Demurrage, or negative interest rates on cash balances, is an experimental idea in economics associated with thinkers like Silvio Gesell that aims to encourage productive spending and discourage hoarding.
In Manifold Markets' current play-money system, a small daily fee on users' uninvested cash balances (equivalent to an annualized 10-30% fee) could encourage users to bet in more markets, prevent inflation from new money generated by new users, and make it more rational to participate in longer-term markets.
Resolves YES if Manifold implements negative interest rates on cash balances before the end of January and does not remove the feature before February 10, 2022.
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I think it only makes sense to think of M$ as a currency if it eventually becomes exchangeable for real money. In that case, real world inflation and alternative investment opportunities will prevent people from hoarding M$—also, market distortions due to huge, incorrect bets become a money-making opportunity anyway.
But if M$ doesn't become exchangeable for money, I think it makes more sense to think of it as a kind of social credit—like reputation on Stack Overflow. In this case, it's fine—and makes sense—for people to hoard M$, because that will demonstrate how good they are at making predictions.
Another way to look at it is that the problem with mudflation is that there is an actual economy being distorted: in-game goods and services that high-level, long-time players can afford much more easily than everyone else. But right now, you can't actually buy anything with M$ (except, maybe, answers to questions, by creating markets with outsized subsidies)
I'm of two minds when it comes to this --
On the one hand, if you look at Manifold through the lens of a game designer, the currency is artificial and not tied to any real world costs. This means that long term you might face what's known as "MUDflation" where high level players accumulate huge amounts of money and this really distorts the economy for everybody else.
On the other hand, players really don't like in-game "taxes," especially if they can visibly see the deductions.
My general advice would be to watch the problem closely and not rule out any specific policy, but not implement anything prematurely until or unless you know it might solve a problem you're having.
So in general the problems we've identified might happen eventually are:
- Players hoarding $M instead of spending it
- Players being reluctant to bet on long term bets
- Serve as a steady sink against inflation
One would also need to prioritize those issues. For instance, if you implement demurrage you might solve the issue of people avoiding long term bets as everyone piles every available bit of capital into them as "banks," but still have issues with inflation long term.
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