The money creation limit defines the maximum negative balance an account can hold. Any payments exceeding the money creation limit will be rejected. The initial limit for new accounts (typically 100 currency units) is determined by the currency administrator, in the long run, however, money creation limits depend entirely on each account holder's sales volume.
The money creation limit is calculated from the account holder's sales of the previous 48 months. Recent sales have the greatest impact and then contribute less and less to the money creation limit, until after 48 months, they cease to have any effect at all.
Without sales, the money creation limit will shrink continuously - market participants can therefore exceed their money creation limits even with their account balances unchanged. When that happens, account holders are notified by the system to remedy the problem in due time - typically within three months. If an account holder doesn't comply, any unsettled debt will eventually be paid for by system administration. The account owner will then owe the money directly to the admin, who will treat it like a regular unpaid bill (demand note and ultimately legal action).
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Details
• Only selling can increase the money creation limit, because only sales prove that a participant has value (goods or services) to offer. This ability is proven to the buyer, who confirms it to the system.
• Since the money creation limit declines steadily, the MONEY 2.0 software can provide account holders with an accurate prediction of when they will exceed their money creation limits if they don't make new sales, and by how much they would have to reduce their account balances three months down the road.
• In the three six months (following the very first transaction), new account holders will not be requested to adjust their account balances. A demand note will therefore not be sent until six months after the first transaction.
• Model calculation for a money creation limit: 21% to 13% of the past quarter's sales revenue, 13% to 9% of the sales revenue that is older than three, but not older than 12 months, 9% to 5% of sales older than 12, but not older than 24 months, 5% to 2% of sales older than 24, but not older than 36 months and 2% to 0% of sales older than 36, but not older than 48 months. Within the mentioned time frames, there is a smooth transition (beginning with the higher and ending with the lower percentages).
• The original money creation limit that was allocated upon account creation shrinks in the same way as a money creation limit earned through sales. The decline is calculated via a determination base. In the model calculation above, the determination base would be 476.19 (of which 100 currency units are 21%).
• Among other things, the decaying money creation limit solves the issue of "debt laundry". Participants with a payment due cannot reset their status by simply requesting a bogus payment from another member and then returning the favor. Apart from the fact that this operation will cost them fees, the decreased money creation limit simply won't allow them to send the same amount back.
• The fact that participants MUST at some point buy or sell may seem unusual. The basic principle, however, is very similar to what we are used to from the traditional money economy - if you obtain a good or service that is not a gift, you eventually have to pay for it. (The main idea is that, if you have a cow and need a horse, but the seller of the horse doesn't need your cow, you can still get the horse. After that, however, you have a certain amount of time in which to find a new owner for the cow. Obtaining the horse without consideration would be an abuse of the system. Sooner or later, everyone must put the same value into the market than they are taking out of it.)
• Although the prospect of legal action may sound unsexy for a "free" or "open" currency system, it is crucial for MONEY 2.0 that fraud isn't tolerated (which is why violations must lead to severe and clear-cut consequences). Foul play would essentially result in counterfeit money, and counterfeit money would lead to inflation, thus damaging the currency's integrity and hurting all participants. On top of that, participants violating the rules and reaping the benefits of their actions would set a bad example and possibly tempt others to follow suit. The mere fact that the rules can be enforced, on the other hand, should ensure that they are respected in the first place.
• Only selling can increase the money creation limit, because only sales prove that a participant has value (goods or services) to offer. This ability is proven to the buyer, who confirms it to the system.
• Since the money creation limit declines steadily, the MONEY 2.0 software can provide account holders with an accurate prediction of when they will exceed their money creation limits if they don't make new sales, and by how much they would have to reduce their account balances three months down the road.
• In the three six months (following the very first transaction), new account holders will not be requested to adjust their account balances. A demand note will therefore not be sent until six months after the first transaction.
• Model calculation for a money creation limit: 21% to 13% of the past quarter's sales revenue, 13% to 9% of the sales revenue that is older than three, but not older than 12 months, 9% to 5% of sales older than 12, but not older than 24 months, 5% to 2% of sales older than 24, but not older than 36 months and 2% to 0% of sales older than 36, but not older than 48 months. Within the mentioned time frames, there is a smooth transition (beginning with the higher and ending with the lower percentages).
• The original money creation limit that was allocated upon account creation shrinks in the same way as a money creation limit earned through sales. The decline is calculated via a determination base. In the model calculation above, the determination base would be 476.19 (of which 100 currency units are 21%).
• Among other things, the decaying money creation limit solves the issue of "debt laundry". Participants with a payment due cannot reset their status by simply requesting a bogus payment from another member and then returning the favor. Apart from the fact that this operation will cost them fees, the decreased money creation limit simply won't allow them to send the same amount back.
• The fact that participants MUST at some point buy or sell may seem unusual. The basic principle, however, is very similar to what we are used to from the traditional money economy - if you obtain a good or service that is not a gift, you eventually have to pay for it. (The main idea is that, if you have a cow and need a horse, but the seller of the horse doesn't need your cow, you can still get the horse. After that, however, you have a certain amount of time in which to find a new owner for the cow. Obtaining the horse without consideration would be an abuse of the system. Sooner or later, everyone must put the same value into the market than they are taking out of it.)
• Although the prospect of legal action may sound unsexy for a "free" or "open" currency system, it is crucial for MONEY 2.0 that fraud isn't tolerated (which is why violations must lead to severe and clear-cut consequences). Foul play would essentially result in counterfeit money, and counterfeit money would lead to inflation, thus damaging the currency's integrity and hurting all participants. On top of that, participants violating the rules and reaping the benefits of their actions would set a bad example and possibly tempt others to follow suit. The mere fact that the rules can be enforced, on the other hand, should ensure that they are respected in the first place.