Business and Personal Finance Dictionary

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• DEMURRAGE CHARGE
  
  A time-related charge on outstanding balances of a currency. Acts similarly to a negtive interest rate, and was designed to give a disincentive to hoard the currency. Savings would then occur in forms other than accumulation of the medium of exchange. Silvio Gesell developed the theory that money is like a public service (like public transport), and therefore a charge is justified. Both John Maynard Keynes and Irving Fisher provided theoretical foundation for this approach, and it was implemented in the "stamp scrip" of the 1930's. For a more detailed description of how demurrage charges can be applied to today's currencies, see Bernard Lietaer's "Community Currencies" article. A negative-interest currency--like any commodity that has a significant storage cost--becomes automatically more valuable over time (a look at the price of future delivery of gold or copper in the financial pages compared to today's "spot" price shows that effect).... There is an additional beneficial effect with regard to the environment. The higher the money rate of interest, the stronger is the pressure to discount the future and to place immediate gains ahead of long-term concerns. With negative-interest currency, this pressure is not only absent but even reversed, and more environment-friendly priorities automatically prevail. During the economic depression of the 1930s, Europe saw a number of practical monetary experiments with negative-interest alternative currency. The device worked splendidly. The alternative currency (typically issued by a small city or region) had many times the rapidity of circulation of the official currency, and the anticipated employment and environmental benefits were actualized. In Worgl, for example, people spontaneously started replanting forests just to dispose of their negative-interest currency in anticipation of future cash flow to be expected from the growing trees.
  
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