The main point of demurrage is not avoid fees. There's nothing wrong with fees.
While demurrage decrease the currency's ability to storage wealth, it stimulates the spend and trade with the currency, because the longer you hold the money the more you lose.
The only reason why people would prefer this kind of money is that is more suitable as a medium of exchange. That was what happened during the Worgl experiment.
The problem I want to solve with demurrage is deflation or at least its effects:
http://en.wikipedia.org/wiki/Deflation#EffectsDemurrage suppresses interest too, which I think is evil:
http://finanzcrash.com/english/aberrations.htmlThe problem of deflation can be solved along with the more general problem of price stability.
Neither Precious metals nor national fiat currencies have been able to solve this problem.
Here we got the formula we're supposed to be talking about if we want to reach stable prices(
http://en.wikipedia.org/wiki/Money_supply#Monetary_exchange_equation):
MV = PQ
M is the total dollars in the nations money supply
V is the number of times per year each dollar is spent
P is the average price of all the goods and services sold during the year
Q is the quantity of assets, goods and services sold during the year
Demurrage increases V and make it more predictable.
Demurrage (and M) could be adjusted dynamically in function of P, supposing you have a way to measure P.
The typical approach (without demurrage)is to increase M (print money) without knowing anything nor having any control of V. When V is low, crises come. The tool for trade disappears.
With precious metals, M depends on discoveries so you can't control prices with that.
With fiat currencies you can control M, but it doesn't help if you can't control V. When V gets low, Bernanke expands M. But then when V comes higher again, is not that easy to deacrease M and you got inflation.
If you have demurrage and bitcoin generation as an incentive, you can create and destroy money, so you can increase M by creating money faster than you destroy it and viceversa.
Of course, the formula that calculates P, the demurrage to be applied and the amount of bitcoins to be created with each block should be in a free software program and not just in a central banker's mind nor a politician's.
There I think we all agree.