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Regulating digital money Shann Turnbull PhD Research Fellow: The 40 Foundation Cell:+61418 222 378.

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Presentation on theme: "Regulating digital money Shann Turnbull PhD Research Fellow: The 40 Foundation Cell:+61418 222 378."— Presentation transcript:

1 Regulating digital money Shann Turnbull PhD Research Fellow: The 40 Foundation sturnbull@mba1963.hbs.edu Cell:+61418 222 378

2 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 20 th 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).

3 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)?

4 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;

5 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?

6 Consider a mind experiment with one assumptions concerning Western Australia that has 10% of the Australian population and earns 70% of Australias 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

7 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 generator 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

8 Power Consumption per person vs GDP per person Goberty & Zitoli (2012), Deko: An electricty- backed currency proposal available at: http://ssrn.co m/abstract=18 02166 http://ssrn.co m/abstract=18 02166

9 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 1920s 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

10 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

11 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

12 Evaluating Units of Value (1)

13 Evaluating units of value (2)

14 Differences between existing and Ecological Money Difference between:Existing moneyEcological money 1Money created by:Government & banksProducers, traders and investors 2Interest rates fixed by:Central BankCost of risk insurance 3Expansion of money:Government ratios/regulationValue of transactions 4Money defined by:Government fiatLocal resources of nature 5Choice of currencyGovernment monopolyDetermined by community 6Inflation control by:Blunt policy instrumentsValue of renewable energy (REDs) 7Structure of money:Unlimited accrual of interestCarrying cost limiting life 8Economic flaw-1Incentive to own moneyDisincentive to hold money 9Economic flaw-2Allocates resources to financeReal assets more attractive 10Economic flaw-3Distorts price relativitiesPrice related to sustainability 11Environmental flaw-1Incentive to burn carbonFavors renewable energy 12Environmental flaw-2No feedback from natureNature controls price signals 13Social flaw-1Compounds unearned incomeNo unearned income 14Social flaw -2Concentrates influenceLocalizes influence 15Political flaw-1Concentrates powerEnriches local democracy

15 Ecological Money from local cooperatives Money created by citizens and firms creating wealth; Insured credits for citizens to consume and invest becomes money (Insured IOUs 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.

16 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

17 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.http://ssrn.com/abstract=1399224 http://ssrn.com/abstract=1322210 http://papers.ssrn.com/abstract_id=1602323 http://ssrn.com/abstract=1304083 References

18 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.http://www.ethicalmarkets.com/wp- content/uploads/2009/04/mysteries-of-the-financial-system.pdf http://ssrn.com/abstract=2103899http://www.gtne.org/?q=node/337http://www.gmwg.org http://ds1.downloadtech.net/cn1086/audio/14215157971873-001.mp3 References


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