This weekend we had the opportunity to present FairCoin at the "Smart Country ThinkCamp" in the rural area Südburgenland in the village Bildein at the Austrian / Hungarian border. A question about deflation came up: If we stop coin supply with FC2, how could we also stop deflation? If there is (and hopefully will be) increasing demand for FairCoins, people will keep their FairCoins rather then spend it, as products will get cheaper in future. This seemed to some participants not healthy for our coop oriented market, as people have a negative incentive to spend FairCoins.
We had further discussed this issue on our chat group "FairCoin economic startegies". It turned out that deflation is built in any cryptocurrency and has various effects - one is cooling down the economic growth spiral. Here is a transcript of our chat debate.
Johnny
I thought that too.
The answer for me is that in our context could be good to wait or to make saving founds until we take an equivalence with real economy (could be a meassure of grain but I prefer co2 bonus) which guided the base & roots of our alternative economy to defend us against € banks empire.
But this is the answer I have for the cryptocurrency reason to be when was designed in the begginers I know.
Roland
We also had been discussing which basket of commodities would fit best. We came up with cost for healthy food. Another person suggested solar energy price.
Demurrage is also an option, so automatically decrease value by time and fill e.g. a basic income fund (and excluding some addresses of fair.coop funds with demurrage, to be decided for cooperatively savings).
Mario
i'm highly against a demurrage system in Faircoin. Faircoin is an investment tool to keep value in the FairCoop ecosystem to fund projects. And who would store their value in a system where the value decreases over time? Investors would just switch to other cryptos and take all value with them.
What we have are the faircoins stored in the fairfunds. By selling them over time when we reached a decend value (needs to be defined) we can take control over a hyper deflation and fund project at the same time.
mat
@roland deflation is built into Faircoin and pretty much all the cryptocurrencies. If there are not enough coins to meet the needs of the economy, the price simply goes up. This benefits the hoarders. I don't think there is anything which can be done about it. However I don't think it is an important problem for the foreseeable future.
Sebastian
If people need things then they will spend it. If not then they don't need things.
Mario
if you just live from a deflationary currency you think about what to buy, its kind of the opposite of over consumption, which is not so bad for the environment;)
Sebastian
Thats it. Furthermore I think if less capital will reinvested ( spend ) then the economy will not increase and the deflation find an end.
Johnny
And we could run in this way direction with a sustainable agriculture without chemical inputs, global erosion for extensive hoarding...
Enric
Together with other answers, also thats why a global mutual credit currency, complementary to faircoin has been in the design since the beginning. When the tecnology is ready (probably needs similar than coopshares...) we could prepare to use it...
Neil
Yes. While it is true that people have a negative incentive to spend FairCoins, there are good things that come from creating a population of hoarders. Hoarders are willing to support the price better because they're willing to buy from sellers. So over time your population becomes like mini reserve investors.
Roland
We have the competition to other cryptos, but also to fiat money. Currencies cover many functions: 1. value storage, 2. circulation media, 3. value comparison, 4. investment tool. Whereas for 3 we require stability and for 2 a minimal inflation, 1+4 would benefit from deflation.
If we have deflation, people are not incentivized to buy goods and services with FairCoins, they might rather keep paying with Euros or Dollars, unless we communicate well other benefits (good conscious by really buying fair goods produced in cooperatives etc).
Chris
By giving faircoins a consensus backed higher value for spending in the fair economy, the spending decentive is balanced out with a spending incentive
Roland
Yes, hopefully. Yesterday I was discussing this with some people who are very keen on circular economies. It is a big challenge to show this "consensus backed" benefit very clearly in LETs or FairCoin. We thought that a rating of FairCoin addresses based on your behaviour to foster circular economies would really help in this aspect.