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3. The Negative Interest Rate
Besides being commodity-based, the New Currency
would have a negative interest rate reflecting the costs of
storing and insuring the underlying commodities and transporting
them to the key international markets. Transferring
these real costs to the bearer automatically provides all the
advantages of stamp scrip.
There are a number of ways in which this negative
interest rate could be levied. To begin with, most of the
"money" in circulation takes the form of accounting entries
in a computer somewhere, and it would be fairly simple to
electronically charge the negative interest rate to these
accounts. For bills actually in circulation, one simple method
that has already been used is the stamps mentioned above. It
is also possible to use an electronic debit card similar to the
magnetic-strip cards used for the rapid transit systems of San
Francisco and Washington, D.C.
As international trust in the New Currency increased,
one would expect that fewer holders would request redemption of the currency
against physical delivery. This was the
case with the gold-backed dollar in the postwar era. People
rarely requested physical delivery; it was sufficient to know
that such delivery was available.
One obvious concern about this concept is the effect
on normal banking if a country were to shift to New Currency.
Let us assume that the negative interest rate being
charged to the public is 2 percent a month. The banks themselves would be charged
a slightly lower percentage (perhaps 1 percent) on their own funds
to provide them with incentives not to hoard their reserves.
Banks would be able in a free market to make loans for housing or other credit-worthy projects
at a low but positive rate, such as +l or +2
percent. In other words, banks could still have their normal
spreads between the cost of funds and the market interest
rates, and market rationing would still operate. The only (but
significant) difference from the "normal" interest rate
structures is that the starting point would be a negative 2 percent
instead of some positive rate, as is the case everywhere today.
With a reduction in the propensity to hoard currency,
one might wonder whether savings and investment would
be drastically reduced. People would, indeed, save less in the
forms of cash, savings accounts, and cash equivalents. But
they would save more in real physical assets, including
productive assets. Stocks and bonds would, in fact, become
on the whole more valuable and easier to sell than in a
"normal" market economy because they would represent
promises to future cash flows. (The dynamic is similar to
what occurs when interest rates drop and stocks boom.) All
other things being equal, one should even expect a net
increase in investments after introducing negative-interest
currency, but the forms that these investments would take
would be different.
The New Currency could be introduced gradually,
while the old currency was still in circulation. Furthermore,
negative-interest scrip could be employed locally either
independently or as part of an overall national plan to move
toward a convertible New Currency.
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4. Summary: Advantages of the New Currency Concept
In sum, the New Currency concept can provide a
number of advantages. First, as a number of economists have
concluded, negative-interest currency is one of the few true
long-term structural measures that can spontaneously help
to achieve ecologically sustainable growth within a market
economy.
Second, negative-interest scrip can be used on a
de-centralized basis to stimulate local initiatives and resolve
local social and economic difficulties. This could be done
independently by local decision or as a pilot project to test out
aspects of the plan before it was adopted at the national level.
Third, the anti-inflation impact as a consequence of
both its automatically increasing value over time and the
elimination of the interest component in the costs of all goods
and services.
Fourth, the New Currency would become immediately convertible without
the need for any new international
agreements. It would constitute an attractive new currency
because of its inherent stability and its built-in protection
against inflation. It would automatically provide a country
with very substantial reserves, including present inventories
and future production capacities of up to a dozen commodities.
It would also provide greater flexibility in the disposal of
these commodities in the international markets.
Fifth, the scale and speed of introduction of the stamp
scrip experiment are extremely flexible. Negative-interest
currency could be introduced in parallel with existing currency. It could be made permanent
after its benefits were
fully demonstrated, or the scrip could be retired if it were
judged no longer to be needed. It could be introduced in some
cities or regions and not in others.
Finally, the two approaches can be used together. A
New Currency issued by a central bank would create an
internationally convertible currency of remarkable stability.
Decentralized issues of stamp scrip by a variety of local
communities would maximize the creation of employment
and economic activity in those communities. In combination,
the two approaches would mutually reinforce each other to
provide a flexible and powerful monetary strategy.
Daniel Webster (1782-1852)
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