The money that rusts

Michael Unterguggenberger ran the town of Wörgl, in the Austrian Alps, through the worst winter of his life. It was 1932, the third year of the Depression, and the town had about four thousand people, a railway yard, and almost no money. The bills went unpaid because no one had anything to pay them with. Hundreds were out of work. The mayor was a railwayman by trade who had taught himself economics, and he had spent those months with a book called The Natural Economic Order, by a German merchant named Silvio Gesell.¹ Gesell’s complaint was about a single advantage money had over everything else. Bread went stale and milk soured, but cash in a drawer cost nothing to hold, so in hard times people hoarded it, and the spending a town runs on dried up.

Gesell’s idea was the kind that gets a man laughed out of a room. Money, he said, should rust like iron and rot like fruit. If it lost a little of its worth over time, no one would hoard it; people would spend it before it spoiled, and the spending would put the town back to work. Unterguggenberger had a town with nothing left to lose, so he tried it. In the summer of 1932 he printed his own currency and backed it with schillings locked in the local bank. Each note lost 1% of its value at the end of every month. To keep it whole, you had to buy a small stamp and fix it to the back.² Gesell’s name for that penalty on idle money was demurrage. Money you left in a drawer went bad on you. Money you passed along stayed good. A note in your pocket was a hot coal, and the smart thing was to get rid of it before the stamp came due.

The thirteen-month miracle

What happened over the next year became a small legend, argued over by economists ever since. The town spent. People paid their taxes early, ahead of the stamp, which no treasury had ever seen them do. The same notes circled and circled, far faster than money usually moves, the velocity of money, and Wörgl put the speed to use. It paved streets, built a bridge, ran water lines, and paid men who had been idle for years. Word got out. Tourists came to photograph the town that had beaten the Depression with play money, and other villages sent delegations to learn the trick. For thirteen months, a few thousand people in the mountains kept the hard times at bay.

It ended the way these things end. A town printing its own money has, in plain terms, gone into competition with the one institution allowed to issue it, and that is a competition it does not lose. With other towns lining up to copy Wörgl, the Austrian central bank went to court to defend its monopoly, and it won. In September 1933 the little stamped notes were declared illegal, and Wörgl was a poor town once more, with no money and no work.

Why it never lasted

The idea was too good a story to stay buried, so it travelled. In the United States an economist at Yale named Irving Fisher wrote a small book about it and pressed American towns to try; dozens did, starting in Hawarden, Iowa.³ The stamped money had caught on where the early Depression left towns with no cash to trade, so once Washington reopened the banks and dollars flowed again, the need for it vanished. It reached Canada in 1936, when the Social Credit government of Alberta paid its relief workers in prosperity certificates that carried Gesell’s stamp exactly, a cent stuck to the back each week to keep a dollar good. Albertans took one look, reached for the regular dollars in their other pocket, and let the certificates die inside a year.⁴ Merchants disliked taking the notes, and the weekly chore of buying and sticking on a stamp made them more trouble than they were worth.

Where the authorities did not step in to stop it, rusting money failed because people had an alternative. The towns that tried it had a door standing open the whole time; cash kept in a drawer did not need a stamp to keep working. The moment that money became a nuisance, people walked through that door, back to regular cash. The hole in Gesell’s grand design was all the ordinary money in the world.

The rust returns, in code

For more than ninety years that flaw kept his idea in the museum of failed money, because people could always escape into cash. Money is now turning into software, which can finally close that escape.

A currency that lives as code does not need a clerk or a stamp. The decay can be engineered into the money itself, the same fraction off every unit at once, the moment someone decides. The cash that used to be the way out is being retired, country by country, replaced by the very rails that can be set to rust.

These are live systems now, and the people who issue money are building them in the open. China’s digital yuan began to carry interest at the start of 2026, putting a central bank rate on it for the first time.⁵ In Shenzhen the authorities handed out digital yuan that expired if it went unspent by a set day, a real instance of money programmed to rust.⁶ The same code that can expire a balance can fence it. An IMF deputy managing director has described money “precisely targeted” to what a person is allowed to buy, so a unit could clear at the grocer and fail at the fuel pump, or work inside a city and stop at its edge.⁷ That same family of controls can also freeze a balance outright, and the central banks and the IMF set all of it out themselves, in their own pilots and papers.

Gesell needed your cooperation and a town clerk. Software needs an update.

The dial turns both ways

The design is neutral, and that is the danger. The same dial a reformer turns to keep money moving is the one a controller turns to charge you for holding it. A rate the central bank can set, like the one now on China’s digital yuan, can move below zero as easily as above it. A negative interest rate is demurrage by another name, Gesell’s rusting money, now centralized.

It has happened already. For most of a decade, central banks across the euro area and in Japan, Switzerland, Denmark and Sweden ran a negative interest rate policy, or NIRP, and charged to hold money.⁸ Those rates stayed shallow, and everyday savers were mostly spared, for one reason. People could still pull their money out as cash, and that open door put a floor under how far rates could fall. Take the cash away and the floor goes with it. IMF economists have spelled out how, proposing that physical cash itself be made to lose value against the digital kind, so there is nowhere left to hide from a negative rate.⁹ Neel Kashkari, the Minneapolis Fed president and a vocal opponent of a digital dollar, has named the danger himself. With such a currency, he warned, a government could impose negative rates or tax an account outright.¹⁰ Neither can be done to physical cash. Gesell needed your cooperation and a town clerk. Software needs an update.

The money no update can reach

Underneath all of this sits the oldest money there is, the one Gesell’s stamp could never have reached. Gold does not rust, and it does not run on a schedule. It has no issuer to set a rate, no code to receive an update, and no stamp you must feed to keep it good. A bar in a private vault, held in your own name, is the refuge cash once was, a place to keep a part of your wealth beyond reach while it waits.

In those years the way out was cash, and no one was trying to take it away. Governments are closing it now, slowly and in plain sight. The move worth making is to hold a part of your wealth in gold, in a vault, in your own name; it is the money no one else can reach in and change. Back then you could afford to wait for trouble. The exit is narrowing, and the time to act is while it is still there.

This picture is still forming, and I will keep it current. Hold the kind of wealth no update can set to rust, and when you are ready to arrange it, that is a conversation I welcome.

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Footnotes

1. Silvio Gesell, The Natural Economic Order; public-domain English translation at https://www.naturalmoney.org/NaturalEconomicOrder.pdf ↩

2. Sources: J. Blanc, “Free Money for Social Progress” (1998), https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1536-7150.1998.tb03376.x ; Irving Fisher, Stamp Scrip (1933). ↩

3. Source: Federal Reserve Bank of Cleveland, “Stamp Scrip: Money People Paid to Use” (2008), https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-commentary/economic-commentary-archives/2008-economic-commentaries/ec-20080401-stamp-scrip-money-people-paid-to-use.aspx ↩

4. Sources: Charlton Catalogue of Canadian Government Paper Money; Baynham, “What If Money Expired?”, Noema (2023), https://www.noemamag.com/what-if-money-expired/ ↩

5. The e-CNY interest-bearing change, effective 1 January 2026. Sources: State Council of the PRC, https://english.www.gov.cn/news/202512/29/content_WS69526d4ec6d00ca5f9a08511.html ; Caixin Global, https://www.caixinglobal.com/2025-12-29/china-to-allow-interest-on-digital-yuan-in-major-overhaul-102398302.html ↩

6. Shenzhen pilot, October 2020 (Luohu district, spending limited to designated local merchants). Sources: Peterson Institute, https://www.piie.com/blogs/realtime-economics/2026/china-gives-state-backed-digital-cash-us-and-europe-should-take-note ; “On the Nature and Security of Expiring Digital Cash,” JRFM (2025), https://www.mdpi.com/1911-8074/18/8/452 ↩

7. Bo Li, IMF deputy managing director, on money “precisely targeted” to its use, at the IMF seminar “Central Bank Digital Currencies for Financial Inclusion: Risks and Rewards,” 14 October 2022. Source: https://meetings.imf.org/en/2022/Annual/Schedule/2022/10/14/imf-seminar-cbdcs-for-financial-inclusion-risks-and-rewards ↩

8. Sources: IMF, “What Are Negative Interest Rates?” (2020), https://www.imf.org/en/Publications/fandd/issues/2020/03/what-are-negative-interest-rates-basics ; San Francisco Fed (2021), https://www.frbsf.org/research-and-insights/publications/economic-letter/2021/08/how-do-low-and-negative-interest-rates-affect-banks/ ↩

9. Sources: Rogoff, The Curse of Cash (2016), https://press.princeton.edu/books/paperback/9780691178363/the-curse-of-cash ; Agarwal and Kimball, IMF, “Cashing In” (2019), https://www.imf.org/en/blogs/articles/2019/02/05/blog-cashing-in-how-to-make-negative-interest-rates-work ↩

10. Neel Kashkari, Minneapolis Fed, 2022. Source: American Banker (2022), https://www.americanbanker.com/news/kashkari-calls-cbdc-a-threat-to-privacy-defends-regional-bank-independence ↩