Demurrage currency, also known as depreciating money or stamp scrip in its paper money form, is a type of money that is designed to gradually lose purchasing power at a constant rate. Demurrage money is often confused with inflation, as they both cause money to lose value, but they have significantly different economic effects. Unlike normal money, demurrage is designed to be only a temporary store of value. Demurrage money functions primarily as a medium of exchange and a unit of account. Proponents of demurrage currency generally believe that the medium of exchange and store of value functions of traditional money are antagonistic against each other.
The German-Argentine economist Silvio Gesell advocated for demurrage currency as part of the Freiwirtschaft economic system. He referred to demurrage as Freigeld ("free money")—"free" because it would be freed from hoarding and interest. Gesell theorized that Freigeld would increase the velocity of money, eliminate inflation, reduce unemployment, create an interest-free economy, and lead to fewer recessions. John Maynard Keynes wrote "the idea behind stamped money is sound", but he also criticized it.
Demurrage money was used in ancient Egypt and in Europe during the High Middle Ages. It has been credited for the economic prosperity of those times. Shortly after Gesell's death, demurrage currencies peaked in popularity during the Great Depression as a series of emergency currencies, intended to reinvigorate the circular flow of income throughout the economy, due to their faster circulation velocities. Despite their success, most demurrage currencies were banned by central banks for violating national monopolies on currency. As of 2026, there are only a handful of local demurrage currencies that are still used, with the Chiemgauer being the most notable and widely used of them all.
Theory Functions of money While demurrage carrying costs are a natural feature of commodity money, demurrage has at various times been deliberately incorporated into currency systems as a disincentive to hoard money and to achieve more efficient allocation of capital in society, thus creating demurrage currency.
Freiwirtschaft economists propose that the function of money as a store of value is incompatible with its function as a medium of exchange for maximum economic efficiency. In The Natural Economic Order, Gesell wrote: "The power of money to effect exchanges, its technical quality from the mercantile standpoint, is in inverse proportion to its technical quality from the banking standpoint." This implies that money that is great for storing wealth, such as hard currency, is bad for functioning as a medium of exchange, even though the latter function was the prime reason why money was created in the first place. Since demurrage currency is deliberately designed to be bad at storing value, it is therefore great at functioning as a medium of exchange, which Gesell believed to be the only legitimate function of money.
As an example, if one person has a bushel of apples and another person has money, the person with the apples has to sell them within a relatively short time span (before the apples rot) to avoid the loss of his assets. By contrast, money owners can wait for the price to fall, since there are no carrying costs for holding money. Money owners only have equal incentives to exchange their assets when money is subject to demurrage fees.
Gresham's law that "bad money drives out good" suggests that demurrage currency would suffer more rapid circulation than competing forms of currency. This led some such as Silvio Gesell to propose demurrage as a means of increasing both the velocity of money and overall economic activity. In real-life experiments during the early-to-mid 1900s, demurrage on money was demonstrated to significantly increase the velocity of money in circulation, even incentivizing people to pay their taxes in advance.
One type of stamp scrip worked this way. Each scrip certificate had printed boxes. Every month a stamp costing a certain amount (in a typical case, 1% of the face value) had to be purchased and recorded in a box, otherwise the scrip lost all its value. This provided a great incentive to spend the scrip quickly. The scheme was used successfully in Germany and Austria in the early 1930s, after national currencies collapsed.
Preventing recessions One of the most important differences between demurrage and inflation is how they affect economic recessions differently: Inflation is defined as "a general rise in prices". During recessions, prices tend to fall. When prices fall and we can expect them to continue falling, commerce falls too. People avoid buying commodities sooner when they expect that they can buy them cheaper later. Recessions thus face a game theory problem: society wants to increase commerce, but nobody with hoardable money wants to increase commerce if prices will continue to fall. If prices are falling, then there is no inflation, by definition. If there is no inflation, then there are no penalties for withholding money from circulation during a recession. Thus, holders of money are rewarded for withholding their money from circulation during periods of falling prices. Inflation is thus not a viable way to increase circulation and end recessions. By contrast, demurrage money would lose value even if prices are falling, so it can increase circulation and end recessions.
If money continues to lose purchasing power (even at a slow rate), then people will use it sooner rather than later. Gesell proposed that money should have a demurrage rate 5.2% per year, or 0.1% per week, but he also believed that real-world experimentation would probably be necessary to figure out the optimal rate.
In some cases, demurrage currencies have been employed as emergency currencies, intended to keep the circular flow of income running throughout the economy during recessions and times of war, due to their faster circulation velocities.
Other differences between demurrage and inflation Inflation and demurrage both tend to reduce the liquid savings over time, but there are many crucial differences between the two. Unlike inflation, demurrage gradually reduces only the value of currency held, not on newly issued money, money placed into a bank (from the lender's perspective), nor money that will be claimed or issued in the future. In fact, demurrage would increase the value of claims to future money like stocks and bonds, since they would become a more reliable way to store wealth, due to the penalty on holding cash. Inflation also increases prices across the consumer price index, whereas demurrage does not.
Inflation also benefits borrowers at the expense of lenders, whereas demurrage does not. The effect of demurrage on borrowers depends on what they do with the money. If they spend it (either for consumption or investment), they do not bear the cost of demurrage. If borrowers hold onto the money, they would lose due to demurrage. People are thus strongly disincentivized to borrow demurrage money without spending it.
The rate of inflation usually fluctuates, and inflation may devalue currency in a variety of ways, so inflation is not easy to predict. By contrast, the depreciation rate of demurrage currency would stay at a fixed rate set by the government, thus leading to a more stable and predictable economy with lower prices.
Freiwirtschaft economists theorize that demurrage currency could eliminate both inflation and deflation. There tends to be some interest cost that is built into the goods and services that consumers tend to purchase, so if demurrage currency eliminates interest rates, then prices are less likely to increase. Demurrage would also naturally cause the money supply to decrease, thus causing deflation. If a central bank issues and monitors demurrage currency as Gesell originally proposed, then it could replace all the money that disappears due to demurrage by printing money at a similar rate. The money printing could create just enough inflation to cancel out the natural deflation of demurrage, thus achieving an inflation target of 0% and stable prices.
Interest rates, lending, and borrowing Some regard demurrage as a negative interest rate policy, but they have different effects. Under demurrage currency, hoarding money becomes impossible because the face-value of money depreciates regularly. This forces the circulation of money. By contrast, it is possible to some extent to hoard money on negative interests, since the face value of money is constant and people can use their money as a means of saving. For example, Japan's negative interest rates drove up the sales of safes and strongboxes.
Negative interest rates tend to discourage people from storing their money in banks, in order to avoid having their money depreciate in value. Thus the money cannot be relent by the banks to increase the money supply, and for this reason, it can be difficult to increase the money supply, so some aspects of monetary policy could theoretically become ineffective at low interest rates. Some economists have expressed interest in demurrage currency as a way to avoid this problem and effectively turn interest rates negative.
When the medium of exchange is scarce (i.e. money is not trading hands because it is functioning as a store of value), traders will pay to rent it (interest), which acts as an impedance to trade. In stable or deflationary environments, interest is a net transfer of wealth from debtor to creditor. Under inflationary environments, interest is a net transfer of wealth from creditor to the debtor. Demurrage currency aims to end both of these cases.
If the liquidity preference theory of interest rates is correct, then interest rates would disappear when money cannot be used as a long-term store of value, so demurrage money would theoretically have no interest rates. To be clear, the total interest rate typically consists of four components: pure (risk-free) interest, a risk premium, expected inflation or deflation, and administrative costs. In this context, the intended meaning is that demurrage money would theoretically have no pure interest rates, whereas the other three components of interest would remain. Banks would still be able to profit from loaning money under a demurrage monetary system, since they would be paid by the administrative costs component of the total interest rate.
Under a demurrage monetary system, banks would be incentivized to loan money to avoid paying demurrage fees. This new incentive would lead to a further incentive for bankers to lend demurrage money without charging interest rates, in order to reduce the disincentives for borrowers to borrow demurrage money. The result would be an interest-free economy.
Borrowers would also be incentivized to use the demurrage money as soon as possible before the purchasing power decreases due to demurrage. Since demurrage money would theoretically increase the velocity of money, eliminate interest rates, and lower the opportunity costs to borrowing credit, demurrage money could theoretically lead to greater economic efficiency and prosperity.
For long-term investment financing, demurrage currency affects the dynamics of net present value (NPV) calculations. Demurrage in a currency system reduces discount rates, and thus increases the present value of a long-term investment, and thus gives an incentive for such investments.Bernard Lietaer: transaction.net Community Currencies: A New Tool for the 21st Century.
Economic and environmental sustainability Freiwirtschaft economist argues that the growth imperative of modern economies is caused by interest burdens on debt, inflation, and opportunity costs created by the existence of interest. Fuders believes that the growth imperative has harmful environmental and social consequences.