Here's an idea I had never heard about. The government could use an alternative currency that loses value over time to encourage spending. You would spend it like it was burning a hole in your pocket. Apparently there is historical precedent:
Based on the theories of Silvio Gesell, a German "quasi-economist", one such currency, the wära, was used to revitalise Schwanenkirchen, a Bavarian coalmining village, in 1931. "No one who received wära wished to hold [them], the workers, store-keepers, wholesalers and manufacturers all strove to get rid of them as quickly as possible, for any person who held [them] was obliged to pay the tax. So wära kept on circulating, a large part of [them] returning to the coal mine, where [they] provided work, profits and better conditions for the entire community," Fisher wrote approvingly.
"The miracle of Schwanenkirchen" is a historical footnote, but as deflation fears increase, and interest rates fall close to zero, the allure of such currencies may resurface. Though there are alternative currencies everywhere, Germany is particularly fond of Gesellian depreciating varieties. Bavaria still boasts the biggest in the country, the chiemgauer.
Named after the region where it originated in 2003, the chiemgauer can be used alongside the euro in more than 600 shops and firms in the area. About 300,000 of them are said to be in circulation. In the town of Traunstein, the chiemgauer can be spent on newspapers and food and some people are paid in it.
Spent it must be, because it loses value every quarter. The notes have an expiry date after which they need to be renewed with a sticker costing 2% of their value. The quicker money is spent, the faster, in macroeconomic terms, its velocity. Gesell argued that a higher velocity of money helps combat deflation.
Frankly I doubt that such a currency's use would ever be that widespread. Would you want to get paid in it? But as countries face spending crises, ideas like this may make a comeback.
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Most economists recommend a little bit of inflation instead.
If this type of currency were introduced here, I certainly wouldn't accept any payment with it. I don't know why it worked in Schwanenkirchen, because I don't know why any people would have accepted it. It seems like only way this would work is if people had no other choice but to use it, either by law, or by removing other currency. Clearly, it has worked, I just don't understand why.
Interesting idea, but it somehow it strikes me as much better on paper than practice. I could see it working on things like tax rebate checks, or similar direct stimulus funding, but since tax rebates are kind of retarded and most of the stimulus packaging, to businesses at least, is in the form of loans, I don't think it'd be worth the energy to set it up. I'm nowhere near being an economist though, so likely I'm overlooking something.
Ithaca NY has had an alternative currency since 1991 called the Ithaca Hour. Most of the locally owned stores will take them for at least partial payment for goods and services. All that being said, I've lived here since 2005 and I've never actually seen anybody use them. You can see the website at: http://www.ithacahours.org
The funny thing is that most contemporary fiat currencies, including the US dollar, work the same way via gradual inflation of the money supply. In the 1930s, when exchangability for gold or gold price pegs were still popular (I think the primary currency at the time and place was a gold-standard based reichsmark), this would have been fairly radical departure.
catgirl,
There is some government intervention required to make value-losing currencies work, and while forcing their usage has been a common practice, there are subtler ways of giving them value. For example, during the US civil war the Union issued greenbacks without any collateral backing. The goverment accepted both precious metal-backed currency and fiat greenbacks at the same rate and would generaly pay using greenbacks when they would be accepted. People prefered to hold precious metal-backed currency with the same denomination, but greenbacks, since they were just as good for paying taxes or other debts to the goverment, still traded for precious metal-backed currency at a discount.
I read a similar piece written by George Monbiot only a few days ago. I'm also no economist, but it seems there is some potential in it.
It seems part of the system's success lies in it's narrow spread, i.e. not worldwide, and lack of central bank interaction. This subject is apparently described well in Bernard Lietaer (2001), The Future of Money.
Don't some gift cards work this way? They lose value with time, or zero out. Friend who emigrated from Germany between the wars told me of inflation there. He showed me a 100 mark note overstamped to be a million marks. Stores would be closed until noon, marking up prices. Wives would wait at the factory gate with wheelbarrows for their husbands to bring them their day's wages. Then they would go to the stores and spend it all.
In 1933 a Bill for the US Government to issue $US1 trillion of self-liquidating negative interest money was introduced to Congress.
On February 17, 1933, Senator John H. Bankhead of Alabama introduced a bill into Congress for the purpose of authorizing the Federal Government to issue a dated Stamp Scrip that shall operate as legal tender during the limited period of the issue. Senator Bankhead's plan is that this emergency issue be injected into the national circulation, partly through the regular expenditures of the Federal Government, partly through the expenditures of the state governments among which certain shares of the scrip issue would be apportioned, and partly through localities among which the states would further sub-divide the issue.
Personally I prefer alternative local currency only good in one particular region or area, like www.berkshares.org