WIR Economic Circle Cooperative
= "a loan granting central bank within a cashless closed system"; new WIR Francs can only be brought into circulation when traders take loans (backed by personal guarantees) from the WIR Bank itself".
"the WIR credit clearing association that has been operating in Switzerland for more than 70 years. Now called the WIR Bank and providing conventional banking services, WIR is an important case for monetary reformers and free exchange advocates to study. While there may yet be some deficiencies in its operating policies, WIR has proven over a long period of time the effectiveness of direct clearing of credits between buyers and sellers as an alternative to conventional bank-created debt-money." (Thomas Greco )
WIR - Current Operational Realities: A Report by Susan Witt, E. F. Schumacher Society, October 2008:
At the moment I’m visiting in Switzerland and wanted to report to you on use of WIR, a regional currency in Switzerland separate from the Swiss Franc. A little background first. WIR was started in 1930s as a means for Swiss businesses to trade with each other. It was launched at a time when the economy was in crisis and was seen as facilitating business in absence of credit in francs.
Participating businesses are listed in a glossy catalogue. Exchange is done through a checking account, or through a WIR credit card. There is no paper currency.
Every time a business receives a payment in WIR, the check or credit card receipt is sent in to the WIR bank, physically sent in, where the account of the business is credited, and a fee is taken by the bank. This means all trading in WIR must have a WIR bank account.
I learned by asking at Basel Rotary meetings that some businesses sidestep the fee by giving checks without a designated name and these are passed on and on. It also means that businesses without a WIR account are trading in WIR. A blackmarket if you will. This, of course makes the WIR bank folks livid when I bring it up, and of course reduces the income to the bank that pays for the program.
Nevertheless most transactions are done in an open “legitimate” way and by 2006 when I interviewed one of the bank’s officers, circulation had grown to 1.6 billion. A wide range of businesses participate including and especially all of the trades. I attended one of the WIR trade shows in 2007 in Zurich. It took four floors of a huge exhibit building — also used for rock concerts. Folks that I interviewed said they are making contacts at the trade fair that keep their sales team busy the rest of the year.
In this way WIR is widely credited with keeping Swiss economy strong.
The WIR bank lets its members make deposits both in Swiss Francs and WIR and likewise payments can be designated in both amounts. So when paying with a WIR credit card, you can write on the slip 75 WIR, 25chf. This was a relatively new addition allowing for convenience and flexibility.
WIR has historically not involved individual consumers, but rather is a business to business program. However several years ago the bank opened up deposit accounts to the general public. The incentive was that the WIR bank paid higher interest rates on its Swiss Franc deposits then other banks. It could do this because it offers very low cost loans to its members in WIR, but then gives them access to lower cost Swiss Franc loans if they take the first part in WIR.
The bank then encourages its non-business depositors to move some of their Swiss Francs into a WIR account. That means that consumers then have the possibility of trading in WIR. In the little town of Rheinfelden where I’m staying, there are “We Accept WIR” stickers in shoe store windows, book stores, pharmacies, to name a few — providing an outlet for WIR trade." (http://beyondmoney.wordpress.com/research-and-reviews/wir-current-operational-realities/)
" A few data will give a brief run-down of the organizational start of WIR and the rapid spread of the idea. The statistical material is from the WIR-Pionier (WIR Pioneer), 25th anniversary edition in 1959.
- Founding of the WIR Cooperative on October 16, 1934, in Zuerich. The first group of cooperators consisted of 16 persons with a total paid-in cooperative capital of SFr. 42,000 (average per person SFr.2625.- Ed.).
- Already on November 1, the first issue of the WIR-News (WIR-Nachrichten) came out. Initiation fee was set at Fr.5.-. and the required minimum amount of a share of Fr. 25.- could immediately be used for credit transactions with other members.
- In 1935, local WIR-groups were set up in Basel, Bern, Zuerich, Winterthur, Biel and Derendingen. That year also saw the first edition of the Classified Directory. During the 1st and 2nd of August, 1936, the first WIR-convention was held at the Vierwaldstaetter See.
- 1939 to 1942 was a period of reorganization. As personal comments by WIR-personnel indicated, it was a critical time for the organization, and an appeal was made to the members to subscribe additional capital for the emergency. The prospects were dim, but additional capital was signed for about Fr.250,000, mostly from loyal members, and the organization pulled through.
- There were 900 participants in 1945; transactions in WIR credit were Fr. 717,000. The number of participants stayed below 1000 until 1949 when it began to climb rapidly. The stagnation during the preceding years had to do with the shortage of goods during the war.
- In 1958, there were between 11,000 and 12,000 participants, and transactions in WIR credit had climbed to Fr.53 million. (Estimating conservatively 40% WIR in all transactions as an average rate, the total turn-over in goods and services involving WIR would be over Fr.130 million, Ed.)
- There were over 18,000 participants in 1970, and WIR credit transactions run to over Fr. 180 million. Figuring about 50% WIR participation (as indicated by the president of the executive committee, Mr. F. Hubschmid, in the Business Report for that year), the total value of goods and services involved can be assumed at over Fr.360 million."
Dr. Hugo Godschalk on the historical background about WIR's roots
"The WIR Bank today is still a little bit misty about their own origins. They stated on the website some links to "nordic clearing" at that time (1934), but at that time there were no such systems in Scandinavia with this name. New research shows that the origin of the WIR system was the German Ausgleichskasse (AK), which was exactly the same system as the WIR system after 1934. The WIR-founders copied the idea in Denmark from the JAK Clearing system during two visits in Denmark. Both systems had a license from a sales man from Leipzig who licensed the idea as his own idea after the prohibition of the WIR systems (Ausgleichskassen) in Germany 1934. In December 1934 the WIR founders were obliged to take over the rules and the fees of the licensed system, but they changed some rules in the beginning of 1935 in order to get rid of the expensive license fees. The WIR Bank terminated the legal conflict regarding these license-obligations in the beginning of the 60-ies.
So the WIR system is probably the only survivor of the Ausgleichskassen(AK)-movement which started in Germany in 1931 (or even before in 1926 as research showed recently). The ideological drivers behind the AK were anti-ursury, anti-gold-standard, monetary reform by using the innovation "scriptural money" and pre-keynesian ideas about relief programs based on credit-based money-creation ("productive credit creation"). The original idea (somewhere in the late 20-ties) was to set up a national WIR-system as central bank, but due to the economic crisis, the system was implemented 1931 as a private issued complementary cashless currency. At the end of 1932 we see about 50 WIR-systems allover in Germany, intensively opposed by the German Reichsbank and at least prohibited in the beginning of 1934. The annual reports of some AK in the archives show that these systems were very successful.
The AK-system idea was not only exported to Denmark, Czech Republic and Switzerland but also to Austria. After the prohibition of the paper money in Woergl by the Austrian Central Bank it was very tricky to prohibit these cashless systems by the authorities too. Some of the WIR-systems in Austria were at that time much more successful compared to the Woergl project, but the Austrian Gesellians did not pick up this idea, may be because it was not "gesellian" (demurrage etc.)." (https://www.facebook.com/groups/388256007926581/permalink/504084643010383/)
How It Works
1. The simple explanation
"Transactions among WIR participants are quite simple. To join as a participant, a businessman need only declare his intention to accept WIR booking orders as partial or total payment in any transaction with other participants. The percentages of WIR are listed in the classified directory, as mentioned, and pricewise WIR-participants are not treated differently from other customers. Each participant has a set of booking order forms, similar to the conventional bank checks, with the imprint of name, address and account number. In making purchases from another participating member, the buyer will give to the seller such a booking order after having written in the amount for whatever the seller has obligated himself to accept. From a cursory inspection of the directory, many participants are willing to accept 100% in WIR. (A rough estimate revealed also that there are at least 2000 different articles listed in the directory, from excavators to electrical appliances to laundries to voice teachers.)
In contrast to regular bank checks, WIR booking orders are not transferable by endorsement, the main reason being that this would lead to avoidance of the 1% booking charge. The income from this charge is used to defray WIR-office administrative overhead expense.
Upon application of a businessman to participate, a WIR-field representative will make a preliminary investigation as to reputation, character, business acumen, etc. The WIR Co-op is subscribing to a credit bureau and obtains information on the applicant, which, with the field report, is submitted to an Admissions Committee of three members. When accepted, the new participant can accept WIR booking orders in payment, and send them in to the WIR head-office in Basel for credit to his WIR account. He can then dispose of this credit similarly by making purchases from other participating members, either for his business, or for private use and consumption."
2. The detailed explanation
"The method used to mobilize this supplemental credit is unique, WIR being the only organization so far that has developed a practical way to do this, with 36 years of experience behind it.
At first, in the early 30's, the originating concept was no more than a matter of mutual trust among a comparatively small number of local, independent businessmen. They thought they could transact business among themselves with a system of chits similar to IOU's that would cover at least part of the price of any transaction, the balance being settled in the conventional way, i.e., by cash or check on a checking account with commercial bank. These IOU's could then circulate among them in place of currency. This concept, however, was quickly formalized and institutionalized. An IOU does not have any collateral backing, but is accepted purely on personal trust. It was soon found that in order to bring about wider acceptance of these chits, and also to comply with existing banking laws – also to avoid financial losses – collateral was essential.
One would probably think in this connection of conventional credit unions. However, the underlying concept of the WIR system is different. A credit union requires the actual deposits by their members in cash, and its operation is similar to that of savings and loan institutions. In either case, operational expenses will be defrayed out of the difference between the interest charged to borrowers and that allowed to investors.
In the WIR system, no actual deposits are made by the participants, and therefore no "loans" in the usual sense are made. (The difference between 'participants' in the WIR credit system, and members of the WIR Cooperative has been set out in the first part of this report.) If a participant applies for WIR credit, he must be able to put up collateral in the form of bank or postal savings books, bonds, securities, life insurance policies, mortgages, etc. These papers are left in the hands of the WIR office for safekeeping and in escrow. The WIR participant can continue to draw interest on his investment or savings and keep his insurance protection in force.
Throughout this paper and other reports to follow, the term "WIR", besides designating the credit organization itself, is often used, in conformity with observed practice in the relevant literature and in conversation with WIR personnel, to denote the purchasing medium which is employed among participants of the WIR system. For the unit of this purchasing medium, the Swiss franc is also used, and with collateral in Swiss francs to back it, it can generally be considered as being of par value with the Swiss franc. A certain qualification of this statement will become apparent in the further discussion of the WIR operation.
To recapitulate briefly the transactions:
The present operation of the WIR credit organization is such that any businessman wanting to join as participant, will declare his intention and willingness to accept a certain percentage of WIR in the form of WIR booking orders from other WIR participants in any regular business transaction. In calculating the WIR part, no difficulty arises since the WIR purchasing medium is also designated in Swiss francs, as was already mentioned.
3. An example
To make the transaction between WIR-buyer and WIR-seller clearer, an example may be given:
WIR participant A wants to buy a suit from a men's clothing store whose owner B is also a WIR participant. A found the store by consulting the WIR classified directory, which also gives the percentage acceptance of WIR for this store, as stipulated by the owner. The suit which A chose, is priced at Sfr. 400. Since the directory listed the WIR acceptance as 40% for this store, A will give B a WIR booking order for 40%, or Sfr. 160, and pay the balance of Sfr. 240 in cash or regular bank check. B sends this booking order to the WIR head office in Basel, where his WIR-account is credited with Sfr. 160; besides, a charge is entered for 1% of Sfr. 160, or Sfr. 1.60. This latter item will appear on B's quarterly bill from the WIR office, and has to be settled in cash (or check on a commercial bank).
B can now use his credit of Sfr. 160 on his WIR credit account to make similar payments to other WIR participants (merchants, tradesmen, etc.). In other words, these WIR amounts (not the WIR booking orders!) keep circulating among WIR participants. At each new transaction a new booking order is to be made out.
The percentages of WIR acceptance shown in the WIR directory are minimum rates. Larger percentages can be accepted, of course, and this is often advertised for certain months (slack periods, vacation times, Christmas specials, etc.) in the WIR-Pionier, the official monthly WIR publication sent to every participant.
It will now be endeavored to answer the question in greater detail: How does WIR credit come into existence, and how does it continue to do so?
A WIR participant (merchant, tradesman, etc.) may want to purchase a certain object of relatively high cost: furniture, a piano, some inventory for his business, a car, maybe even a house. He does not have enough credit in his WIR account to make the transaction. He can apply for additional credit if he can offer collateral, or in the case of a house, give a second mortgage to WIR. Second mortgages are a source of WIR credit of considerable magnitude. Banks and other financing institutions are usually not interested in second mortgages. First mortgages will generally take care of only about 60% of the total value, and there is often an inconvenient gap between a prospective builder's own resources and the first mortgage. This gap can be filled with a certain ease by the issue of WIR credit, at only 1% interest per annum. Also, repayment of up to 90% of this WIR credit on the second mortgage can be made in WIR, the balance in cash (Swiss francs). Amortization of the second mortgage is required by WIR to be made within ten years.
Obviously, this second mortgage business is not in competition with commercial banks or savings and loan institutions. On the other hand, a number of first mortgages become possible only by virtue of having this low-cost, convenient WIR second mortgage available, thus making additional business possible for the banks and other financial institutions.
The WIR management tries to keep a fairly stable, approximate ratio of 1:3 between the total amount of WIR credit granted and outstanding, and the total turn-over in WIR credit during a year. Experience seems to have validated this ratio as being the best suited to maintain an optimum flow of WIR among participants. An inspection of the WIR financial statements for the years 1967 to 1970 bears this out.
Concerning the participation of employees of WIR participants in WIR transactions, Swiss law prescribes the payment of wages in legal tender. However, special agreements between employers and employees could arrange for employees to "buy" some WIR or change part of their wages into WIR. It is here surmised what may be going on in actual practice in this respect. It could happen that the employer has more WIR than he can use in his business or in personal consumption, and he might offer WIR to his employees at a discount. The rationale for being able to offer a discount on WIR is that the additional part of the business due to WIR did not require the usual advertising and other sales promotion expense, nor a high interest rate on credit.
However, discounting WIR is frowned upon by the WIR organization, especially when it is publicized by ads soliciting such conversions, because this fact has been used eagerly by opponents of the WIR system to discredit WIR in the eyes of the public, the argument being that WIR bring with them a certain loss of purchasing power.
The figures for 1970 show the following picture: 18,000 participants transacted a total WIR credit turn-over of about Sfr. 180 million. With an average of roughly 50% acceptance in WIR, the total business involving WIR comes to Sfr. 360 million, or an average of about Sfr. 20,000 per participant. While it may be true that not all of this business must be considered additional – since some of it might have been done anyway – a large part was done simply because of availability of WIR from previous transactions. Also the share of WIR business with some participants may have been less than Sfr. 20,000, in other cases it will have been more, perhaps significantly more to make a big difference with a small merchant or tradesman. And only in a few cases will it have detracted from profitability – so for instance when a participant had been tempted to take in more WIR than he could foresee to use.
In case of closing out of a WIR credit account by a participant, the WIR cooperative is not legally bound (by Swiss law) to liquidate the credit balance in cash. It may, of course, be drawn down by credit attrition.
The WIR central office is Basel offers a mailing service to WIR participants, either to cover the entire list of around 18,000, or a partial list selected geographically. The cost can be paid in WIR, the postage must be paid in cash. Of course, the material and envelopes, or folded cards, etc., are supplied by the advertiser." (http://www.smallisbeautiful.org/local_currencies/wir.hansch.html)
Thomas Greco, March 2011:
"The mutual credit clearing is still part of the service provided by WIR Bank, but it is a shrinking proportion of their overall operations. WIR is now a conventional bank taking deposits and making loans in Swiss francs. I suspect that the management has been taken over by people serving the banking cartel and that is why there has been no attempt to grow the direct credit clearing operation or to replicate it outside of Switzerland. This is conjecture, but it is supported by the fact that Sergio and I were unable to arrange a meeting with any of the management people during our 2005 visit to Basel. Susan Witt had a similar experience during her visit in 2008.
There are other facts that also point to that conclusion as you will see when you read the documents I mentioned. Sergio and I were able to meet in 2005 with Prof.Tobias Studer, a former member of the WIR advisory board who had written a booklet describing the history and operations of WIR up to that point. He gave permission for our colleague Prof. Phil Beard, to translate it into English.
I think by the time you digest those materials you'll be able to write the article yourself. I'd be willing to look at it prior to publication.
There is still a need for an update on the situation within WIR. Perhaps we can find a Swiss contact who would be willing to do some research and investigative reporting.
In any case, WIR, as it was operated up until the late 1990s, is I think, an excellent model. It could and should be replicated (with some modifications)."
"The founders' idea was simply that traders who knew and trusted each other would extend credit for purchases within their group, cutting down their need to borrow from banks. According to report on the system in 1971: "they thought they could transact business among themselves with a system of chits similar to IOUs that would cover at least part of the price of any transaction, the balance being settled in the conventional way. (However) it was soon found that in order to bring about wider acceptance of these chits, and also to comply with existing banking laws and avoid financial losses, collateral was essential."
This insistence on collateral might partially explain why WIR has survived and similar systems established at the same time in other countries have disappeared without trace. However, an official history of WIR 18 produced for its 50th anniversary suggests that WIR is the sole survivor because the other systems did not realise the significance of what they were doing and closed down after the financial crisis was past. But opposition from vested interests played a part in some cases too. The founders visited circles in Norway and Denmark before starting WIR and when they returned to Denmark for a second visit, they found that the government had closed the circle there after pressure from the banks.
Essentially, WIR is an independent currency system for small and medium-sized businesses. A company wishing to join contacts a WIR office and sets up a meeting at which the firm's credit requirements and the collateral it is able to offer are discussed. As first mortgages in Switzerland do not usually exceed 60% of the purchase price of a property, the collateral most frequently offered is a second mortgage on a house or business premises (in recent years, over 80% of WIR's loans have been secured this way). A loan application is then sent to the WIR credit approval committee that checks the security and obtains a report on the applicant from a credit-checking agency. If the report and the security are in order, the new participant is given a WIR chequebook, a plastic charge card and a large catalogue listing other participants with whom the loan can be spent.
Although the sums in WIR accounts are denominated in Swiss francs they cannot be turned into normal currency, paid into ordinary banks or given to non-members. Even when someone wishes to leave the organisation, they cannot exchange the system's units (Wir) for national currency. As a result, the purchasing power created when the credit committee authorises a loan remains entirely within the 'ring', generating increased business for all participants. Secured loans of this type are cheap. In 1994, Wir mortgages carried a service charge of 1.75% and relatively long repayment terms could be negotiated; the charge for ordinary current-account loans was 2.5%.
In order to maintain the Wir's value, the credit committee restricts the total value of the loans to one-third of the system's annual turnover. All repayments are made in Wir (earned by selling goods and services to other members). Only service charges have to be paid in Swiss francs, since the co-op itself cannot function without some national currency. Its other charges, the cost of the WIR magazine and catalogue and a levy of 0.6% of the value of each cheque lodged to a participant's account, are all in Wir.
Almost every conceivable product and service was listed in WIR's summer 1994 catalogue, including 167 lawyers, 16 undertakers, 1,853 architects and 18 chimney sweeps. Not all suppliers take 100% payment in Wir, but with several sources listed for most products and services, it is generally possible to find at least one who will (especially at slack times of year or during sales). Prices and payment terms for Wir transactions are just the same as they would be for cash. And since the beginning of 1995, it has been possible to make combined payments of cash and Wir using a single plastic charge card.
The percentage of the Swiss franc price of the goods and services that participants will supply for Wir is discussed with each member when they join. The service charges mentioned so far only apply to 'official' members who have agreed to guarantee to accept at least 30% of the payment in the system's unit. Members unable to give such an undertaking are called 'unofficial' and pay higher charges. Income earned in Wir is, of course, taxable, and has to be paid in Swiss francs.
Overall, the Wir avoids the two main defects of national currencies: it should never be in short supply, and because no interest is charged for its use it does not create the growth compulsion. In addition, it does not have to be earned or borrowed from outsiders before it can be used. Its main drawback seems to be due to the way the WIR is run, rather than any design defect in the currency. The WIR is often regarded as a way of financing the working capital requirements of businesses, rather than purely of facilitating trade between them. As a result, too many long-term loans are issued and some members earn so many units that they become reluctant to take any more. The availability of mortgages has obviously compounded this problem." (http://www.feasta.org/documents/moneyecology/box3.htm)
(from The Ecology Of Money, Green Books)
The WIR system is not a Mutual Credit system
"We are grateful to Leander Bindewald of the Community Currencies in Action project for bringing an important mistake to our attention.
In the People Money book we wrongly describe WIR Bank, Switzerland, as a 'mutual credit' clearing system, that has operated with that mechanism for 79 years since its founding in 1934.
This is not correct. The literature on WIR Bank in German accurately describes it as "a loan granting central bank within a cashless closed system". In other words, new WIR Francs can only be brought into circulation when traders take loans (backed by personal guarantees) from the WIR Bank itself. They cannot get credit directly from other traders as is the case in business to business exchange systems or LETS.
Mutual credit systems act as third-party record keepers for a community of traders, who issue credit directly to other traders and essentially owe the whole community of traders service in return, rather than any particular individual or 'the bank' itself. WIR Bank operates a substantially different model and always has." (https://www.facebook.com/groups/388256007926581/permalink/504084643010383/)
" I think it is important that we all clarify our meaning of the term mutual Credit. My understanding of the 'mutual' part of mutual credit is that it means that *any* trader has the power to issue or allow credit to any other trader, so long as they meet the requirements of the central trading rules set by the 'bank' (credit limits for instance). This is how 'currency' or medium of exchange is made available to any participant. But in the WIR case, it now appears that only the bank has the power to issue credit to new traders. How is that still 'mutual'? The bank can issue me credit but I can't issue the bank credit. It seems like a different animal to me.
And a strategic question then follows. If WIR is NOT the world's largest mutual credit system, which is? "
- Wikipedia: http://en.wikipedia.org/wiki/WIR_Bank
- report by Susan Witt on the WIR credit clearing association, http://beyondmoney.wordpress.com/research-and-reviews/wir-current-operational-realities/
- report by Erick B. Hansch, http://www.smallisbeautiful.org/local_currencies/wir.hansch.html
- Video presentation of the alternative Swiss bank, http://www.youtube.com/watch?v=; http://wn.com/WIR_BankM see Introduction to the WIR Bank
- Book review: WIR and the Swiss National Economy
- 60 Years WIR Business Circle Cooperative - Origins and Ideology*
Translation, by Frederika Almstedt with assistance from Thomas Greco, of an article which appeared in WIR Magazin, September 1994.
- Alternatives to Globalization: Cooperative Principle and Complementary Currency
Via Thomas Greco:
- http://reinventingmoney.com/documents/wir.html? : You should read my An Annotated Précis, Review, and Critique of Prof. Tobias Studer's WIR and the Swiss National Economy by Thomas H. Greco, Jr. and Theo Megalli, as well as the other documents there.
- Susan Witt's reports and other related items on my blog at http://beyondmoney.net/?s=WIR.