Never heard of Freicoin before this... While the theory is interesting, it is kind of hard to market such a product in the presence of alternatives that don't "rot".
Regarding the presence of alternatives, that is in fact the entire point. Money that you do not need liquid and at hand for cash flow purposes should be invested or spent. That keeps the monetary supply moving at a high and near-constant velocity. It also creates a marketplace for credit as people are in need of investment opportunities which do better than demurrage.
It's a little confusing, but what we're trying to do is to separate the medium-of-exchange from the store-of-value: two very different purposes for money that are naturally at odds with each other.
References: https://en.bitcoin.it/wiki/List_of_alternative_cryptocurrenc... http://www.freicoin.org/application-developer-best-practices... https://bitcointalk.org/index.php?topic=134629.0
Suppose for some reason I have to use Freicoin to make a purchase. Since it rots, I keep my wealth in something else (Bitcoin, for sake of example). I go into an exchange and sell some btc for Freicoin, and make my purchase.
On the seller side, they've now got a bunch of rotting Freicoin. So, they go into the market and sell them for, say, bitcoin (or their preference for wealth).
Why would either the buyer or seller go through the extra hop (commissions) of Freicoin when Bitcoin (or whatever non-rotting FX is liquid) serves as both a store of value and a medium-of-exchange.
I challenge the claim that a medium-of-exchange is diametrically opposed to a store of wealth. You need wealth storage to maintain liquidity, do you not?
$ is the devil we know.
Nothing to be confused about - that's exactly what it is supposed to be: a high velocity ("hot potato") currency.
> Why would either the buyer or seller go through the extra hop (commissions) of Freicoin when Bitcoin (or whatever non-rotting FX is liquid) serves as both a store of value and a medium-of-exchange.
By your example you are a merchant and some customer just paid with freicoins. Now what do you do? Yes you could convert it into bitcons and take the instant 1% commission + spread loss. Or you can use parts of it to meet your current obligations and put the rest in freicoin investments. I fully expect services resembling money-market accounts to come into being fulfilling this niche.
> I challenge the claim that a medium-of-exchange is diametrically opposed to a store of wealth. You need wealth storage to maintain liquidity, do you not?
I'm not sure I understand your question here. Stored wealth is not on the market and therefore subtracts from liquidity.
This is not a new phenomenon, rather it is exactly the situation community currencies find themselves in.
Which is a way of saying that liquidity decreases at one point in time and then increases at a later point in time. If that were an entirely stochastic process it wouldn't be a concern, but it's not. Wealth tends to enter and leave the markets in a correlated fashion based on macroeconomic factors, coming and going en masse to detrimental effect (c.f. the credit crunch).
The key concept that keeps getting avoided here is Freicoin's value in the face of alternatives. I think you're just as coupled.
We got the credit crunch because of "liquidity spirals" causing lending channels (banks) to hoard cash out of uncertainty. This worked for them (although it brought the whole global economy down) because fiat cash is non-perishable. “Cash in the bank” never decreases -- so long as the bank doesn't go under and you don't live in Cyprus, but that's another story. Demurrage, on the other hand, would cause rational actors to seek other liquid investments to put their assets, thereby keeping the medium of exchange in circulation and available for lending.
I'm going to guess you're citing Worgl, which was a tiny experiment in a small town of 2000. How about the American experiments in 1932-33? Disasters. Canada? Fail.
> We got the credit crunch because of "liquidity spirals" causing lending channels (banks) to hoard cash out of uncertainty.
Yes, banks decreased lending due to the uncertainty of collateral upon which those loans are based.
> ...brought the whole global economy down...
Define that. Economy looks OK to me, especially compared to environment that spawned the economic theories you're working with. You're employed in a place that constantly complains about the need for more skilled labor and hires my idiot friends with MS degrees and zero experience for $150k/year + options.
> [Hoarding cash worked for the banks because] fiat cash is non-perishable.
If cash was perishable, they would just move it into something that wasn't. Keynes argued this point before me.
> Demurrage ... would cause rational actors to seek other liquid investments to put their assets...
Yes, I 100% agree.
> ... thereby keeping the medium of exchange in circulation and available for lending.
Nope. You need buyers. You don't have any.
Since your currency rots, the consumers that don't spend it all on goods are either trying to sell it or trying to spend it. The vendors that were willing accept it in exchange for their goods are also trying to sell it. The value plummets and eventually vendors stop accepting it. A chunk of wealth vanishes into the ether and we all get a little more "equal" in the eyes of Occupy. Freicoin is a new modality of an old "-ism". The ultimate goal is the destruction of capital. For your idea to work, you need an authoritarian government to enforce it. Terrifying.
In other words, interest rates might start climbing again sooner than you think.
http://online.wsj.com/article/SB1000142412788732474410457847...