The ecology of money, by Richard Douthwaite
Search Contents Foreword Glossary Introduction Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Appendices

Box 3: Businesses organise their own currency to overcome money drought

One way that businesses can continue to make profits in periods in which the supply of national currency is inadequate is to allow each other credit. As discussed in Chapter One, the credit-control measures that most firms use to protect themselves whenever trading becomes difficult actually make matters worse. While it would obviously be a mistake for firms to have no credit control at all, what businesses need when national currency becomes scarce is a properly regulated system of mutual credit so that they can use much less normal money when they trade amongst themselves. The Swiss Wirtschaftsring (Economic Circle) co-operative (WIR) is such a system. It was launched in 1934 by a group of businesspeople to overcome the currency shortages of the time and has since grown into a massive organisation. In 1993, its 60,000 account holders turned over 2,521 million Swiss francs (£1,200 million).

The founders' idea was simply that traders who knew and trusted each other would extend credit for purchases within their group, cutting down their need to borrow from banks. According to report on the system in 1971: "they thought they could transact business among themselves with a system of chits similar to IOUs that would cover at least part of the price of any transaction, the balance being settled in the conventional way. (However) it was soon found that in order to bring about wider acceptance of these chits, and also to comply with existing banking laws and avoid financial losses, collateral was essential."

This insistence on collateral might partially explain why WIR has survived and similar systems established at the same time in other countries have disappeared without trace. However, an official history of WIR
18 produced for its 50th anniversary suggests that WIR is the sole survivor because the other systems did not realise the significance of what they were doing and closed down after the financial crisis was past. But opposition from vested interests played a part in some cases too. The founders visited circles in Norway and Denmark before starting WIR and when they returned to Denmark for a second visit, they found that the government had closed the circle there after pressure from the banks.

Essentially, WIR is an independent currency system for small and medium-sized businesses. A company wishing to join contacts a WIR office and sets up a meeting at which the firm's credit requirements and the collateral it is able to offer are discussed. As first mortgages in Switzerland do not usually exceed 60% of the purchase price of a property, the collateral most frequently offered is a second mortgage on a house or business premises (in recent years, over 80% of WIR's loans have been secured this way). A loan application is then sent to the WIR credit approval committee that checks the security and obtains a report on the applicant from a credit-checking agency. If the report and the security are in order, the new participant is given a WIR chequebook, a plastic charge card and a large catalogue listing other participants with whom the loan can be spent.

Although the sums in WIR accounts are denominated in Swiss francs they cannot be turned into normal currency, paid into ordinary banks or given to non-members. Even when someone wishes to leave the organisation, they cannot exchange the system's units (Wir) for national currency. As a result, the purchasing power created when the credit committee authorises a loan remains entirely within the 'ring', generating increased business for all participants. Secured loans of this type are cheap. In 1994, Wir mortgages carried a service charge of 1.75% and relatively long repayment terms could be negotiated; the charge for ordinary current-account loans was 2.5%.

In order to maintain the Wir's value, the credit committee restricts the total value of the loans to one-third of the system's annual turnover. All repayments are made in Wir (earned by selling goods and services to other members). Only service charges have to be paid in Swiss francs, since the co-op itself cannot function without some national currency. Its other charges, the cost of the WIR magazine and catalogue and a levy of 0.6% of the value of each cheque lodged to a participant's account, are all in Wir.

Almost every conceivable product and service was listed in WIR's summer 1994 catalogue, including 167 lawyers, 16 undertakers, 1,853 architects and 18 chimney sweeps. Not all suppliers take 100% payment in Wir, but with several sources listed for most products and services, it is generally possible to find at least one who will (especially at slack times of year or during sales). Prices and payment terms for Wir transactions are just the same as they would be for cash. And since the beginning of 1995, it has been possible to make combined payments of cash and Wir using a single plastic charge card.

The percentage of the Swiss franc price of the goods and services that participants will supply for Wir is discussed with each member when they join. The service charges mentioned so far only apply to 'official' members who have agreed to guarantee to accept at least 30% of the payment in the system's unit. Members unable to give such an undertaking are called 'unofficial' and pay higher charges. Income earned in Wir is, of course, taxable, and has to be paid in Swiss francs.

Overall, the Wir avoids the two main defects of national currencies: it should never be in short supply, and because no interest is charged for its use it does not create the growth compulsion. In addition, it does not have to be earned or borrowed from outsiders before it can be used. Its main drawback seems to be due to the way the WIR is run, rather than any design defect in the currency. The WIR is often regarded as a way of financing the working capital requirements of businesses, rather than purely of facilitating trade between them. As a result, too many long-term loans are issued and some members earn so many units that they become reluctant to take any more. The availability of mortgages has obviously compounded this problem.

Read a more detailed description of WIR in the online edition of Short Circuit
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Search Contents Foreword Glossary Introduction Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Appendices