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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.

"A disordered currency is one of the greatest political evils."

Daniel Webster (1782-1852)

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