currency, switzerlandI do not full understand the WIR currency. Is it pegged to other currencies or a floating currency? What is the benefit to using WIR instead of francs?
The WIR banking system is just an extension of the Swiss Franc, albeit with a lock-in. If you need to think of it only as a currency in its own right, then think of it as pegged to the Swiss Franc. The other way to look at it, is just as a variant embodiment of the Swiss Franc, just as Swiss Franc cash deposits, time deposits, notes and coins, are variant embodiments of the Swiss Franc: the difference is, that it's not easy to take money out of WIR.
It started in the global great depression of the 1930s: by trading IOUs, it served two purposes: it injected liquidity into a system where liquidity had been choked off; and it introduced some degree of protectionism, adding frictional costs to any transactions that would remove liquidity & wealth from the circle of WIR members.
It's a mutual credit system, and ultimately it's backed by deposits made with the WIR bank. The initial deposits were of very illiquid instruments, such as building deeds - and that enabled WIR members to inject new liquidity into their little corner of the global economy, and to keep it there, helping them trade through the liquidity crunch of the 1930s depression. More recently, it's backed by deposits of swiss francs, so WIR adds much less to liquidity than it used to, but still offers some degree of protectionism.
It functions as a form of tradeable IOUs, as a trade-club, and as a credit union.
Let's say that one WIR member, firm A, does business with another WIR member, firm B, and offers it credit terms for the CHF 10,000 transaction. Now firm B owes firm A CHF 10,000.
Firm B can settle that debt by paying firm A CHF 10,000. Or it can trade that whole debt with other WIR-members that owe it (firm B) money.
So, to take the latter case, if firm C owes firm B CHF 4,000, and firm D owes firm B CHF 6,000, and all are WIR members, then firm C can "pass on" respective portions of its debt to firm A, on to firms C and D.
After that, firm B doesn't owe firm A anything. Firms C and D don't owe firm B anything. Firm C owes firm A CHF 4,000. And firm D owes firm A CHF 6,000. Even though firms C and D have never done business with firm A.
The WIR bank acts as intermediary / broker for all of this, keeping track of all the transactions: all it needs to track, is that firm A is now owed CHF 10,000; and firms C and D owe CHF 4,000 and CHF 6,000 respectively. It is the counter-party in each of these debts - so firm A can spends its CHP 10,000 via its WIR bank credit card, at any business that's also a member of the WIR.
(there is a refinement, where a firm can make payment partly in Swiss Francs, and partly in WIR-credit, but I don't want to over-complicate things here).
You can also borrow money from the WIR bank; and, as it's a co-operative, the interest rates are very low. The capital can be repaid in WIR money, but the interest must be paid in non-WIR Swiss francs.
All content is licensed under CC BY-SA 3.0.