Maia Koenig
Maia Koenig

The Negative Interest Economy: A Monetary Paradigm for a Post-Growth System


In aliis linguis

(Originally published at Post-Growth Institute’s channel at Medium.)

The main mechanism driving economic growth is undoubtedly the financial economy and the compound interest system integrated into it.

This system is always obliged to return a monetary amount that is higher than the amount borrowed and that exceeds inflation. The only way to do this is to produce more goods and services that have to be consumed. Many of today’s so-called needs have been generated through advertising and marketing — another major driver of consumption and, by extension, economic growth.

The reason for lending at interest, according to neoclassical economics, is understood as compensation for the sacrifice of not consuming something in the present and delaying its enjoyment. This mentality permeates our culture. We must delay gratification and control desires by thinking of future rewards. This is known in economics as the time-preference postulate, the supposed preference for immediate consumption. It means that if you don’t have an incentive to save money, you will spend it right away to satisfy some need. In other words, the theory goes that humans are spendthrifts by nature.

However, Keynes (although he did not completely rule out this tendency) pointed out that humans tend to spend a smaller and smaller portion of their income as their income increases. It’s obvious that if you’re going hungry you will spend your money immediately on food, but if you have enough to satisfy all your urgent needs, the greater your income, the less urgency you will have to spend it. Keynes believed, therefore, that people are prone to save without the need for an incentive (interest).

This natural tendency to save would suggest that money itself is subject to diminishing marginal utility: the more you own, the less utility (satisfaction) you get from each additional dollar. For example, if I own $10,000, obtaining $5,000 will give me greater satisfaction than if I own $100,000 and obtain the same amount.

John Maynard Keynes
John Maynard Keynes, 1933. Source: Wikimedia Commons.
This, which would be common sense for most people, does not seem to be so for neoclassical economists, who affirm that humans seek to maximize self-interest by maximizing money — i.e., the more money, the more satisfaction. And they extrapolate this principle to society as well: the higher the growth (GDP), the higher the social utility (common good).

To question this principle is to question the current mantra that maximizing economic growth maximizes the common good — and, by extension, the utilitarian argument that justifies capitalism by its ability to maximize wealth. This opens the door to ideas that favor the equitable distribution of goods.

Moreover, from a mathematical perspective, if money is subject to diminishing marginal utility, the optimal distribution of that money will be the most equitable. This justification for the redistribution of wealth is totally against the interests of the rich.

Neoclassical economic ideology considers that our propensity to consume is unlimited, but actually this unlimited desire is given by money. Aristophanes said that our needs are limited and, when we have satisfied them, we focus on other things and practice generosity. Money, on the other hand, is incapable of satiating.

After obtaining a glut of consumer goods, in many cases brought about by the pressure of advertising and marketing, people begin to crave the money itself — not what can be bought with it — and that greed knows no bounds.

Addiction obviously exists and there are individuals who are not satiated by certain things, but does that prove that humans are greedy by nature?Addiction occurs when we use something as a substitute for what we really want or need. Money as a universal purpose has also become a substitute for many things, even for those very things that the monetary economy has destroyed, such as community and sense of belonging, connection with nature, and leisure, to name a few.

Keynes defined this phenomenon as liquidity preference and pointed out that it prevails over time preference. This is a fundamental assumption in his theory. When we speak of preference for liquidity we mean that we prefer money over goods. In a monetary economy we could exchange any good for any other good, although not so easily, through the medium of exchange (money) — e.g., I sell a chair, get money, and buy a book.

Why, then, do we prefer money to other goods? Except for urgent needs that justify having small amounts of the medium of exchange, the only reason to prefer money is that it does not lose value when stored (in terms of value rather than purchasing power — e.g., a $50 bill will always have a value of $50).

The imperishability of money makes it not only a universal means but also a universal end. But what if we make money transitory, preserving it as a means but not as an end?

Negative interest

Most economists consider the medium of exchange and the store of value as defining functions of money. But combining both functions into a single objective is problematic because a medium of exchange must circulate to be useful, while a store of value is kept (or stored) out of circulation.

This contradiction has for centuries created a conflict between the wealth of the individual (accumulation) and the wealth of society (circulation). This tension reflects the individualistic approach to society that has come to dominate our time.

What kind of money could resolve this tension? Given the determining role of interest, the first alternative monetary system to consider would be one which would structurally eliminate it, or even produce the opposite of interest. If interest generates competition, scarcity, and individualism, is it not possible that the opposite generates cooperation, abundance, and community?

Wörgl shilling.
Wörgl shilling. Source: Wikimedia Commons.
Since the goods and services for which money can be exchanged have maintenance, transportation, and storage costs, money should also have them. It would be a type of money that, like any perishable good, would lose its value over time: an expiring currency, subject to negative interest (known as the demurrage or oxidation rate — a fee for the use of money as a store of value).

This idea is not new. The pioneer of the lapsed money theory was German-Argentine businessman Silvio Gesell, who called it free money in 1906. His main concern was to remedy the unequal and unfair distribution of wealth that already existed in his time, unprecedented poverty in the midst of unprecedented abundance.

Gesell’s ideas were tested at that time. Currencies like the Wara (Germany), the Worgl (Austria), and the WIR (Switzerland) were based on his theories. The Wara and the Worgl were banned by central governments in the face of growing popularity of these currencies. The WIR has continued to the present day and although it started out with a demurrage rate, that was eliminated during the period of high growth after World War II.

More progressive economists sometimes advocate for inflation, which has similar effects. The advantage of oxidation rate is that it does not affect prices directly and is visible to everyone. The main difference between inflation and oxidation, however, is that inflation is expansive by definition, while oxidation is not.

Modern theory

Prominent economists such as Yale professor Irving Fisher; Benoît Cœuré of the European Central Bank; Harvard professor Greg Mankiw; and Willem Buiter; formerly of Citibank have discussed measures such as liquidity taxesnegative interest rates on deposits at the Federal Reserve or the ECB. These names make clear the feasibility of contemporary proposals to introduce negative interest. These proponents of negative interest rates see it as a temporary measure to force banks to lend again and extend cheap credit until the economy returns to growth. Once that goal is achieved, interest rates are supposed to return to positive figures.

But if we are heading towards a zero-growth or a permanently declining economy, could negative interest rates also become permanent?

Current monetary policy works by adjusting the basic interest rate according to the rate of growth of the economy. Keynes basically proposed setting it at a level that does not favor the accumulation of wealth (as opposed to the use of wealth (circulation).

The purpose of monetary policy is to control price stability (inflation), basically by managing interest rates:

  • Encouraging economic growth through expansionary monetary policies and low interest rates (to raise inflation).
  • Encouraging lower economic growth through austerity policies and high interest rates (to lower inflation).

The problem with the inflation formula in a situation of over-indebtedness (excess debt) and over-capacity (excess production) is that it does not work. Quantitative easing (where money is created by the central bank) exchanges money for various financial derivatives, but that money does not cause wage and price inflation if it does not reach the people who would spend it.

In fact, it can even lead to inflation — due to an upward bidding of asset prices in the absence of productive investment opportunities (speculation).

In all the years it has been in use, quantitative easing has been unable to produce expected inflation, due to the zero lower bound.

Elaboración propia, a partir de datos públicos del Banco Central Europeo.
Own work based on public data from the European Central Bank.

The current price inflation is mainly due, among other factors (such as the pandemic and the war in Ukraine), to the increase in the price of the largest source of energy at present (oil) and its derivatives (especially diesel), since energy is the basis of any economic activity.

All this brings us back to the purpose of a negative interest economy: to get money circulating without the need for economic growth.

A negative interest economy: how it works

In a negative interest reserve system, banks would be eager to get rid of their reserves. If the negative rate were to the order of 5% to 8% (which is what Gesell, Fisher, and other economists proposed), banks might even find it beneficial to lend at zero interest, and possibly at negative interest.

How would they make money? They would do it basically the same way they do it today.

Assume a negative -8% rate on reserves. Deposits would also be subject to a negative interest rate, although lower than the rate on reserves. Banks could accept demand deposits at -7% interest, for example, or time deposits at -5%, and could lend at -1% or 0%.

Negative interest on reserves is compatible with the existing financial infrastructure. We could keep the same commercial paper markets, the same interbank money markets and even, if we wanted, the same securitization and derivatives apparatus. The only thing that would change would be the interest rate. And central banks could continue to maintain the same function of listening and responding to the needs of the financial system by regulating the circulation of money in order to keep interest rates at the appropriate level.

How would economic sense change in a negative interest economy paradigm?

A negative interest economy radically alters the type of behavior we consider economic. Many of the theoretical postulates of degrowth could make economic sense within a negative interest economics paradigm.

Let’s take an example. Suppose we own a forest. If we cut it down completely and sell all the timber we get $1M now. At a positive interest rate of 4% we will get $40,000 of profit in the bank every year. If we log it sustainably and perpetually, we make $10,000 profit each year. Using current economic behavior the most profitable thing to do would be to sell the whole forest, since the current system devalues future flows (if I don’t sell it now I’m losing $30,000 each year).

With a negative interest rate, this logic is no longer valid. The profitable thing to do would be to maintain the forest perpetually.

Activities that give benefits in 30, 50, or 100 years acquire an economic motivation that under the current system is unthinkable if you are not an idealist.

Evidently there are always certain basic needs that need to be satisfied now and not in the future. If we are starving, we would rather eat now than in 100 years!

All these ideas and approaches are dealt with in a much deeper way and in a broader context in Charles Eisenstein’s book, Sacred Economics.

From theory to practice: Introducing the Ekhilur Project

EkhilurCreated by Ekhilur Cooperative in the Basque Region, the Ekhilur Project was founded in order to demonstrate that money with the characteristics described in above can develop a viable economic system without economic growth. It may even contribute to degrowth — and, by extension, reduce the consumption of resources and fossil fuels. All this while promoting a structural redistribution of wealth.

At the Ekhilur Project we are exploring several stages of implementation:

Phase 1: Creation and development of the Ekhilur network (ongoing)

Without a network among which to use the money, we can do little. In this first phase that’s the objective: to create and expand the network, attracting the largest possible number of economic actors — from individuals to legal entities such as associations, businesses, and companies or public entities, especially municipalities. We are also focused on adding local producers of any type of product, as well as other bio-regional cooperatives that share values with Ekhilur.

At the same time, the project must be both economically viable within the current system and self-sufficient. For this reason we share the costs of the system among all its participants.

For the creation of the network we have implemented a legal payment system. In it we will combine features of complementary currencies (demurrage) and business loyalty models that exist today. We will call this payment system the Ekhilur system. No local currency is required. If you control the payment system, you control the characteristics of the money that circulates through it.

We started in September 2022 with a pilot in the town of Hernani in the Basque region of Gipuzkoa, which is home to 20,000 inhabitants. In one year, we saw more than $1.3M in transaction volume and 50,000 operations. According to our forecast, we can achieve economic viability in four years. We are currently looking into how to scale the project to other municipalities and expand it in phases to a region of 2.9M inhabitants across Basque Country.

Phase 2: Interest-free or negative-interest loans and microloans (under study)

In this second phase, there will be a sufficiently wide network of users and legal entities to be able to obtain most of the goods and services necessary for any activity.

At this stage, the minimum feasibility requirements will also have been met, which will allow the project to continue.

Loans and microloans would be against the cooperative’s share capital (100% reserve), but could be allocated by entities specialized in the field of ethical lending. The borrowed money would be marked and could not be taken out of the circuit. And it would only come out via demurrage or would be unmarked as it is amortized.

Elaboración propia.
Own work.

Here’s an example: on a loan of $12,000 for 60 months at 0% interest, the accumulated oxidation of the loan during the 60 months of amortization is $1,830. This would be the equivalent of the positive interest of the same loan at approximately 5.8% interest.

Future phases

In future phases, the social capital of the cooperative would be invested in real estate (housing and farmland). This is the start of the transformation from the concept of private property to right of use and the commons.

In both cases the idea would be that of loans without term to the cooperative members. Actually, you wouldn’t buy the land or the house — you’d buy the right to use it. As a member, you would have to make a down payment for a percentage of the value, and then pay for the right to use it.

A 75-year loan with a negative interest rate of -1% could be defined. For example, the right to use a house of $200,000 could be possible with a down payment of 10% of the value ($20,000) and a fee of $130 per month + maintenance costs. At the moment you would like to leave the property you could recover the $20,000 down payment. The right of use would be inheritable.

In future, the concept of accumulation will no longer make sense because money has become a simple medium of exchange. Savings will be deposited in credit unions that operate with negative interest. They will be invested in long-term projects because it does not make sense to recover the money quickly. On the contrary, the speed of capital recovery will be much slower.

The economy will slow down and so will the pace of life, allowing for fewer working hours since it is not necessary to increase an already high productivity in order to repay loans and accumulate capital.

Being an economy with a decreasing GDP, the consumption of resources and energy will decrease at almost the same speed as their availability worldwide (negative interest rate), and although there will be shortages of certain raw materials and products, there will be a progressive substitution of imports as far as possible.

A negative interest economy is not a silver bullet, but it could generate a suitable economic environment for other measures (political and economic) that will help cushion the coming energy and material decline, leaving no one behind.

The project is replicable and scalable. We are open to sharing the know-how acquired so far if anyone would like to replicate it. The legal aspects are very similar in all parts of the world in this area, although each country may have different characteristics. You can email us at and if you’re in the area, pay a visit to the Ekhilur Project in Hernani in Gipuzkoa, Basque Country.

Maia Koenig
Maia Koenig

Recommended readings

  • Casal Lodeiro, Manuel (coord.) (2019): Guía para el descenso energético. Preparando un futuro después del petróleo.
  • Fernández Durán, Ramón & González Reyes, Luis (2014): En la Espiral de la Energía. Historia de la Humanidad desde el Papel de la Energía (pero no solo)“.
  • González Reyes, Luis & Almazán, Adrián (2023): Decrecimiento: del Qué al Cómo. Propuestas para el Estado Español.
  • Heinberg, Richard (2011): The End of Growth.
  • K. Le Guin, Ursula (1974): The Dispossesed.
  • Michael Greer, John (2011): The Long Descent.
  • Moreno, Felix (2021): Relatos Distópicos.
  • Raworth, Kate (2017): Doughnut Economics.
  • Soddy, Frederick (1934): The Role of Money. What it should be, contrasted with what it has become.
  • Taibo, Carlos (2016): Colapso.
  • Trainer, Ted (2010): The Transition to a Sustainable and Just World.
  • Turiel, Antonio (2020): Petrocalipsis. Crisis Energética Global y cómo (no) la vamos a solucionar.

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Board member of Ekhilur coop., of GoiEner non-profit energy consumer cooperative and of Instituto Resiliencia. A lifelong student of economics, his main interests are economics (macro and micro), as well as economics from the perspective of the biophysical limits of the planet. He's always researching the relationships between energy, economy and society.

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