Demurrage

Encointer currencies feature nominal demurrage: All balances get devalued over time. The funds you’re holding lose 7% of their nominal value every month. Think of this devaluation like a payment to a solidarity fund that pays for the UBI. This way, Encointer can issue monthly UBI and still maintain stable money supply as shown by the simulation in the figure below. Another advantage of demurrage has been described by Silvio Gesell when he proposed Freigeld in 1916: Demurrage increases money velocity, which in turn fuels the local economy.

demurrage

Money supply for a stationary economy with a demurrage fee of 7% per month and a population of 10’000 participants. After an initial phase, the UBI of 1 token per ceremony maintains a constant ratio to the total money supply and therefore maintains a constant real value.