Demurrage | FairFunds

Demurrage and Velocity of Money

Demurrage is a holding fee. The currency expires at the end of every quarter (or 6 months) and must be renewed by purchasing a stamp and affixing it to the currency. This pays for the management and printing of the currency, and also motivates holders of the currency to spend it before the expiration date, greatly increasing its velocity or rate of circulation.

According to Occupy School of Money, Chapter 9 - Demurrage Tax, demurrage tax corrects a problem that appears in the definition of money. Money is considered to be that which enables exchange. That which enables transactions. As money passes from person to person it enables goods and services to be transferred. If transactions are inhibited the transfer of goods and services is interrupted. A further line in the common definition is that money can act as a store of value. The problem here is that it cannot do both at the same time. If it is being stored, it is removed from circulation and no longer enables transactions and the transfer of goods and services. New money, then, needs to be created to replenish the supply of money diminished by hoarding. The Hoarded Money then has no value. Demurrage Tax discourages the practice of hoarding money and redefines money as a medium of exchange and nullifies the ‘store of value’ component from the current definition of money.

What Caused the Collapse of the Renaissance?

The economic collapse was preceded and accompanied by a significant shift in the monetary system. The old demurrage currencies, the cause of the renaissance, had fallen out of fashion for these reasons:

1. The demurrage system had been abused; some rulers recalled and reissued coins far too often.
2. Expanded kingdom size made demurrage impractical. By the end of the 13th century, the French kingdom had grown so much in size that it had become impractical to recall the currency.
3. Currency debasement replaced demurrage. Precious metal content of the coins was reduced to raise revenue.
4. Royal monetary authority had been enforced militarily. Local demurrage currencies that encouraged circulation were replaced by centralized currencies that encouraged hoarding and inflation.

This new situation created an economic collapse and a weakened population that made possible the Black Death to grow to disaster. Between one third and one half of the population of Europe would die.

From The Mystery of Money, Bernard Lietaer, p. 172.