Today’s Solutions: November 29, 2022

How a complementary currency helped save Switzerland from economic ruin in the 1940s—and could do the same for us today.

Bernard Lietaerl | April 2009 issue

The travails of the banking crisis have been front-page news for months, and the biggest bailout in human history is underway. However, the real economy—the one in which businesses manufacture and sell goods and services—is turning out to be the next victim. Whatever governments do for the banks, credit will be a lot harder for businesses to obtain for many years to come.
The trickiest part of the situation is the simultaneous nature of the crisis. When one bank—or an entire
country’s banks—gets into serious trouble, healthy companies can find credit from other banks or countries. But when the meltdown happens across the global financial system, another dynamic comes into play. The world economy predictably veers toward a simultaneous recession, which in turn worsens the banks’ balance sheets, motivating financiers to reduce credit further. When all banks cut back on their loan portfolios simultaneously, it deepens the hole being collectively dug for the world economy.
Under these circumstances, businesses can take two strategies: they can try to get help from governments when their individual problems become unmanageable, or take the initiative to save themselves cooperatively. The first option isn’t new. But governments the world over have just bled themselves dry to save the banking system. So depending on them to save even important businesses could resemble waiting for Godot. Therefore, the second option is clearly better. And there is a very successful precedent, even if it’s surprisingly little-known.
Once upon a time, during a crisis similar to today’s, 16 businesspeople got together to see how they could help themselves. They or their clients had received a notice from their banks that their credit lines were going to be reduced or eliminated. Bankruptcy was only a matter of time. They realized that business A needed a loan to buy goods from business B, which in turn needed money to pay its suppliers. So they decided to create a mutual credit system among themselves, including their clients and suppliers. They created their own currency, identical in value to the national money—with the interesting feature that these funds didn’t bear interest. A debit in this currency would be reimbursed with sales to a participant in the network or settled in national money. This system saved many of the businesses involved.
A cooperative was set up among the users to keep the accounts dealing with this currency. Soon, participants could also borrow in that currency from the cooperative at the remarkably low interest rate of 1 to 1.5 percent. These loans needed collateral, exactly as in a conventional bank. Over time, the system grew to include one-quarter of all the businesses in the country. The secret of the nation’s legendary economic stability was that strange little unofficial currency.
Whenever there was a recession, the volume of business in this currency grew significantly, thereby reducing the negative impact on sales and employment. Whenever there was a boom, business in national currency expanded, while activity in the alternative currency dropped again. The spontaneous counter-cyclical behavior of this little system helped the central bank of the country stabilize the economy.
This isn’t a fairy tale, but the true story of the WIR system (WIR, an abbreviation for Wirtschaftsring, “economic circle,” also means “we” in German). The country is Switzerland and the 16 founders met in Zürich in 1934. Within a year, some 3,000 participants were benefiting. And the system still works; the annual volume of WIR business now is about $2 billion.
I propose businesses create such systems at whatever scale makes sense. This approach will prevent or reduce the strangulation of the real economy by the credit contraction. It will avoid duplicating the worst of the 1930s: massive bankruptcies, intolerably high unemployment and untold suffering. Such a system, scaled to make a real difference, can be set up in a fraction of the time it took in the 1930s.
Time is of the essence, if we want to avoid the social and economic ravages unleashed by the unraveling of today’s complex business supply chains. As the rot spreads from the banking system to non-financial businesses, a lot of the damage will be done quickly. We shouldn’t wait to act until suppliers or clients are in trouble. Why wait to grab a candle until it’s too dark to find one? Why should we be any less entrepreneurial than the Swiss in 1934?
Bernard Lietaer ( is a Belgian economist and author of 14 books, including The Future of Money.

The Swiss solution

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