Demurrage: How does it work in the Circles system?
Inflation is everywhere and always a process of redistribution. In the current money system, which is based on debt, the creditor classes accumulate the debts of those who owe them money: the debtor classes. As prices for different goods increase, wages remain the same. Therefore, inflation currently benefits those who have the power to issue debt (like the banks) and those who own assets who can raise prices (real estate).
Circles is a unique type of basic income because it’s not necessarily for saving but for spending, giving everyone the equal power to issue money.
In Circles, money is created from the perspective of the people, and not from the perspective of the banks (or other governing bodies). This means in Circles people create money (Circles units – CRC) when they issue payments to others in their community, creating interdependent relationships with each other.
Circles money supply works like this:
Everyone who joins Circles issues 1 CRC per hour or 24 CRC a day, equaling 720 CRC per month (30 days). As more people join, the money supply increases.
To counter the constant increase in the money supply as more people join, we use something called demurrage.Demurrage means that money has a life-span and it decays over time, acting as a type of parking fee or tax on the money supply.
In Circles there is a 7% demurrage rate or decay rate on the amount of CRC in your balance. At the beginning, when you join Circles, the decay rate is very low compared to the UBI. Over time, the absolute amount of CRC you pay into the system becomes greater than what you issue as a UBI. In the Circles system, this happens after approximately 14 years of joining. It results in your net balance decreasing and not increasing relative to the UBI. Nevertheless you can still issue payments (e.g. buy and sell).
While the amount of CRC you are shown remains the same on the screen display, over time, the amount of demurrage increases.
Therefore, the decaying aspects of CRC are there to ensure that, over time, there is a convergence between those who have less and those who have more CRC. This decreases the disparity between those who join first and those who joined later.
In other words, at Circles, no one is left behind.
The goal of this is to increase the velocity of spending, so that you and your network are motivated to spend and redeem CRC for things of value, instead of sitting on them. This supports a flowing, vital economic system instead of a stagnant one. That’s why it’s called Circles. It’s built for circulating. Just like a healthy body needs healthy blood circulation.