Tuesday, April 14, 2009
Can the Swiss Model of Alternative Currency Help Americans (and Others) Weather the Economic Crisis?
Most people don't know it, but one of the main reasons Switzerland's economy remained stable for so long is that the Swiss maintained an alternative currency system.
Specifically, during the depths of the Depression, when the banks were not lending, 16 Swiss business people got together and formed the Swiss Economic Circle or Wirtschaftsring-Genossenschaft ("WIR" for short). The circle was an alternative system of credit, so that the businessmen and their clients, suppliers, and others in the chain of distribution could keep on doing business with one another.
WIR still operates as a not-for-profit bank in Switzerland. One-quarter of all Swiss businesses now participate in the circle, accounting for approximately $2 billion per year. See this.
While WIR has changed over the years, the initial interest rate for members of the circle to borrow credit was between 1 and 1.5 percent.
As Belgian economist writes in an article entitled "A new form of currency could help us in economic crisis":
The secret of the nation’s legendary economic stability was that strange little unofficial currency.
Whenever there was a recession, the volume of business in this currency grew significantly, thereby reducing the negative impact on sales and employment. Whenever there was a boom, business in national currency expanded, while activity in the alternative currency dropped again. The spontaneous counter-cyclical behavior of this little system helped the central bank of the country stabilize the economy...
I propose businesses create such systems at whatever scale makes sense. This approach will prevent or reduce the strangulation of the real economy by the credit contraction. It will avoid duplicating the worst of the 1930s: massive bankruptcies, intolerably high unemployment and untold suffering. Such a system, scaled to make a real difference, can be set up in a fraction of the time it took in the 1930s.
Time is of the essence, if we want to avoid the social and economic ravages unleashed by the unraveling of today’s complex business supply chains. As the rot spreads from the banking system to non-financial businesses, a lot of the damage will be done quickly. We shouldn’t wait to act until suppliers or clients are in trouble. Why wait to grab a candle until it’s too dark to find one? Why should we be any less entrepreneurial than the Swiss in 1934?
Can the Swiss idea of a credit circle help Americans and others weather the financial crisis by allowing us to create our own systems of credit?