Freigeld

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In the theory of Freiwirtschaft, Freigeld ('free money', German pronunciation: [ˈfʁaɪɡɛlt]) is a monetary (or exchange) unit proposed by Silvio Gesell.

Contents

Properties

Freigeld has several special properties:

  • It is maintained by a monetary authority to be spending power stable (no inflation or deflation) by means of printing more money or withdrawing money from circulation
  • It is cash flow safe (a scheme will be put in place to ensure that the money is returned into the cash flow - for example, by requiring stamps to be purchased and attached to the money to keep it valid)
  • It is convertible into other currencies
  • It is localized to a certain area (it is a local currency)

The name results from the idea that there is no incentive to store the money as it will automatically lose its value after some time. It is claimed that as a result, interest rates would drop to almost zero.

Theory

According to Gesell, all human-produced goods are subject to expensive storage, whereas money is not: Grain loses its weight, metal products rust, housing deteroriates. Therefore money has a supreme advantage over all other goods. John Maynard Keynes found another effect, which he deemed more important: liquidity preference. Being "liquid" with money is a great advantage to anybody, much more so than having comparable amounts (past utility) of any product. The result is that people will not even provide zero-risk, inflation corrected credits unless a certain interest rate is offered. Freigeld simply reduces this 'primordial' interest rate, which is estimated to be somewhere around 3% to 5%, by an absolute, in order to lower the average interest rate to a value around 0.

See also

References

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