Advertisement

Comparative Economic Studies

, Volume 58, Issue 4, pp 570–605 | Cite as

The Macro-Stability of Swiss WIR-Bank Credits: Balance, Velocity, and Leverage

  • James Stodder
  • Bernard Lietaer
Original Article
  • 64 Downloads

Since 1934, the Swiss Wirtschaftsring/Cercle Économique (Economic Circle), now the WIR-Bank, has issued its own currency, not backed by Swiss Francs. Turnover in WIR is countercyclical: firms use it more in a recession. A money-in-the-production-function model implies that this spending arises through larger WIR Balances for larger firms, but greater WIR Velocity for smaller ones. Panel data by industrial sector confirm this pattern, similar to commercial trade credits, a major source of non-bank credit. The countercyclical multiplier on WIR expenditures is highly leveraged, and its impact on the Swiss Economy greater than its turnover would suggest.

Keywords

complementary currency community currency countercyclical 

JEL Classification

E51 G21 P13 

Notes

Acknowledgements

We wish to thank Stefan Winkler, a statistician for the WIR-Bank, for his generous aid in providing and interpreting WIR-Bank sectoral data. Thanks also to Peter Pedroni, David Giles, and seminar participants at the Centre for European Research in Microfinance, University of Brussels and the International Conference on Community and Complementary Currencies, University of Lyon. They are in no way responsible for any errors.

References

  1. Arellano, M. 1987: Computing robust standard errors for within-groups estimators. Oxford Bulletin of Economics and Statistics 49(4): 431–434.CrossRefGoogle Scholar
  2. Banerjee, A, and Carrion-i-Silvestre, JL. 2006: Cointegration in panel data with breaks and cross-section dependence. European Central Bank, Working Paper 591, February. http://ssrn.com/abstract_id=885322, accessed May 1, 2016.
  3. Berlin, M. 2003: Trade credit: Why do production firms act as financial intermediaries? Federal Reserve Bank of Philadelphia. Business Review 3rd Quarter, 21–28.Google Scholar
  4. Bernanke, B, Gertler, M. 1995: Inside the black box: The credit channel of monetary policy transmission. Journal of Economic Perspectives 9(4): 27–48.CrossRefGoogle Scholar
  5. Chauffour, J-P and Malouche, M. 2011: Trade Finance during the Great Trade Collapse, World Bank Publishing. http://elibrary.worldbank.org/doi/abs/10.1596/978-0-8213-8748-1, accessed May 1, 2016.
  6. Clower, R and Howitt, P. 1996: Taking markets seriously: Groundwork for a post Walrasian macroeconomics. In: Colander, (Ed.), Beyond micro-foundations: Post Walrasian macroeconomics, Chapter 2. Cambridge: Cambridge University Press.Google Scholar
  7. Darity Jr., W. 1995: “Keynes’ political philosophy: The Gesell connection,” Eastern Economic Journal, 21(1): 27–41.Google Scholar
  8. Defila, H. 1994: Sixty years of the WIR economic circle cooperative: Origins and ideology of the Wirtschaftsring. WIR Magazin. (Translated from the German by Thomas Geco.). www.ex.ac.uk/~RDavies/arian/wir.html, accessed May 2, 2016.  
  9. Di Iorio, F and Fachin, S. 2011: A panel cointegration study of the long-run relationship between savings and Investments in the OECD economies, 19702007. Department of the Treasury of the Italian Ministry of Economy & Finance, Working Paper No. 3, February. http://www.dt.mef.gov.it/export/sites/sitodt/modules/documenti_it/analisi_progammazione/working_papers/DiIorio-Fachin.pdf, accessed May 2, 2016.
  10. Finnerty, J. 1980: Real money balances and the firm’s production function: A note. Journal of Money, Credit, &Banking 12(4): 666–671.CrossRefGoogle Scholar
  11. Fischer, S. 1974: Money and the production function. Economic Inquiry 12(4): 517–533.CrossRefGoogle Scholar
  12. Fischer, S. 1979: Capital accumulation on the transition path in a monetary optimizing model. Econometrica 47(6): 433–1440.CrossRefGoogle Scholar
  13. Fisher, I. 1933: Stamp scrip. New York: Adelphi Co. Publishers. http://userpage.fu-berlin.de/roehrigw/fisher/, accessed May 2, 2016.
  14. Gavin, WT and Kydland, FE. 1999: Endogenous money supply and the business cycle. Review of Economic Dynamics 2: 347–369.CrossRefGoogle Scholar
  15. Goldberg, M. and Thurston, TB. 1977: Monetarism, overshooting, and the pro-cyclical movement of Velocity. Economic Inquiry 15(1): 26–32.CrossRefGoogle Scholar
  16. Gomez, GM. 2008: Making Markets: The Institutional Rise and Decline of the Argentine red de trueque. Hague: Institute of Social Studies.Google Scholar
  17. Granger, CWJ. 1988: Causality, cointegration, and control. Journal of Economic Dynamics and Control 12(2–3), June–September, 551–55.Google Scholar
  18. Greco, TH. Jr. 2001: Money: Understanding and Creating Alternatives to Legal Tender. White River Junction, Vermont: Chelsea Green Publishing.Google Scholar
  19. International Monetary Fund (IMF). 2009: International financial statistics. http://www.imf.org/en/Data, accessed May 2, 2016.
  20. Johnson, RA. and Wichern, DW. 1992: Applied Multivariate Statistical Analysis, 3rd Edition. New York: Prentice Hall.Google Scholar
  21. Keynes, JM. 1964 [1936]: The general theory of employment, interest, and money. New York: Harcourt Brace Jovanovich.Google Scholar
  22. Klein, L. 1980: The Keynesian Revolution, London: MacMillan.Google Scholar
  23. Leão, P. 2005: Why does the Velocity of money move pro-cyclically? International Review of Applied Economics, 19(1): 119–135.CrossRefGoogle Scholar
  24. Lietaer, B, Ulanowicz, RE, Goerner, SJ, and Gomez, R. 2009: Quantifying sustainability: Resilience, efficiency and the return of information theory. Ecological Complexity 6(1): 27–36.CrossRefGoogle Scholar
  25. Linton, M. and Harris-Braun, E. 2007: LETSplay: Simulation of WIR-type system. http://www.openmoney.org/letsplay/index.html, accessed May 2, 2016.
  26. Love, I. 2011: Trade credit versus bank credit during financial crises, in Chauffour, JP and Malouche, M. Trade finance during the great trade collapse, 25–40, World Bank. http://elibrary.worldbank.org/doi/abs/10.1596/978-0-8213-8748-1, accessed May 1, 2016.
  27. Lütkepohl, H. 1991: Introduction to Multiple Time Series Analysis, New York: Springer.CrossRefGoogle Scholar
  28. Maddala, GS, and Kim, I-M. 1998: Unit roots, cointegration, and structural change. Cambridge: Cambridge University Press.Google Scholar
  29. Maddala, GS, and Wu, S. 1996: A comparative study of panel data unit root tests and a simplified test. Presented at Econometric Society Meetings, New Orleans, Jan. 1997.Google Scholar
  30. Mankiw, NG. (Ed.) 1993: Symposium on Keynesian economic theory today. Journal of Economic Perspectives, 7: 3–4.Google Scholar
  31. Mankiw, NG and Summers, L. 1986: Money demand and the effects of fiscal policies. Journal of Money Credit and Banking 18(4): 415–429.CrossRefGoogle Scholar
  32. Nilsen, J. 2002: Trade credit and the bank lending channel. Journal of Money, Credit and Banking 34(1): 226–253.CrossRefGoogle Scholar
  33. Ostrom, E. 1990: Governing the Commons: The Evolution of Institutions for Collective Action. New York: Cambridge University Press.CrossRefGoogle Scholar
  34. Patinkin, D. 1956: Money, Interest And Prices: An Integration of Monetary and Value Theory. Evanston: Row & Peterson.Google Scholar
  35. Pedroni, P. 2001: Purchasing power parity tests in cointegrated panels. Review of Economics and Statistics 83(4): 727–731.CrossRefGoogle Scholar
  36. Petersen, M and Rajan, R. 1994: The benefits of lending relationships: Evidence from small business data. Journal of Finance, 49(1): 3–37.CrossRefGoogle Scholar
  37. Petersen, M and Rajan, R. 1997: Trade credit: Theories and evidence. Review of Financial Studies 10(3): 661–691.CrossRefGoogle Scholar
  38. Rapport de gestion, various years, 2000–2013: Basel: WIR. Recent years are online at http://www.wir.ch/fr/medias/geschaeftsberichte/, accessed May 2, 2016.
  39. Rösl, G. 2006: Regional currencies in Germany – local competition for the euro? Economic Studies. 43. http://www.bundesbank.de/Redaktion/EN/Downloads/Publications/Discussion_Paper_1/2006/2006_12_29_dkp_43.pdf?__blob=publicationFile, accessed May 2, 2016.
  40. Small Business Administration, 1998. Financing patterns of small firms: Findings from the 1998 survey of small business finance. Small Business Notes. http://www.smallbusinessnotes.com/small-business-resources/financing-patterns-of-small-firms-findings-from-the-1998-survey-of-small-business-finance.html, accessed May 2, 2016.
  41. Stodder, J. 2009: Complementary credit networks and macro-economic stability: Switzerland’s Wirtschaftsring. Journal of Economic Behavior and Organization 72(1), October, 79–95.Google Scholar
  42. Studer, T. 1998: WIR in Unserer volkwirtschaft. Basel: WIR. Translation: Beard, P.H. 2006: WIR and the Swiss National Economy. http://base.socioeco.org/docs/wir_and_the_swiss_national_economy.pdf, accessed May 2, 2016.
  43. Stutz, E. 1984: Le cercle économique-societé coopéreative WIR - une retrospective historique. Basle: WIR.Google Scholar
  44. Terra, MC., 2003: Credit constraints in Brazilian firms: Evidence from panel data. Revista Brasilera de Economia 57(2): 443–464.Google Scholar
  45. Tobin, J. 1970: Money and income: Post hoc ergo propter hoc? Quarterly Journal of Economics 84(2): 301–317.CrossRefGoogle Scholar
  46. Toda, HY and Yamamoto, T. 1995: Statistical inferences in vector autoregressions with possibly integrated processes. Journal of Econometrics 66(1–2): 225–250.CrossRefGoogle Scholar
  47. Van Giersbergen, NPA, and Kiviet, JF. 1994: How to implement bootstrap hypothesis testing in regression models. Discussion paper TI 94-130, Tinbergen Institute, University of Amsterdam.Google Scholar
  48. Wan, L, Riding, A and Chamberlin, T. 2011: The global financial crisis: Impacts on SMEs and public policy responses. In: AGSE 8th International Entrepreneurship Research Exchange, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia. February: http://researchbank.swinburne.edu.au/vital/access/services/Download/swin:34256/SOURCE1, accessed May 2, 2016.
  49. White, Halbert. 1980: A heteroskedasticity-consistent covariance matrix and a direct test for heteroskedasticity. Econometrica, 48(4): 817–838.CrossRefGoogle Scholar
  50. Williams, C.C. 1996: The new barter economy: An appraisal of local exchange and trading systems (LETS). Journal of Public Policy, 16(1): 85–101.Google Scholar
  51. Winkler, Stefan (WIR Statistician) 2010: Email correspondence, March 2010.Google Scholar
  52. Winter-Ebmer, R, Zweimüller, J. 1999: Firm size wage differentials in Switzerland: Evidence from job changers. American Economic Review 89(2): 89–93.CrossRefGoogle Scholar
  53. WIR-Bank Panel Data, Balances and Turnover, 1994–2008: Courtesy of Mr. Stefan Winkler, Statistician for the WIR-Bank, Basel, Switzerland.Google Scholar
  54. WIR-plus magazine, various issues, 2000–2013: Basel: WIR. Recent issues are online at http://www.wir.ch/fr/medias/publications/#tab1, accessed May 2, 2016.
  55. Wooldridge, Jeffrey M. 2002: Econometric Analysis of Cross Section and Panel Data, Cambridge, MA: MIT Press.Google Scholar

Copyright information

© Association for Comparative Economic Studies 2016

Authors and Affiliations

  1. 1.Lally School of ManagementRensselaer Polytechnic InstituteHartfordUSA
  2. 2.Center for Sustainable ResourcesUniversity of California at BerkeleyBerkeleyUSA

Personalised recommendations