Thomas H. Greco Jr. - The End of Money and the Liberation of Exchange

The End of Money and the Liberation of Exchange

A path toward social harmony and universal prosperity

Thomas H. Greco, Jr.

June 27, 2007 Prepared by Thomas H. Greco, Jr. 2

What I Will Cover

1. Fundamentals of Exchange.

� The Necessary functions of money

2. Stages of evolution of money.

3. The abuses of money

� Enabled by centralized control of credit.

4. Decentralized credit clearing

� An honest and efficient system of exchange

5. Escaping dollar dominance

� A multi-stage plan.


Exchange RequiresThree Fundamental Elements

� A marketplace� Where buyers and sellers come together

� A measure of value� For expressing prices

� A means of payment� For concluding a transaction


Basic Kinds of Economic Interaction

� Gifts -- Transfer of value without

any particular expectation of anything in return.

� Involuntary Transfers – e.g., theft,

robbery, extortion, taxes.

� Reciprocal Exchange – equal

exchange of value between two parties by voluntary agreement.


Money Plays Its Role Within the Realm of Reciprocal Exchange

The sole function of money is to serve as a

medium of exchange (means of payment).

The other traditional roles of money:

• Measure of value, and

• Savings medium,

Must be achieved by other means.


The Evolution of Money

� Commodity money� Tobacco, hides, gold, silver, etc.

� Symbolic money� Redeemable paper, warehouse receipts

� Credit money - current state� Bank credit, central bank notes, private credit and notes

� Direct Credit Clearing - Beyond political money


Why Reinvent Money?

� Throughout the world, money has become an instrument of political power.

� Money and banking are manipulated by and for limited private interests.

� Political money is exploitative, dysfunctional, and undemocratic.


How is Political Money Dysfunctional and Exploitative?

Money created as bank “loans:”

� Is kept artificially scarce.

� Is expensive, because interest is charged.

� Is misallocated at its source, serving to concentrate power and wealth.

� Forces artificial growth.


“Legal Tender” Serves to Centralize Power

� Legal tender laws are an abuse of monetary authority.

� Provides governments and banks with a way to avoid the discipline of the market.

� Improper and excessive issuance of money would normally be punished by discounting or refusal of the currency.

� The obliteration of the value standard by legal tender enables abuse to continue.

� “Inflation” is the result.� Example: the definition of the U.S. dollar


Modern money is Credit and

Credit is the Life Blood of Business

Two distinct credit functions:

� Exchange

� Short-term credit (turnover credit or working capital) –

Money

� Finance

� Long-term investment and savings (value storage) in the form of debt or equity –

Not Money

Credit Makes the World Go Round


Credo = Belief > Credit

� All credit derives from belief in a promise.

� Credit is based on trust and contractual obligation.

� Who or what do you trust?

� Who deserves credit?

� Whose promise will you accept as payment?


Sources of Credit

� Banks� Loans

� Customers� Prepayments / gift cards & certificates

� Suppliers and Employees� Vouchers, complementary currencies

� Direct credit clearing

The Credit

Commons

The Organization and Allocation of Credit is a

Fundamental Feature of Civilized Society

How should it be done?

The Credit

Commons

Central Government

“Loans”Banks

The Credit Commons can now be accessed only through banks!

“Loans”

“Loans”


Privatization of the Credit Commons

Access to credit is controlled by the banking system in collaboration with central governments.

� Banks decide who gets access and on what terms.

� Banks collect interest on all loans.

� Favored clients get credit on easy terms.

� National governments have extraordinary access.

By their arrangement with the banking system, governments can “borrow” as much as they wish and never repay.


Two Parasitic Elements of the Conventional Money System

�InterestCollected by the banking cartel

�InflationCaused by government deficit spending


Direct Access to Credit is Possibleand Desirable

� It is our collective credit that supports the monetary system.

� We have the power to use our credit as we wish.

� People are free to decide who they will trust and to allocate their credit directlyto one another.

� Whom or what will you trust?

� Are you trustworthy?

Alpha

CompanyBravo

Company

Charlie

Company

Delta

Company

BankConventional Payment ProcessUsing Bank Credit Money

Bank credit borrowed into circulation and used to clear

debts amongst companies.

Interest must be paid on credit borrowed from a bank.

$

$

$

$ $

$ Interest

Alpha

CompanyBravo

Company

Charlie

Company

Delta

Company

The Clearing Process Without Bank Credit

A common measure of value is used for pricing but no need to borrow currency. Mutual credit is used to clear debts among companies.

No interest paid.

Alpha’s

i.o.u.

Alpha’s

i.o.u.

Alpha’s

i.o.u.

Alpha’s

i.o.u.


Direct Credit Clearing

� If money allows us to transcend the limitations of barter, credit clearing allows us to transcend the limitations of money.

� An association of traders can agree to offset purchases against sales amongst one another.

� In effect, goods and services are used to pay for other goods and services.

� Another way to describe it is:

Accounts Receivable (A/R) are used to offset Accounts Payable (A/P)

� The same process can be applied by countries within an international trading union.


� When you sell something, your account balance is credited (increased);

� When you buy something, your account balance is debited (decreased).

How Does Credit Clearing Work?


How Does Credit Clearing Work? (2)

� Ultimately, goods and services pay for other goods and services.

� Money is just an intermediary device that is supposed to facilitate the process,

� But money can be dispensed with.

� Remaining balances may be settled at periodic intervals, or may be carried over indefinitely.

Mutual Credit Issuance and Circulation

Member - Issuers

Mutual credit

clearing associationMember - Non-Issuers

Issuing members begin the process by

buying from other members.


An Example

Suppose $1 million worth of clearing credits are created and spent into circulation by the associated businesses.

That means that their collective cash expenditures have been reduced by $1 million.

That $1 million remains within the association instead of flowing out to pay for imports.


An Example - continued

If the turnover is 10 times a year, that means $10 million in additional local sales.

If the rate of profit on sales is 20%, that will result in additional yearly profits of $2 million.


An Example - conclusion

Further, the issuance of clearing credits allows some interest-bearing debt to be retired.If the interest rate on debt is 10%, the businesses will together save cash interest costs of $100,000 each year.Every dollar’s worth of clearing credit issued means:

one less dollar that needs to be borrowed, one less dollar that needs to be spent,one less dollar that needs to be repaid with interest.

A Successful Example

� Established in 1934, the WIR Bank has continued to thrive.

� The WIR Bank clearing system now serves more than 60,000 small and medium sized business members.

� Credits cleared: $1.35 billion (2004)


A Likely Scenario

� Stage one: Independent Trading Blocs (already underway)

Many Islamic countries, under the leadership of Malaysia, form an Islamic trading bloc. Other trading blocs are emerging in Latin America and elsewhere.

� Stage two: Payment offset (already underway)

These nations begin trading with one another under bilateral andmultilateral agreements that utilize credit clearing intermediaries that offset payments for imports against receipts for exports and settle accounts at periodic intervals using some mutually agreedcurrency (dollars or euros).

� Stage three: Use of Gold Dinar (being considered)

Member nations adopt the gold dinar as the common value standard and the settlement currency.


A Likely Scenario - continued

� Stage four: Clearing union

Member nations form a clearing union in which sales to members offset purchases from members. They abandon gold as the payment medium and utilize the gold dinar only as a measure of value andpricing unit.

� Stage five: Settlement suspended

Member nations begin to realize that the period between settlements can be increased without adverse consequences, so they graduallylengthen the period more and more, but as balance of payment difficulties become evident, limits are set on clearing account balances to prevent payment deficits from becoming chronic for any nation.

� Stage six: Mutual finance

Associated countries create mutual assistance programs that provide development finance on a shared risk basis, using temporary equity-investment to help countries with adverse balance of payments problems to become more productive.


A Likely Scenario - concluded

� Stage seven: Adoption of a composite commodity standard

Realizing that because the gold market is easily manipulated by the central banks and governments of the developed countries, the Islamic trading bloc countries abandon the gold dinar as the value standard and adopt a common pricing unit based on a “market basket” that is composed of a handful of freely traded basic commodities.

� Stage eight

Non-Islamic countries, seeing the benefits of this system, seek to join the Islamic trading union, or form clearing unions of their own, all of which are ultimately networked together, creating a global association for fair trade and

mutual assistance.


Conclusions

� Political money is credit money that is used to concentrate power and wealth.

� Private initiative and enlightened government action can evolve credit money into credit clearing to serve the common good.

� With credit clearing as the means of exchange, gold can be the pricing unit.

� True Islamic prosperity can be achieved through the organization of direct credit clearing associations.

� Dollar hegemony can be transcended by organizing trading blocs that use credit clearing instead of international currencies for payment.


Suggested Sources

� Explore the website:

http://www.ReinventingMoney.com

� Monitor the blog:http://beyondmoney.wordpress.com

� Read, Money: Understanding and Creating Alternatives to Legal Tender, and

Money and Debt: A Solution to the Global Crisis by Thomas H. Greco, Jr.

Thomas H. Greco Jr. - The End of Money and the Liberation of Exchange

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