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Money Literacy – Part V

Editor’s Note: This Part V of a series. Before continuing, please read Part I, Part II, Part III and Part IV if you haven’t already.

“Money” is nothing but a social construct that comes with a number of “rules of the game”. In one way, “money” has much in common with computer operating systems: most users are completely unaware of the degree to which these rules are flexible, malleable, and allow very different designs. So, before we ask ourselves: in what way could a different design of rules lead to a different role of money, it is worthwhile taking a look at what sort of phenomena the present arrangement gives rise to. A telling passage can be found in Bill Mollison’s autobiography:

For six days a week, 8 or more hours a day, for years on end, we felled and milled trees; at the end of each day, we had cut all the timber for houses. (…) On bad days, we cut five houses, on good days, seven.

We cut about 35 houses a week. But one lunch time, pondering on this remarkable record, I asked the apparently simple question of all seven of we mill-workers. “Do any of us own a house?” We all looked at each other; none of us did. To get a house, one would in those days borrow $7000, pay for 56 years, and repay $30,000 – 50,000 dollars. It all seemed ridiculous.

After very little discussion, we agreed to work one day for ourselves and easily cut seven houses.


Many working men must be able to count such wealth, but they never possess it. Something is seriously wrong and you cannot see what is wrong until you follow each product and its financing through. If I build a house for $7000 and it is ten years older, I may sell it for $30,000. The same house is sold for more money again and again and again. A confidence trick indeed. Every time it is sold, someone pays for it all their lives; yet it was already paid for! It seems clear that, in a very few weeks of a whole life, we could provide for all our needs; shelter, food, fuel, fibre, energy, the lot. But we waste our lives in debts. – Travels in Dreams, Tagari, p. 829

Things are quite a bit more subtle than presented here, but this passage certainly is valuable for raising the question: how big are the implications of the rules of the money game for society?

If money is needed for some specific economic activity, there are a number of alternatives to obtaining credit from a bank, which very often is the only strategy considered even though it may not be the economically most advantageous one. One such alternative would be subscription schemes: a book is announced and the money to print it is raised through pre-orders at a reduced price. Such schemes can become quite clever: The Permaculture Designers’ Manual gives the example of a restaurant that handed out dated meal vouchers at a reduced price (“A voucher for 8 dollars, for one 10-dollar meal, at one day in July”) to raise the money for major refurbishment. Here, something interesting happens: as these vouchers have an immediately verifiable value, they themselves become a sort of “valid currency” (in the sense of “having a verifiable value”, although they are not “legal tender”) that can be used to settle debts between people who use them. In the end, what the restaurant did was to enlarge the money supply in circulation themselves, rather than asking a bank to do such a favour for them. (Banks have the exclusive strange privilege to expand the money supply, cf. [1], and charge massively for exerting this holy power, in the form of interest, ultimately paid for in real economic goods and services!) So, the provider is using his customers as a “bank” here. Once one starts to develop an eye for this, one discovers a zoo of such “banking with the customer” schemes already being in place, from cell phone top up vouchers, to customer accounts, and even “company money” [2].

The essential insight here is: banks are not “holy institutions”, and there is pretty much nothing a bank can do (save from receiving large government bailouts maybe) which people themselves could not do as well – perhaps even in a much better way, considering the imperative of re-investing surplus from rehabilitative activities to further speed up rehabilitation, rather than re-investing loot to speed up plunder.

Wherever people can agree on rules to regulate the flow of claims on work, they can easily cast this into an own currency. As we have seen, taking away people’s freedom to come up with their own rules of the game for their currency is a serious step towards the destruction of their culture. But, this works in the opposite direction as well: if a culture wants to retain, strengthen, or rebuild its identity, it is well advised to take a close look into the money issue and start to design its own currency according to the rules that fit it best. The objective of such a currency is not to drive out the transregional currency, but it should be made very clear by which schemes the transregional currency in the past has elbowed its way into its present dominance.

There are a number of such regional currency schemes in place, quite many of them being based on ideas of the Austrian Silvio Gesell; a key one being that of “demurrage:” holding on to money rather than getting it back into circulation fast is punished in some form. While this rule seems somewhat popular among alternative currencies, it is by no means the only conceivable option: when it comes to the design of rules, the sky is the limit of our imagination.

A very interesting and quite successful regional currency scheme was set up in 2003 in a rural district in South-Eastern Bavaria (incidentally the home region of the author): the “Chiemgauer” currency [3]. This currency is restricted to a region of about 500,000 inhabitants and is governed by a few rules easily comprehensible by everyone, which, however, achieve quite interesting different effects depending on the role of the participant in the “Chiemgauer” economy.

Key rules are:

  • There is a registered association, the “Chiemgauer e.V.”, open to everyone, which administrates, runs, and sets the rules for the currency. The rules of the game are not cast in stone, but open for being fine-tuned by the inhabitants of the region (through participatory democracy) as needed in order to deal with positive or negative trends.
  • Formally, the “Chiemgauer” is a voucher whose value is identical to the Euro. Available denominations presently are 1, 2, 5, 10, 20, and 50 Chiemgauer.
  • When person X exchanges Euros for Chiemgauer, this is done at a 1:1 exchange rate. If, however, Chiemgauer are exchanged back by person Y for Euros, the reverse rate is 1:0.95. Of this 5% difference, 2% are presently used to pay the administrative costs for running the regional currency. The other 3% are passed on to a regional charitable organization (e.g. a kindergarten, a music school, a museum, etc.). This “charity tax” is entirely paid for by Y, the person withdrawing purchase power from the region (the reason for exchanging Chiemgauer into Euros, rather than spending them locally), while X gets to choose the charity (which is registered in a database along with the serial number of the bill). Charities receive the money generated from this scheme as Chiemgauer.
  • There presently is a “2% per quarter” depreciation fee on Chiemgauer, i.e. a bill becomes invalid after three months, unless upgraded by a stamp costing 2% of the bill’s value. This provides an extra incentive to keep the currency circulating fast.
  • From the perspective of a charity, asking their members to make their regional purchases in “Chiemgauer” with them as the re-exchange beneficiary is a great way of raising additional money at no additional expense to their members. As they receive this money in the form of “Chiemgauer”, they have an incentive to preferentially spend it on regional products.
  • From the perspective of a shop owner, the fee rates associated with accepting the “Chiemgauer” are comparable to the fees paid when accepting payment by credit card. However, it gives local businesses an interesting advantage over chain store competitors, as an enterprise that works by widely distributing centrally sourced identical goods throughout the country (rather than providing functionally equivalent goods produced from regional sources) is punished by the back-exchange tax not felt by regional businesses (who can pay their providers in Chiemgauer). As members of charitable organizations are keen on making their purchases in Chiemgauer, there is a need for opportunities to spend them, so accepting Chiemgauer means enlarging one’s customer base. Also, holders of Chiemgauer are keen on getting rid of that money fast, i.e. tend to pay their bills as soon as possible.
  • From the perspective of a (residential) consumer, exchanging Euros into Chiemgauer is a great way of supporting specific regional organizations that contribute to the cultural strength and identity of the region without extra direct costs.

This fairly clever scheme seems to have proven its value, as is witnessed by the growing popularity of this currency. It clearly illustrates what can be done just through the design of the rules of a currency. One might expect that much more would be possible if a bit of effort were invested into educating people about what money is, and how it works – or rather, how we can make it work to our advantage by appropriately designing its rules.




  1. It’s very true, the key for sound money is a tangible good backing it such as the promissory notes of the restaurant or the book publishing example. Any form of money that has tangible good backing is better than the fiat money we all grow up with. It’s very true that part of the challenge lies in educating people about money, how it came to be, what is it now, and to differentiate between sound money and fiat currency.

    Any expansion of the money supply must come as a result of increased productivity and thus increased true wealth. This is in contrast to the current fiat system whereby any increase in the money supply will result in destruction of its value (inflation) and thus making people poorer. Expansion of money supply by a central bank also redistributes wealth unfairly in the sense that early recipients benefit by being able to spend more at today’s prices before the effect of inflation sets. Eventually, the increased money will trickle to everyone, but those who receive the increase later will be worse off because prices have risen and thus the value of their money would have decreased. Often the decrease in money value is more than the increased supply received. (Has your wage rises keep up with inflation rate?)

  2. Money – any form of it – actually is a very poor way to store value. True value lies in productive assets. Creating a forest where there previously was desert produces value. Setting up money rules in such a way that it runs in alignment with these values, rather than counter to them, should be the guiding principle.

    Personally, I like the idea of a clean energy production capacity backed money system. But I’m undecided yet whether basing money e.g. on clean water might actually make more sense.

  3. Productivity is indeed what generates wealth. Money is simply a convenient byproduct for people to exchange the fruits of their labour. That is exactly how money came to be. At the most basic level, two producer exchanged goods. The baker exchanged a loaf of bread for a dozen of eggs from the poultry farmer. This is called direct exchange. Often it happens that the farmer doesn’t want bread but fish. So the baker has to exchange the bread for fish, and then exchange the fish for the eggs. This is indirect exchange. Fish is the medium of exchange. Fish is the money. It serves as a temporary value storage until it is exchanged with the end product that the baker wants. Note that indeed, money is created through productive activities, eg. the baker, the farmer, the fisherman.

    Warehousing played the function of present day banks. People store their goods in the warehouse for reasons such as safety and convenience. The warehouses issue certificate of deposit. Instead of physically exchanging products in a trade, people simply exchange the warehouse certificates. Over time, certain commodity became popular and emerge as the choice for money in most transactions. These were various forms of precious metals such as gold and silver. The warehouses continue to evolve into present day banks by storing money as deposits as well as lending out money for interest. As paper technology improves, paper warehouse certificates of gold/silver deposits became more popular. It is much easier and safer to carry paper than actual gold and silver coins that can be quite heavy and voluminous.

    Often many different forms of money are available and used in the market. Various gold and silver coins from different minters were available. There were no rules that mandate certain money to be used. Each seller and buyer are free to accept and offer any form of money they wish. In any case, there is a commodity backing the money.

    Fast forward to present days, money is no longer backed by any commodity such that it necessitates the legal tender law in order to force acceptance by the market. We all grew up in the time where money is believed to be a special object that needs to be specially regulated. But it is not true. Money is a commodity, just like any others. Money originated in the free market, out of productive activities by the people. That, we need to understand before we can identify the roots of current economic problems and think of a fix.


  4. Johan,

    I mostly agree. Note in particular that what you say implies that I am perfectly free to consider anyone deluded who thinks a pretty much useless curiosity such as “precious metals” have any economic value beyond the few proper uses we know for them. (Gold, for example, forms an eutectic with Silicon that is very useful for bonding ICs.) To me, gold and silver don’t have much of a value. There are a number of other things that do, however. As, for example, clean energy generating capacity. But if someone wanted to purchase my energy paying with gold, I’d tell him: “go find someone first who’s about as deluded as you are and thinks your gold is as valuable in comparison to my energy you think it is, and trade it for something I also consider as valuable.”

  5. Yes! You are free to accept only certain money. That is the essence of free market. In reality, there will be entrepreneurs akin to present money changer who will setup services for people to exchange the different forms of money. The exchange rate will of course depend on supply and demand, with the money changer taking a percentage as profit for their service.

  6. I like how the Chiemgauer system has a built in tax system in the form of depreciation that works even in a so called “black economy” but a flat tax system doesn’t help solve any proportional discrepancy’s in who holds the money.

    Besides changing the reserve ratio back to 1:1 for banks, I think that its crucial for us to come up with a fair and effective tax system that encourages people with the biggest surpluses to contribute more. Ever since Thatcher and Reagan came to power we have been heading in the opposite direction in an alarming rate to the extent of blurring the boundaries between free enterprise and slavery

  7. Glen,

    as I wrote, the key point is that this “democratic money” is flexible; the rules of the game can be tweaked, and occasionally are. Usually only slightly, of course, because no one would like to use any money that behaves in a different way each new week, but there have been, and are, some on-going experiments how to develop the scheme further.

    An interesting question might be: would it be useful to have a how-to-guide for replicating this scheme (or one similar to it)?

  8. So, with any money system that steals value for circulation in the “greater” community good. Its best to store your value in products of real value and not currency!

  9. Dan,

    …and that’s what such “Schwundgeld” currencies are all about: giving people a strong incentive to focus their thinking on real value and how to create it, rather than on hoarding the economic grease.

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