Regulating digital money Shann Turnbull PhD Research Fellow: The 40 Foundation...
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Transcript of Regulating digital money Shann Turnbull PhD Research Fellow: The 40 Foundation...
Regulating digital money
Shann Turnbull PhD
Research Fellow: The 40 Foundation
Cell:+61418 222 378
“Of all the many ways of organising banking, the worst is the one we have today” (2010: 18).
“Will future historian look back on central banks as a phenomenon largely of the 20th century?” (1999:47)
“Is it possible that advances in technology will mean that the arbitrary assumptions necessary to introduce money into rigorous theoretical models will become redundant, and that the world may come to resemble a pure exchange economy?” (1999:48)
Views of Mervyn King - Governor of the Bank of England
“There is no reason, in principle, why final settlements could not be carried out by the private sector without the need for clearing through the central bank” (1999: 48).
Tomorrow all money will be digital-stored and transacted in mobile phones
How will money be created?
What might money be used for?
What forms should be accepted?
How should money be regulated?
Should money seek to correct: “The biggest market failure the World has ever seen” (Stern 2006)?
New options introduced by digital money
1. Introduce multiple currencies;
2. Allows automatic conversion of currencies;
3. Makes practical demurrage money;
4. Biometric/biographical identification;
5. Introduces digital purses;
6. Allows contactless transactions without ATMs or bank branches;
Criteria for regulating digital money -Governments need to decide
1. Centralize or decentralize?
2. Belief system or anchored in nature?
3. Value determined subjectively or objectively?
4. Positive or negative money?
5. Interest earning or demurrage money?
6. Commercialized or mutualized?
7. Created top down or bottom up?
8. Controlled by 1% or the 99%?
9. Complementary or replacement currency?
Consider a mind experiment with one assumptions concerning Western Australia that has 10% of the Australian population and earns 70% of Australia’s foreign exchange.
Assume: imports of regions are proportional to their populations;
This means:
WA citizens earn seven times the FX then they need.
Eastern citizens only earn 30% of the FX they consume.
If each region possessed its own currency then the value of the $West would be much higher than the $East. Manufacturing and the export of educational and tourist services would be invigorated in the East.
Conclusion:
Central banking can misallocates resources much more than tariffs or taxes.
Central banking misallocates resources
Sustainable and Non Sustainable Power Generation
90%
10%
Interest
on cost of
generator
Operating Costs
Renewable Sources
(Hydro, Solar, Wind, etc)
45%
55%
Interest on cost
of generato
r
Fuel(35%)
Other Operating
Costs (20%)
Exhaustible Sources(Coal, Gas, Oil)
Eliminating the cost of interest reduces the cost of renewable power by 90%
Power from Exhaustible sources become 5.5 times more expensive
Interest over 25 year life of generators yielding same kilowatt hours
Power Consumption per person v’s GDP per person
Goberty & Zitoli (2012), ‘Deko: An electricty-backed currency proposal’ available at: http://ssrn.com/abstract=1802166
Proudhon, P. (1840) argued against usury that allowed the holders of money to get richer without making any contribution to society from what his former associate Karl Marx described as “synthetic” values rather than “factual” surplus values extracted from workers.
Gesell (1919) was inspired by Proudhon to propose that money should depreciate like life supporting commodities by the introduction of a usage fee.
Privately issued credit notes called Wära” were introduced into Germany during the 1920’s requiring a stamp of 1% of their value to be affix each month. (The word Wära was created by combining the German words for goods and currency)
Suhr (1990) described it a “neutral money” as it created a more level playing field between investing in money or other assets
Cost carrying “Neutral” Money
Keynes (1936: Chapter 23, part VI) described Gesell as an “unduly neglected prophet”.
Gesell proposed that money should incur a cost of 0.1% of its face value per week, equivalent to 5.4% per annum. Keynes (1936) thought that this “would be too high in existing conditions, but the correct figure, which would have to be changed from time to time, could only be reached by trial and error”
Even with a cost 20 times greater of 2% per week as widely accepted the script would be more attractive that modern credit cards that charge up to 2% or more per transaction.
Many versions of cost carrying money were redeemable into goods or services to establish a unit of value independently of fiat money.
Money redeemable into services of nature like renewable energy that also have limited life like all life forms is described by this author as “ecological”
Ecological currencies
Locally issued limited life cost carrying money spread rapidly through Europe and the US during the Great Depression between 1931 to 1933.
Various forms were issued by merchants and local governments with a cost of 2% per week being popular with some being redeemable into official money at a discount of say 4% to provide an incentive to pass on the script rather than redeem it.
Stamp script quickly spread because it was so successful in stimulating local economic activities on a self-financing basis.
In February1933 a Bill was introduced into the US Congress to issue one trillion dollars of “Stamp Scrip” to stimulate the economy to pay unemployment benefits and build infrastructure. The sale of stamps would have allowed the US post office (not the Federal Reserve) to redeem all the script given away and make a $40 billion gross surplus!
Limited life self-financing money
Evaluating Units of Value (1)Comparison
criteria Fiat
dollarsGold
dollarsRenewab
le Energy
Emergy
1 Unit of value Not defined Ounces/grams
Kilowatt-hours
Equivalent solar emjoules
2 Quality testing
Not required
Density Not required
Not required
3 Intrinsic value
Negligible Say 10% 100% ?
4 Subjective value
100% Say 90% Nil Not relevant
5 Source of currency
Government decree
Few locations
Many & technology
Not relevant
6 Equity of supply
Depends on Gov.
Concentrated
Widely spread
According to location
7 Cost of distributing reserve currency
Negligible with electronic transfers
Changes little with distance
Increases with distance
Not relevant
Comparison criteria
Fiat dollars
Gold dollars
Renewable Energy
Emergy
8 Changes in production of money
Controls & interest rates
Little related to consumption /GDP
Usually related to living standards
Not relevant
9 Volume of money controlled:
Indirectly by interest rates
Geography, trade and government
According to economic activity
Not relevant
10
Rate of change in production of money
Fiscal and monetary policies
Fluctuates with region and time
Relatively stable by region and in time
Not relevant
11
Cost of storage
Not required
1% of value p.a.
Not required Not relevant
12
Cost of insurance
Not required
1% of value p.a.
Not required Not relevant
13
Ecological features
None Natural product
Limited life Unit of Nature
Evaluating units of value (2)
Differences between existing and Ecological MoneyDifference between: Existing money Ecological money
1 Money created by: Government & banks Producers, traders and investors
2 Interest rates fixed by: Central Bank Cost of risk insurance
3 Expansion of money: Government ratios/regulation Value of transactions
4 Money defined by: Government fiat Local resources of nature
5 Choice of currency Government monopoly Determined by community
6 Inflation control by: ‘Blunt’ policy instruments Value of renewable energy (REDs)
7 Structure of money: Unlimited accrual of interest Carrying cost limiting life
8 Economic flaw-1 Incentive to own money Disincentive to hold money
9 Economic flaw-2 Allocates resources to finance Real assets more attractive
10 Economic flaw-3 Distorts price relativities Price related to sustainability
11 Environmental flaw-1 Incentive to burn carbon Favors renewable energy
12 Environmental flaw-2 No feedback from nature Nature controls price signals
13 Social flaw-1 Compounds unearned income No unearned income
14 Social flaw -2 Concentrates influence Localizes influence
15 Political flaw-1 Concentrates power Enriches local democracy
Ecological Money from local cooperatives Money created by citizens and firms creating wealth;Insured credits for citizens to consume and invest becomes money
(Insured IOU’s by sellers of goods and services become negotiable);Money carries part of insurance cost to avoid interest costs!Cost carrying money eliminates money as a store of value and
reduces 1% getting richer from the 99% to reduce inequality;Credit contracts defined by retail value of electricity from local
cooperatively owned renewable energy generators;Future values, prices & costs no longer subject to inflation and/or
manipulation by government and/or banks; Credit insurance cooperatives established in each bio-region;Elimination of central banks and crisis from external contagion;Green Money transacted through cell phones by-pass big banks;Bio-regional credit unions & savings associations replace banks.
Sustaining nature and humanity Green Money as a global unit of account with a local unit of value;Renewable energy in each bio-region determines economic values
and so how markets allocate resources sustainably in each region;Quality of modern life depends on energy consumption. Market
forces distribute the plague of people on the planet on a sustainable basis;
Size of financial institutions constrained by bio-region;Cost of the financial system to service real economy minimized;Degrading economic growth not required to pay interest costs:Green Money facilitates achieving prosperity without growth;Inconvenience of Green Money having different regional values
overcome by inbuilt cell phone facility to execute exchanges;Green Money reduces the bias to hold money rather than the
means to create prosperity;Green money can reduce or eliminate the need for carbon taxes or
trading
‘How would the invisible hand handle electronic money?’ in Lynne Chester, Michael Johnson & Peter Kriesler, eds Heterodox Economics’ Visions 2009, available at: http://ssrn.com/abstract=1399224.
‘Options for Reforming the Financial System’, in The IUP Journal of Governance and Public Policy, 6(3): 7-34, September 2011, available at: http://ssrn.com/abstract=1322210.
‘How might cell phone money change the financial system?’ The Capco Institute Journal of Financial Transformation, 30:33-42, November 2010, http://papers.ssrn.com/abstract_id=1602323.
‘Money, Renewable Energy and Climate Change’, Financiële Studievereniging Rotterdam, (FSR Forum), 12:2, pp.14–17, 19-22, 24, 25, 28-29, February, 2010, Erasmus University, Rotterdam: http://ssrn.com/abstract=1304083.
References
‘Mysteries of a failed financial system and how failure can be avoided’, April 19, 2009, Ethical Markets, posted at: http://www.ethicalmarkets.com/wp-content/uploads/2009/04/mysteries-of-the-financial-system.pdf,
‘Green Money: Why we need it? How to get it?’ posted at: http://ssrn.com/abstract=2103899.
Introduction to Green Money Working Group http://www.gtne.org/?q=node/337
Green Money Working Group http://www.gmwg.org
‘Transforming finance from the bottom up’. Online conversation with co-producers of the Better World Forum, GMT 23:00, April 22, 2012. Archived at: http://ds1.downloadtech.net/cn1086/audio/14215157971873-001.mp3.
References