The Wir Bank—Causing Swiss Economic Stability for 80 years
Lietaer believes that one of the main reasons for the stability of the Franc is the existence of an obscure complementary currency known as the WIR.
The WIR Bank, formerly the Swiss Economic Circle (GER: Wirtschaftsring-Genossenschaft), or WIR, is an independent complementary currency system in Switzerland that serves businesses in hospitality, construction, manufacturing, retail and professional services. WIR issues and manages a private currency, called the WIR Franc, which is used, in combination with Swiss Franc to generate dual-currency transactions. The WIR Franc is an electronic currency reflected in clients’ trade accounts and there is no paper money. The use of this currency results in increased sales, cash flow and profits for a qualified participant. WIR has perfected the system by creating a credit system which issues credit, in WIR Francs, to its members. The credit lines are secured by members pledging assets. This ensures that the currency is asset-backed. When two members enter into a transaction with both Swiss Francs and WIR Francs it reduces the amount of cash needed by the buyer; the seller does not discount its product or service. https://en.wikipedia.org/wiki/WIR_Bank
WIR means both “we” in German and Business Cycle (“Wirtschaftsring”). The WIR has no physical representation (no currency notes or coins). It exists only in the records of the Wir Bank, and has a value equal to that of the CHF. But WIR cannot be redeemed with CHF, but only by paying off loans in WIR. One quarter of Swiss businesses use the WIR to some degree, and there are 76,000 member businesses in the WIR Bank. Over 1.5 Billion WIR are exchanged annually, for about 2% of the total Swiss GDP.
How it works
In the WIR all participants can buy from one another, the banks software keeping score of everyone’s balance. All participants sign up for a membership and start with a balance of zero WIR-franc in their current account. They can start to sell goods or services to another member of the WIR network and receive WIR-Francs in return. The buyer’s bank account is debited and the seller’s bank account is simultaneously credited by the same amount. Sellers advertise on the bank’s marketplace website 8 and meet each other and potential clients at regular regional trade fairs. 9
The WIR functions primarily as a counterbalance to business cycles. When a buyer purchases goods, materials or services from a vendor, he can choose to be paid in Francs (CHF) or WIR. In a strong business environment, the vendor will choose to be paid in CHF, as there is easy credit and plenty of CHF money flowing in a strong business cycle.
But when business is not so good, the buyers may have a hard time coming up with CHF to pay their bills. Banks may not give loans as easily. So, the Vendor can choose to either give a discount to the buyer (to make the vendor’s goods more attractive to the buyer and decrease the price), or the vendor may choose to accept WIR instead, or partial payment in WIR, for full price.
Larger Non-Registered (non-member) firms are free to accept as much or as little WIR-currency as they wish, and are most likely to do so when other forms of payment are in short supply – during a recession. Thus WIR-Balances for Non-Registered firms increase, while for smaller Registered firms, balances decline in a recession. Turnover for both the Registered and Non-Registered is countercyclical, but driven by countercyclical Velocities for Registered firms, and countercyclical Balances for the Non-Registered. http://www.ewp.rpi.edu/hartford/~stoddj/BE/WIR_Panel.pdf page 1.
If the Vendor accepts full or partial payment in WIR, then WIR are created by the WIR bank in the amount needed for the transaction, and loaned to the account of the Vendor. The Buyer then incurs a debt to the WIR bank for that amount of WIR, and his debt is backed by the assets of the Buyer.
Now that the Vendor has WIR in his account, he can use them to purchase goods, materials or services from some other Vendor who accepts these WIR. WIR can only be used within Switzerland, whereas CHF and Euros are accepted in many countries.
CHF then are needed for international payments, and so are more desired in this economy, but when CHF are unavailable for a purchase, SWISS businesses are usually happy to take WIR for at least part of their payment.
In a strong economy, not many WIR are used, because there are plenty of CHF available for commerce. But in a weak economy, credit is tight and CHF are not so available, so more WIR are created and traded. When the economy improves again, there is less demand for WIR. Debtors who have created loans of WIR to purchase goods or services now have the excess WIR to pay off their WIR loans, so they send them back to the WIR bank and pay off the loan. This cancels out the WIR so that they no longer exist. Thus, WIR are created in down cycles, and redeemed (“discreated”) in strong business cycles. It is this “countercyclical” nature which has given unusual stability in the Swiss economy over the past 80 years.
I know that this can be confusing, so here is an example of how it works:
Suppose that there are two Swiss businesses, a Cuckoo Clock maker, and a lumberyard. The clockmaker has a team of workers who create beautiful carved wood cases for cuckoo clocks. The lumber company provides the wood to carve for the clock.
In the summer, tourism in Switzerland is enjoying an up business cycle. There are plenty of tourists traveling to Switzerland and buying cuckoo clocks. The clockmaker has plenty of Swiss Francs coming in from clock sales. He can easily afford to pay his workers and his suppliers using only CHF.
During the winter, the skiers coming to Switzerland are not so interested in buying cuckoo clocks. Business is slow, and not many CHF are coming in to the clockmaker’s business. But he still needs to employ his workers, and he still needs to buy wood for his clocks.
The clockmaker offers to buy some wood at a 25% discount, but the lumberyard does not want to take this loss, and he will not sell to the clockmaker at a discount.
Fortunately, the lumberyard is willing to take partial payment in WIR. He will take 50% of the price of the wood in WIR, and 50% in CHF, without any discount. The WIR-bank puts the WIR into the lumberyard’s account, and creates a loan from [debits the account of] the clockmaker. Now, the lumberyard has an income so they can continue to pay the lumberjacks to find and harvest trees during the winter, and can continue to cut the wood during the winter so it is ready and seasoned in the spring. The lumberyard uses their WIR to pay fuel bills and truck repair during the winter.
The clock maker has not used all of his CHF to buy wood, so he can still afford to employ his workers to carve and build beautiful clock cases.
Springtime rolls around, and the tourist season picks up a bit. More tourists are now coming to buy clocks. The Clockmaker finally receives CHF to pay his bills. He still has WIR-debits in his account that he has to pay off. Since he no longer has to use his WIR to buy things, he has enough of them that he can pay off his WIR-loans at the WIR-bank. The WIR in his account meet the WIR-debits in his account, and, like matter meeting anti-matter at CERN, they cancel each other out, though without finding any Higgs Bosons.
I hope that you can see the following points:
- Creating the monetary fiction called WIR has allowed businesses in Switzerland to level out their costs and payments across high and low business cycles
- WIR in a low economic cycle kept business running and employees working, even though there was not enough money (CHF) coming in to pay the immediate bills.
- WIR are created as needed by making a loan, and “discreated” when the debt is paid off.
- This is unlike the creation of fiat national currency by making loans, in that Fiat currency is never destroyed.