Quote from: ZeroNominal on March 30, 2014, 06:24:01 PM

Quote from: maaku on March 30, 2014, 05:21:57 PM

The question will become: how do you control the nominal interest rate without any econometric data whatsoever?

There's a reason Freicoin's demurrage rate is flat: it's not out of laziness or ignorance. It's the best you can do! The only other real option is to track by means of a synthetic asset or prediction market, but that leaves the entire economy vulnerable to collusion and manipulation. But having a fixed demurrage rate doesn't make Freicoin broken - instead of the real nominal interest rate varying between 4-6%, it'll vary between -1% and 1%. This is an improvement. And, sadly, the best that can be done without sacrificing user privacy and/or decentralized control.

Perhaps I was a bit hasty in my discussion of Freicoin previously. If you could get an interest rate of -1% to 1% then without demurrage that would be an unambiguous improvement, since it represents a lessening of the inflation tax on holding money. However, doing it via demurrage is just replacing the inflation tax on holding money with an explicit demurrage tax. The fact it's explicit makes it marginally preferable, but the economic distortion is still there. People have to hold money to perform transactions, but they're penalised in doing so by the presence of inflation/demurrage.

Freicoin doesn't target 0% price inflation and that's probably impossible for a scarce currency. It targets 0% real interests, since 0% capital yields would mean the lowest profits and thus the lowest possible prices for consumers.
The constant 5% demurrage was recommended by Silvio Gesell based on historical data about real interest rates.
People need to hold money to perform transactions but:

1) They don't need hold big quantities. Thus they don't need to pay high costs.

2) They use 0% interest/0% demurrage mutual credit money like LETS systems or the Swiss WIR.

3) Holding cash-like scarce money (thus without default risks) represents an insurance against uncertainty, a "liquidity premium". Not paying for it is an externality that causes the basic interest and thus higher consumer prices, monetary cycles and encourages less investment.

If you want a 100% stable unit of account, it is completely possible and not hard to implement. Just define it (for example, as a basket of globally traded commodities) and use it as denomination for credit-based currencies. Like Lietaer's Terra but without the backing itself (Thomas Greco agrees that the unit without a scarce currency is better).

As an aside, the primary function of proof of work is not distributing the monetary seigniorage but securing the network!
Something proof of stake doesn't seem to provide so far.