In the theory of Freiwirtschaft

Freiwirtschaft

is an economic idea founded by Silvio Gesell in 1916. He called it . In 1932, a group of Swiss businessmen used his ideas to found WIR....

, Freigeld ('free money', ˈfʁaɪɡɛlt) is a monetary

Money

Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...

 (or exchange) unit proposed by Silvio Gesell

Silvio Gesell

Silvio Gesell was a German merchant, theoretical economist, social activist, anarchist and founder of Freiwirtschaft.-Life:...

.

Properties

Freigeld has several special properties:

• It is maintained by a monetary authority to be spending power stable (no inflation or deflation
  Deflation (economics)
  In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% . This should not be confused with disinflation, a slow-down in the inflation rate...
  
  ) by means of printing more money or withdrawing money from circulation
• It is cash flow
  Cash flow
  Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.Cash flow...
  
   safe (a scheme will be put in place to ensure that the money is returned into the cash flow - for example, by requiring stamps to be purchased and attached to the money to keep it valid)
• It is convertible into other currencies
  Currency
  In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
  
  
• It is localized to a certain area
  Area
  Area is a quantity that expresses the extent of a two-dimensional surface or shape in the plane. Area can be understood as the amount of material with a given thickness that would be necessary to fashion a model of the shape, or the amount of paint necessary to cover the surface with a single coat...
  
   (it is a local currency
  Local currency
  In economics, a local currency, in its common usage, is a currency not backed by a national government , and intended to trade only in a small area. As a tool of fiscal localism, local moneys can raise awareness of the state of the local economy, especially among those who may be unfamiliar or...
  
  )

The name results from the idea that there is no incentive to store the money as it will automatically lose its value after some time. It is claimed that as a result, interest rate

Interest rate

An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...

s would drop to almost zero.

Theory

According to Gesell, all human-produced goods are subject to expensive storage, whereas money is not: Grain loses its weight, metal products rust, housing deteroriates. Therefore money has a supreme advantage over all other goods. John Maynard Keynes

John Maynard Keynes

John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...

 found another effect, which he deemed more important: liquidity preference

Liquidity preference

In macroeconomic theory, Liquidity preference refers to the demand for money, considered as liquidity. The concept was first developed by John Maynard Keynes in his book The General Theory of Employment, Interest and Money to explain determination of the interest rate by the supply and demand...

. Being "liquid" with money is a great advantage to anybody, much more so than having comparable amounts (past utility

Utility

In economics, utility is a measure of customer satisfaction, referring to the total satisfaction received by a consumer from consuming a good or service....

) of any product. The result is that people will not even provide zero-risk, inflation corrected credits unless a certain interest rate is offered. Freigeld simply reduces this 'primordial' interest rate, which is estimated to be somewhere around 3% to 5%, by an absolute, in order to lower the average interest rate to a value around 0.