare(share of total turnover in % as of May 2016; in brackets, bank's country of origin): Citi (US), 12.9; JP Morgan (US), 8.8; UBS (Switzerland), 8.8; Deutsche Bank (Germany), 7.9; Bank of America Merrill Lynch (US), 6.4; Barclays (UK), 5.7; Goldman Sachs (US), 4.7; HSBC (UK), 4.6; XTX Markets (UK), 3.9; Morgan Stanley (US), 3.2.
These ten banks account for 2/3 of FOREX market turnover. These are the market-makers who never lose and regularly collect tribute from "amateurs". There are five banks from the USA in this top ten, accounting for 36.0% of FOREX market turnover. Then there are three British banks and one each from Switzerland and Germany. All of the banks listed are closely tied to their respective central banks, they have no problem obtaining the required volumes of currency from central banks for operations on the currency market.
In recent years cases of currency manipulation by large banks have been detected. For example, British HSBC, Barclays and RBS, Swiss UBS, American JP Morgan, Citigroup and Bank of America were found to have manipulated rates. The fines levied by US, UK and EU financial regulators for such manipulation amount to many billions. The essence of the manipulation was that banks falsified transaction information and manipulated the flow of customer orders to buy and sell currencies.
However, financial regulators do not want to see the forest for the trees. After all, there is a strategic manipulation of rates of national currencies on a global scale, which involves leading central banks of "golden billion" countries. The fundamental distortion they achieve through manipulation is the overvaluation of the dollar, the euro, the British pound and other "chosen" currencies relative to the peripheral currencies. They do this by having the central banks of peripheral countries buy up the "chosen" currencies. Such buying is disguised by the legend that there can be no life on earth without the constant accumulation of foreign exchange reserves. Many peripheral central banks are actually playing against their national currencies on the side of the Fed, the ECB, other "favoured" central banks and the money masters behind them.
https://www.fondsk.ru/news/2017/08/23/o-manipulaciah-na-mirovom-valjutnom-rynke-44532.html
Lately there have been some dashing cavalrymen on the forum, eager to crush the hell out of forex. But they have no idea what forex is all about.
For such "invaders" for a start, before attacking, in order not to break their neck (although they will break it anyway), it is highly recommended to read the article:
On the manipulation of the global currency market
What this article is saying is that the market is a controllable mathematical model. But you need an algorithm to control it, and the market has one. If you rely on this theory, then the market can be calculated, it's not chaos.
Exactly.
The market is a controlled dynamic system.
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