Illustration: Rebecca Zisser/Axios

Central banks have unloaded trillions of dollars of stimulus in efforts to push inflation above 2% in countries from the U.S. to Japan and across the eurozone, but nothing seems to be working.

Driving the news: One radical idea that could boost spending and help resuscitate moribund economies is Silvio Gessell's proposal for depreciating money, writes Stephen Mihm, an associate professor at the University of Georgia, in an editorial for Bloomberg.

What it means: Money, if not spent, would lose its value by 5% a year. That would encourage people to spend, rather than hold onto it. Such a plan would radically boost the "velocity" of money, giving a major boost to developed economies where services account for a hefty majority of economic growth.

  • "In Gesell's formulation, money became a 'hot potato' that note holders tried to use before it lost value," Mihm writes. "As far-fetched as they seem, his writings had practical implications because they pointed a way out of the impasse the world confronted in the Great Depression."

Context: The idea has been tried before. The mayor of Wörgl, Austria, used the town’s funds to put Gesell's depreciating currency into rotation and managed to stimulate a minor boom in the midst of the Great Depression.

  • "The'Wörgl miracle' became the object of immense fascination, and other municipalities copied it — until Austria's central bank became worried about losing its monopoly over issuing currency. Not long afterward, the nation's highest court ruled that 'emergency currency' was illegal."

The intrigue: Depreciating currency has even been studied, by "several academic economists eager to find a way for central banks to circumvent the 'zero bound' in interest rates" as recently as the 1990s.

The bottom line: While it's unlikely the Fed will be jumping on the Gesell bandwagon anytime soon, Mihm says that the idea of a depreciating currency could serve the U.S. and the global economy in the event of another downturn.

  • As central banks have already pushed interest rates into negative territory and governments have increased debts to historically unprecedented levels, unorthodox means may be required to dig the world out of its next hole.

Go deeper: Inside the global economy's "delicate moment"

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