Presentation on theme: "The End of Money and the Liberation of Exchange A path toward social harmony and universal prosperity International Conference on Dinar Economy Kuala."— Presentation transcript:
The End of Money and the Liberation of Exchange A path toward social harmony and universal prosperity International Conference on Dinar Economy Kuala Lumpur, Malaysia July 27, 2007 Thomas H. Greco, Jr.
June 27, 2007Thomas 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.
June 27, 2007Thomas H. Greco, Jr.3 Exchange Requires Three 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
June 27, 2007Thomas H. Greco, Jr.4 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.
June 27, 2007Thomas H. Greco, Jr.5 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.
June 27, 2007Thomas H. Greco, Jr.6 The Evolution of Money Commodity money Tobacco, hides, gold, silver, etc. Symbolic money Redeemable paper, warehouse receipts Credit money – the current stage Bank credit, central bank notes, private credit and notes Direct Credit Clearing - Beyond political money
June 27, 2007Thomas H. Greco, Jr.7 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.
June 27, 2007Thomas H. Greco, Jr.8 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.
June 27, 2007Thomas H. Greco, Jr.9 “Legal Tender” Laws Serve to Centralize Power and Concentrate Wealth Legal tender laws are an abuse of monetary authority. Provide 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 as payment. 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
June 27, 2007Thomas H. Greco, Jr.10 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
June 27, 2007Thomas H. Greco, Jr.11 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?
June 27, 2007Thomas H. Greco, Jr.12 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? June 27, 2007Thomas H. Greco, Jr.13
The Credit Commons Central Government “Loans” Banks The Credit Commons can now be accessed only through banks! “Loans” June 27, 2007Thomas H. Greco, Jr.14
June 27, 2007Thomas H. Greco, Jr.15 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.
June 27, 2007Thomas H. Greco, Jr.16 Two Parasitic Elements of the Conventional Money System Interest Collected by the banking cartel Inflation Caused by government deficit spending
June 27, 2007Thomas H. Greco, Jr.17 Direct Access to Credit is Possible and 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 directly to one another. Whom or what will you trust? Are you trustworthy?
Alpha Company Bravo Company Charlie Company Delta Company Bank Conventional Payment Process Using 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 18
Alpha Company Bravo 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. Thomas H. Greco, Jr.19
June 27, 2007Thomas H. Greco, Jr.20 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.
June 27, 2007Thomas H. Greco, Jr.21 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?
June 27, 2007Thomas H. Greco, Jr.22 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 association Member - Non-Issuers Issuing members begin the process by buying from other members. June 27, 2007Thomas H. Greco, Jr.23
June 27, 2007Thomas H. Greco, Jr.24 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.
June 27, 2007Thomas H. Greco, Jr.25 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.
June 27, 2007Thomas H. Greco, Jr.26 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) June 27, 2007Thomas H. Greco, Jr.27
June 27, 2007Thomas H. Greco, Jr.28 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 and multilateral agreements that utilize credit clearing intermediaries that offset payments for imports against receipts for exports and settle accounts at periodic intervals using some mutually agreed currency (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.
June 27, 2007Thomas H. Greco, Jr.29 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 and pricing unit. Stage five: Settlement suspended Member nations begin to realize that the period between settlements can be increased without adverse consequences, so they gradually lengthen 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.
June 27, 2007Thomas H. Greco, Jr.30 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.
June 27, 2007Thomas H. Greco, Jr.31 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.
June 27, 2007Thomas H. Greco, Jr.32 Suggested Sources Explore the websites Read books by Thomas H. Greco, Jr. Money: Understanding and Creating Alternatives to Legal Tender, Money and Debt: A Solution to the Global Crisis, The End of Money and the Future of Civilization (published 2009)