Deflation and the scrip

In a previous posting I suggested that the Bank of England may run out of bullets in the traditional monetary tool of reducing interest rates; you can’t get below 0 per cent. Some have discussed “quantitative easing”, which is printing money (increasing the money supply), by another name. Yet all this is more for addressing the mess that is the banking system.

For the wider economy, how about a discussion on better ways to encourage private consumption.

Last year, the USA provided many taxpayers with a one-off payment, as part of a stimulus package. I was indeed a fortunate recipient. But like most others, I simply saved it away; these payments did not produce much money multiplier effect.

Instead, The Economist recalls the practice of the “stamp scrip”. In sum, scrips are notes of tender (like cash), except that they lose their face value over time, through a “depreciation stamp” or other device. Think of it as a tax for holding cash. The effect is ensure that individuals don’t hoard scrips, as they will ultimately become worthless.

Back in the USA, if I had received a scrip that I could use on anything I liked, but had to “spend” it before a certain date, I certainly would have. And from a libertarian point-of-view, let consumers decide what they want to buy, whether it’s towards a new car or anything else; it puts the direction of the economy back into the taxpayers, not particular powerful business lobby groups.

The Economist article highlights some of the history of scrips, much of it from Germany. Indeed, for such a system to work, you need willing recipients of scrips. Bavaria demonstrates a contemporary application, where since 2003 more than 600 shops and firms in the area will accept their alternative currency, the chiemagauer (alongside the euro).

I can see a successful pilot in America, because a significant state benefit is welfare stamps (vouchers), which must only be spent on food items (and can’t be used for tobacco and alcohol). Some adaptation of the existing administration of food stamps could be applied.

Could Northern Ireland be a testing ground? As a reserved matter, it would be up to HM Treasury. But why not have a “Northern Ireland scrip” redeemable alongside the Pound Sterling? If successful, it could be applied to wider areas as the need arose.

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