Ideas4Future: “Freigeld in Russian”


Blog ideas4future already told about the theory of free money (Freigeld) by Silvio Gesell and projects of local currencies generated worldwide by territorial and online communities to solve their own problems: reducing the impact of economic criseses, the mutually beneficial exchange of goods and services, the development of local business and employment, strengthening mutual support and a sense of community, improving the local environment, etc. Below it will be about the first project of such kind at the post-soviet space in the Russian village Shaymuratovo (Bashkiria).

I’ll recall the essence of the “natural economic order” proposed by Gesell about a hundred years ago. Traditional financial system gives money saving function and is based on the loan interest. In this system the product is looking for money, and the main value is the capital. In the “natural” system by Gesell there is no place for lending rate, but all current money users must regularly transfer a small amount of money to the emitter – a fee for the use of money. Such kind of money with a negative percentage (or so-called demurrage) is looking for product, and the main value of this system is human labor. Well, this is the ideal model. Let’s see how it works in Russia.

Rustam Davletbaev

The free money project proponent in Bashkiria, was economist Rustam Davletbaev. He takes an interest for ideas by Silvio Gesell in the midst of the 2008–2009 crises. In 2010 Davletbaev proposed to use these ideas as a means against crisis to his former business partner Arthur Nurgaliyev – owner and general director of Ltd “Shaymuratovo”, which, like many other developing Russian economies, fell to the beginning of the crisis in the grip of debt problems. Intellectual support for the project was given and is continued by well-known Russian experts: economists, authors of the theory of the structural crisis of the modern financial system, Mikhail Khazin and Oleg Grigoriev, and the Doctor of Arts, Professor of the Institute of Architecture, Director of the Innovation Promotion Public Chamber, the department head of the regional development of National Economy under the Government of the Russian Federation Vyacheslav Glazychev.

Ltd “Shaymuratovo” has 250 employees and 8,000 acres of land nonchernozem. After the 2006 Arthur Nurgaliyev bought went bankrupt economy, in three years crop rotation and livestock have been restored. Today the main types of grain, beets grow in Shaymuratovo, a farm of breeding cattle is opened, and sheep-breading began to develop.

– Shaymuratovo was ideal for the project management: staffs are the buyers in the shops owned farm – says Rustam Davletbaev. – On the one hand, before the experiment workers’ wage was regularly delayed for 3.5–4 months, on the other hand – in trade focused trade rests. Naturally, buyers and sellers need somehow to survive. Worker came to the shop, wrote his debt and took away at the expense of wages right product. However, when payday came, many people find that still have debt to shop. Typical history for the modern Russian countryside… An idea begs: to replace the debt book with trade coupons. The employee does not have to sign personally each time in a debt notebook: relatives can go to the store instead of him. And most importantly, he will always know how much money he really has on his hands.

“Coupons of Davletbaev”, as “Wikipedia” call the local “currency”, appeared in the village in May 2010. Before this Davletbaev visited all farms and explained to each employee what benefits coupons will bring. Almost every individual has given written consent to receive 20% of the salary with coupons (two employees out of 250 refused). Need more coupons – please, just write a statement that you take responsibility for yourself (do not have time to spend a coupon for 28 days – you lose 2% of its value). But, as experience shows, many people were willing to use this option, since most of the year lack of rubles is at the box of office and ruble saturation occurs only in the autumn.

Trade coupons of Ltd. “Shaymuratovo”

The one who has coupons on hands at the time of the demurrage, either the employee or the store or farm, has loss from demurrage. Looking ahead, we’ll say that the main cargo of demurrage lay on economy: on average, it is 73% of the financial depreciation.

For the year of the system working it was revealed that the workers “suffered” at 19% of the amount of demurrage (in general, it is a bit: 8900 rubles a year for all the village – the losses from inflation are more). “The quickest” of all was trade: for it demurrage was 8% or 3,700 rubles, which can be equated to a trade discount, which eventually brought a good turnover.

– At first, the system worked, so to speak, “in doubt” – says Davletbaev. – Farm issued trade coupons at 180 000 rubles. Workers took only 100000 coupons monthly at the first months. They looked narrowly. But by the end of 2010 the trade of our stores only for coupons reached 600 000 rubles – that is, the coupons turnover ratio was 3.3 per month. And by March 2012, the monthly turnover of the coupons alone reached 1.3 million rubles. For comparison, the total market value of Ltd “Shaymuratovo” is 315 millions.

According to the system formula developed by Rustam Davletbaev turnover share for the coupons in the stores should not exceed 20% of total sales, including the ruble. Thus, two goals were achieved:
1. Prices for trade coupons were associated with ruble prices, and this made it impossible to shop unnecessarily inflate the cost of goods sold for the coupons;
2. Trading margin of ruble turnover allowed to save the volume and range of goods in the shops.

Thus, the trade crisis in the village was over. Employees received the opportunity to purchase food and household essentials for coupons, along with rubles, in two stores and two warehouse of the farm (“Their” basket “is similar range of discount chain” Pyaterochka “– explains Davletbaev) so as feed, straw, etc.

In addition, “coupons of Davletbaev” caused a cascade of positive economic and social effects.

– Unheard for Russian countryside: the economy start paying people in advance (demurrage pushes to this), – says Rustam Davletbaev. – People have an additional stimulus to work; productivity began to increase (by an average of 50–60%). In the surrounding villages trade turnover falls, in Shaymuratovo – it is growing (only in the first three months, it has grown by more than 50%). Many workers for the first time for a long time have been able to pay off the debts with coupons to the villagers (usually those who receive salaries from the budget) – and just in three or four months, the accumulated social tensions, domestic conflicts were removed. Coupons were accepted as payment by local taxi drivers, and businessmen that sell lumber, and grandmother from a farmstead offering milk – so the local economy in general is beginning to revive. Drinking began to decline. It is known, why the village man is drinking: his wife nags, that there are no money in the house – even though he seems to work not less than or worse than others… I occasionally interested in what people think about the project. They say: “In the other farms people are not paid money – and there we have been taken care of that all is well. It is unfortunate that the coupons are getting cheaper – but it’s bearable”.

To date, Rustam Davletbaev makes for himself three conclusions.

First conclusion: the system Gesell in Russia leads to the growth of the local economy and solving of social issues.

Second conclusion: Gesell’s system is a great tool to improve financial literacy of the population in local conditions.

– I often hear: people live poorly in the post-Soviet countries, because ill count money – Davletbaev says. – But it is easy to talk about that to the inhabitants of Western countries, where inflation is stable at 2-3% per year. Domestic statistics related to inflation, has long been a black hole, not allowing anything to predict. But my interviews show that as soon as we turned on demurrage, people have started very well to plan, when, how much and what to spend. And when there is a plan on the private level you can engage in macro-planning.

Third conclusion: money with demurrage does not compete with the “credit” money, but supplement them.

– How?
– If you put the ruble and the trade coupon to the employee – of course, he will choose the ruble. But when the territory is underfunded – trade coupon is a great tool for crisis management. Imagine that the economic potential of the area is conditionally 1000 rubles, and external funding – only 800 rubles. Consequently, the area will not produce goods and services to 200 rubles. Yes, natural barter chains will arise in, but they can not effectively solve the crisis of underfunding: the barter has only two sides, and these transactions are added slowly. When you enter a financial instrument with demurrage this tool extracts the unrealized economic potential of these 200 rubles.

In early August 2011, when the agency Standard & Poor’s lowered the credit rating of the U.S., Davletbaev concluded that the global financial system is completely broken (“If the rating falls to those who” sit “on a printing pres, it is the limit.”) And he began to promote an anti-crisis instrument tried out in practice, which, although does not solve global problems, but can at least support the livelihoods of local people. Shaymuratovo project, as it is called, has received good press. However, after the journalists of “Komsomolskaya Pravda” inadvertently (though surely with the best intentions) called trade coupons money, the district prosecutor’s office had to respond: wages in the country can only be paid in the national currency.

– We have not conflicts with the authorities – says Rustam Davletbaev. – The prosecutor acknowledged that there were no requirements for compulsory collection of back wages from residents Shaymuratovo during two years of the experiment. Although there are not only complaints but also litigation until the removal of the directors in its neighborhood. In addition, our project has received unexpected support from the representatives of the regional authorities, and was included in the top 15 trends from the 45 possible ways of country developing on the map of projection of the future “Foresight Russia”.

– What does this mean?
– Public Movement “Foresight Russia” is organized by the structures that maintain the dialogue with the authorities. I would like to hope that, if a crisis, our experience will be in demand. It would be better if before… And from March 21 this year we, as law-abiding people, stopped the movement of trade coupons in Shaymuratovo. And from the second half of April we implement a new, coherent legal form. The trade will be an issuer, and it will offer own loyalty program to the farm employees. We continue the project by modifying its pattern. We also created a project “Agency of stimulation of entrepreneurial initiatives”, which, based on experience of Shaymuratovo, is developing an electronic system of free settlements. In this system, the mechanism of association and the complementarities of the two monetary systems: national (ruble) and local-network (e-money) – will be a line of credit and financial amortization (demurrage). Repayment of the loan is guaranteed by the fact that the demurrage in the system exceeds the interest rate on the loan. We believe that the proposed mechanism will be needed soon, as modern managers have not solved the fundamental problems of the global financial system created by the 2008 crisis.

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