WIR financing renovation/expansion
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.
The hotel I am staying at in Rheinfelden is one of the old-fashioned European Hotels where the infirm came “to take the waters” (think Thomas Mann). The associated hot mineral springs were thought of as curative for many ailments. The hotel is a short walk across a park from the modern spa/clinic facilities. Mostly all geared to therapeutic with doctors/nurses/physical therapists in abundance. But also saunas, massages, aroma therapy, etc.
The hotel and clinic/spa is owned by an engaging couple not yet 50. She is Italian and he Swiss. The hotel enthusiastically accepts WIR in payment. 50% for rooms and 15% in the restaurants. The husband is entrepreneurial and in 2006 explained to me all of the places that he can use WIR. He keeps the glossy catalogue close at hand and plans his expenditures to best
It was then he told me of a planned expansion of the hotel. The hotel consists of three old buildings, only one of which is renovated and used currently. The other two sit abandoned but historically interesting. There was a wide space between the two larger buildings. His plan was to develop a 22 unit upscale condominium project connecting to a new kitchen facility and renovated restaurant.
He needed to borrow four million francs. The WIR bank would lend him a half million WIR at no interest to place the funds in circulation. He could then borrow another half million in Swiss Francs at 1%. And the next 3 million Swiss Francs from the WIR bank at 3%.
The project is now virtually complete. One unit is already occupied. The owners will give me a tour of the new building tomorrow. The new kitchen/restaurant opened two days before I arrived and that is where I eat. All very sophisticated, clean, modern, high quality. The old building still reigns as queen however. The workers are hustling to have all the details done for a big public celebration on October 25th.
One million two hundred thousand of the total cost was paid for in WIR. The whole project made possible by WIR bank. And what that meant is that only Swiss contractors need apply. So architects, engineers, landscapers, building suppliers, electricians, plumbers, foundation builders, metal workers, carpenters, were all local businesses rather than multi-national corporations. Many local jobs were created. The celebration will be attended by many most grateful local people.
These are not precisely “small” businesses, not a guy with a truck and a skill saw, rather medium sized businesses able to do good sized buildings within a reasonable time frame. They are the businesses that are the backbone of a vibrant economy.
I’m rereading Jane Jacobs “Cities and the Wealth of Nations” in between mineral water treatments and long walks, and am getting re-inspired by her vision of what constitutes healthy economies.
WIR is a tool. BerkShares is growing into such a tool working with existing local banks rather than creating one separately. We will also need regional equity funds focusing on these medium sized businesses to complement BerkShares financing. More of that later. In the meantime wanted to share these observations with you.
For those curious, here’s the hotel’s website:
And WIR bank or google WIR
Further to WIR:
Just got back from another Rotary meeting in Basel. You know me, I don’t hesitate to explore what is on my mind, so of course asked everyone at my table and others about WIR.
One of my table mates is a contractor. He said that if you are in the trades, there is no question that you must take WIR. At a minimum 15% per job. The WIR bank is making mortgages in WIR at 1%. That of course
encourages building and renovation, providing jobs for contractors. But as a contractor, he is not thinking of the bigger economic question, just the inconvenience of having to take WIR because he is limited in where he can spend it.
One hotel in the area takes 100% WIR and he says they have a lot of business, especially from contractors who are looking for outlets for their WIR.
But he is one of those without a WIR account. So he black markets them. Meaning he takes a WIR check, but an undesignated check and passes it on like cash. Of course when a business knows that it is black marketed, they won’t take it at full value. They have an advantage in the negotiation. The business that wants to deposit it, then signs it. I’m assuming that is especially businesses with mortgages in WIR, who need WIR to pay back the mortgage.
The trouble for the person without a WIR account is the end of the year — you can not carry them over on your books if they are unsigned and you don’t have an account to put them in. So especially at the end of the year there is a huge black market trade in WIR (according to this contractor). He said those who want WIR for building or a specific purpose can find WIR at a 40% discount at year’s end.
Can’t understand why these guys don’t just open a WIR account — it would be easier than all there under the table deals.
Another person at my table was an accountant. Now of course he only deals with legitimate trade in WIR. He wants to see WIR in an account. But he says, even so, his firm when they see WIR on the books discount it by 20%. So if there is 10,000 WIR in the account, they value it at 8000 francs. If the business owner turns it to better account, that is all to the good, but they don’t take it for granted. The limitation on where it can be spent, devalues it in their eyes.
Another guy builds waste water treatment centers for towns and cities. Because he works with government entities, he does not trade in WIR. But his opinion is that in this troubled economic time, WIR is proving the
Just gathering data while here. Certainly the hotel likes it, but then they had the advantage of the low cost mortgage and they see an advantage in taking 50% WIR for the rooms. There is always repair work to be done, and the contractors are used to having WIR payments specified in the contract. The hotel has more limited places to spend WIR relative to food sources, so only takes 15% WIR in the restaurant.
The contractor likes the idea that BerkShares is convertible back to federal dollars, even if at a discount. That would give more flexibility in his eyes. If WIR had some convertibility, other than black market, he would like it better.
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