QUESTION R: In which form should MONEY 2.0 be issued?
OPTION 1: As digital units only
Limiting MONEY 2.0 to digital units seems ideal for a number of reasons:
– The production costs for digital money are manageable; a one-time investment in powerful and secure software benefits all; and most provisions against counterfeiters and hackers can be pooled (which also results in a low level entry for new currency start-ups). The creation of coins and paper money, on the other hand, incurs running costs and in the fight against counterfeit money, all currencies are basically on their own.
– Allocating and monitoring money creation limits, which is crucial in MONEY 2.0, is effectively only possible with digital account balances. Digital account balances are also needed to automatically calculate the time by which participants must settle their accounts and introduce goods or services into the system.
– Digital money allows for convenient calculation and collection of fees based on revenue or account balances – with coins and paper money, this would be all but impossible.
– The fact that all circulating money is backed by promises to perform is one of the main stability features in MONEY 2.0. This equilibrium, however, can only be maintained with digital money, as money can only circulate losslessly in a digital system. Where money can go missing, an ever-increasing number of promises would no longer be matched by money anymore, making redeeming those promises increasingly difficult. To replace the missing bills and coins, a central bank would eventually have to issue additional money. It is unclear, however, on what basis that should even happen in a system where money can only be issued based on new promises to perform.
OPTION 2: As coins and paper money
For the proper functioning of MONEY 2.0, coins and bills hold no advantage – their only possible benefit is to maintain old customs and preferences. In many countries, however, transactions are already carried out almost completely without cash today – the usefulness of cash is therefore a fairly subjective matter.
To ensure that the absence of cash isn’t regarded as a disadvantage, MONEY 2.0 offers a wide choice of cashless payment options (ranging from account cards to mobile payments). Also, participants are free to issue their own coupons or token coins and circulate them as cash. It is up to the issuers, however, to provide for their acceptance and bear all the risks – in the case of problems, the stability of MONEY 2.0 is in no way affected.
QUESTION S: Should MONEY 2.0 be convertible to traditional bank money?
OPTION 1: No
Traditional bank money is legal tender: Not only are all market participants required to accept traditional bank money as the medium of exchange, they must also accumulate it in order to pay taxes.
Preventing alternative money from being converted to bank money therefore leads to a dead end. If an alternative currency cannot be converted to legal tender, it cannot be used to pay tax debts and is thus restricted to a secondary circuit, all but forcing market participants to fall back onto traditional bank money for all relevant transactions. A currency following that route is therefore hardly competitive anymore.
Apart from usefulness considerations, it is also unclear how an exchange ban should be enforced in the first place. In the history of currencies, there seems to be no example where such a measure – even with the support of government oversight – has ever been effective.
OPTION 2: Yes
If currencies are regarded as commodities, there is no logical reason why an alternative currency shouldn’t be traded on the free market. Moreover, MONEY 2.0 must be freely convertible in order to compete with the existing bank money.
QUESTION T: How should the exchange rate to other currencies be determined?
OPTION 1: On the free market
For alternative money, the free market serves as a kind of litmus test, as an unstable and poorly administered currency is bound to trade well below face value. Some administrations try to “protect” their currencies from this scenario by prohibiting trade – that, however, merely serves to sweep the actual problems under the carpet.
Like traditional money, MONEY 2.0 can be traded on centralized exchange markets. Past market rates serve as reference points for future transactions – ultimately, however, it is the participants themselves who set the price of their commodity “money”.
OPTION 2: By decree
Decreeing an exchange rate that can’t be enforced is fairly pointless. Since it’s impossible to verify what actually changes hands in return for a transfer of money, rules and bans to that effect would only create a black market where the “regulated” exchange rate is ignored and prices reflect the currency’s actual value.
OPTION 3: Backing by the currency administration and a fixed exchange rate (e.g. pegging to the Euro)
Since MONEY 2.0 is issued in exchange for promises by participants and the central office only administers the system, it cannot possibly provide any kind of backing. A guaranteed exchange rate is only conceivable where money is issued by the currency administration itself – otherwise, the administration can only decree the exchange rate (see OPTION 2).
QUESTION U: How do transactions to non-members work?
OPTION 1: Via guest accounts
In MONEY 2.0, participants can’t remain anonymous because they have the right to issue money. For MONEY 2.0 to be stable, however, anyone issuing money must be held responsible for their promise to repay.
If accounts don’t allow for money creation, on the other hand, identifying the account holders isn’t strictly necessary. This opens the doors for anonymous guest accounts: Guest accounts can’t have negative balances and serve for transactions to non-members.
To ensure that all money remains available for transactions between participants rather than circulating between non-members, transactions between guest accounts are prohibited, and transferring entire guest accounts is restricted (which can be achieved by using static access codes). Moreover, adopting either an expiry date or progressive balance fees ensures that the funds from abandoned accounts eventually return to the money cycle.
Due to standard money-laundering provisions, anonymous accounts are limited to relatively small amounts. With this, guest accounts are fairly similar to the prepaid credit cards known from traditional banking.
OPTION 2: By using other, sufficiently connected mediums of exchange
Where the capacities of passive accounts aren’t enough, business partners must resort to a medium of exchange that is available to both sides. To this end, other alternative currencies are just as good as traditional bank money.
For a medium of exchange that is stable and convertible on the money market, falling back on an intermediary currency is straightforward. Digital currencies like MONEY 2.0 can even be converted transparently, making the transaction as convenient as paying a foreign bill with a traditional credit card.
A promising approach along these lines has been implemented by Ripple.com, where both digital and analog currencies can be traded through gateways.
– To create a digital money system in which all market participants can issue money under a collective brand, and which doesn’t require a higher authority for implementation.
– To limit money creation with each participant’s ability to render equivalent service in the near future.
– To make the currency freely convertible.
– To establish a sufficiently funded central administration which monitors the rules and, if necessary, enforces them by law.
– To see to it that currency administration and money-lending are separate entities.
– To ensure that the alternative system is used instead of the current money system, therefore REPLACING it.
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