March 29, 2024

News Cymru

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A New Money System – Of The People, For The People, By The People

We can , as individuals, print our own, trusted, personal currency. After a conversation on Yanis Varoufakis’s blog I found myself asking how exactly could a new currency be created?

The comment that caused me the most discomfort was this

I see your point of view although I think you put too much emphasis on theory over reality. The reality is this catch 22 situation where entire economies are heading towards insolvency because of the state of the banking system and economies diverge due to the great interest rate differences. Banks need to be recapitalized all over Europe for its economy to be given a chance of a restart. I do not know how this is going to happen eventually (use of local currencies or euros) but trust me, it will happen. There is no alternative to that.

It’s an interesting question, how exactly would you recapitalize an economy if banks were to stop making loans?

First of all, like I mentioned in the post, I do not think it will happen. Just because the biggest banks fail does not mean the rest will also fail. There are hundreds of banks in the UK for example and only a few with major funding problems and mainly those that deal with governments.

Photo of an old style check. In a new money system with today’s technology people can issue their own secure and trusted currency – Image Source: http://en.wikipedia.org/wiki/Cheque

But lets assume that overnight the banking system failed to operate, what would happen overnight if all money ceased to exist, what would happen if the money system was not based solely on debt like the money system we have now.

New Money System – How would that start and what would it look like?

This video on YouTube from the Mises Institute sets an excellent base to work from

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So how exactly can the baker make his work easy to trade?

And the answer is simple, he can print his own currency.

New Money System – How would this work in reality?

The baker would simply write someone a cheque for his future labour/production. He wants a taxi ride so he writes a personal cheque for the amount of the taxi ride.

The cheque would give the taxi driver the option to claim the specified value of labour/products from the baker at some time in the future. And it does not necessarily need to be the taxi driver claiming the bakers labour/products in the future, it could be anyone. The taxi driver can use the bakers cheque to pay for goods and services from other people.

New Money System – Fundamental Problem

There is one fundamental problem with people writing their own cheques for their own labour in the future, how can the cheque be trusted?

And this is where insurance companies come in. People could of course choose not to insure their own currency and likewise people can choose not to accept currency/cheques which are not insured but if people wanted a guarantee that the cheque was good they could pay an insurance company to insure their currency.

Like car insurance, people would pay a premium to an insurance company so if for some reason they were unable to honour the outstanding cheques the insurance company would come in and reimburse anyone claiming the value of the cheque.

New Money System – To look at the other-side of the transaction

You accept a bad cheque as payment, a bad cheque being a cheque that you cannot spend, you can take it to the insurance company and they will issue you with a refund. The nature of that refund would depend on the insurance company. They could issue their own currency ie their cheque, they could give you gold, silver, land, whatever the insurance company chose. What they offered would have to be of intrinsic value other wise it is not insurance what they are offering!

People and businesses who chose to work with an insurance company would be issued with a cheque book by the insurance company. The cheques the people wrote would be written on insurance company cheques and this way people receiving the cheques could see that the cheques were backed up by the insurance company.

A New Money System – What about fraud?

What if someone copied the cheque books? Again, this problem would be down to the individual insurance company to solve. One solution could be to make an app for a smart phone which allows the receiver to scan the cheque to cross-check against the insurance companies database. A simple and effective solution.

A New Money System – How would insurance companies stop themselves being defrauded by reckless/criminal customers?

How would insurance companies stop customers from writing cheques for amounts they could not honour, or what would stop customers from writing hundreds of cheques?

Again, the smartphone/anti counterfeit solution could be used. While the cheque is being checked for authenticity, the amount of  the cheque could also be checked at the same time to ensure the amount is not an unrealistic figure.

A New Money System – How would the insurance company know what an unrealistic figure is?

When they quote the customer to insure their currency they will ask the relevant questions such as profession, years in business, experience etc etc to assess the likely spending of each customer.

Going back to the baker, how would the insurance company assess what the labour/products/service of the baker should be. Logically you would expect them to relate the bakers income to a commodity, the bakers production is finite therefore its value must also be tied to something finite. Again it would be up to the insurance company to decide what commodity they used or they could give the baker options.

So lets assume that an individual insurance company has their own currency called the Dinar. They value their Dinar at 1000 to 1 ounze of silver.

A New Money System – How are they going to asses how many Dinar cheques the Baker will be able to issue in the course of a year?

How much currency should the insurance company allow him to print? The obvious way would be to simply have a limit on the value of each cheque that the baker could issue and also limit the number of cheques he could issue in a year. When the cheque book finished he would have to go back to the insurance company and apply for a new book.

However the reality of the situation is that the baker should only need one book for his entire lifetime with regards to his normal day-to-day expenses.

He would not need to constantly make new cheques.

He would be issuing cheques for the products and services he bought but at the same time he would also be accepting cheques from customers which he could then also spend. In reality the number of cheques that the baker would need would probably be very small because he would be receiving cheques from other people.

It is feasible that only  a couple of weeks worth of production of the entire economy would need to be in circulation at any given time. For example, if you get paid weekly then you only need to be able to make a week’s worth of cheques.

The problem with barter is not that there is not enough money, the problem is putting together buyers and sellers. Personally issued currency for the most part, only needs to allow you to service your day to day needs and this does not need a lot of cash, the only requirement is that commodities are easily interchangeable, this does not need to be complicated. People issuing their own trusted currency solves this issue completely.

A New Currency System – The problem of denomination.

So the baker is accepting cheques from his customers but they are in varying amounts which probably do not match the cost of the product or service he needs to buy. How would the baker get around this problem?

He would simply take the cheques he had received to his insurance company and they would issue him with their own cheques of set denominations. For example 1 Dinar cheques, 5 Dinar Cheques and so on and so forth.

His insurance company could then take the cheques the baker had deposited to the other insurance companies who originally issued the cheques and be refunded in the commodity that each insurance company worked with, for example gold or silver.

A New Money System – This is a very simple system but it is also a system that can allow everyone access to ready to cash, even without collateral.

The cash issued by individuals does not have interest connected to it, in the case of insured cheques the only cost is the cost of the insurance premium.

This system also does not destroy money. The current money system destroys money when the loan is repaid. The money remains in existence in a system where the people themselves issue their own currency.

At worst the currency/cheques get transformed into a commodity which itself can they be turned back into cheques.

This is an extremely important part of the concept as it takes away the power of banks to control economies through the issuance of debt to governments and private entities. the control being through the inflation of bubbles and then contractions of credit. A money system issued by the people, for the people would by as strong and stable as the people.

A New Money System – How would competing insurance companies make their cheques interchangeable.

What if one insurance company works in gold and the other silver? It would make sense for insurance companies to issue different types of cheque books according to the commodity the cheque is tied to.

For example and insurance company may issue gold cheques, silver cheques, platinum cheques, wheat cheques, oil cheques etc etc. This would ensure easy interchangeability of cheques between insurance companies.

A New Money System – Summary

The key to any money system is trust which means anti-fraud measures. With QR scanning on smart phones counterfeit  cheques would be next to impossible to create and it makes it easy for everyone to confirm the authenticity of the currency they are presented with. This also massively reduces the cost and complexity of the currency/cheques themselves.

The insurance side of the cheque currency system is not compulsory but the benefits are obvious, especially for individuals. Insurance costs need not be anywhere near the costs of car insurance for example. The financial damage that can be caused in a car accident are arguably many times more than the financial damage that could occur with a cheque book, assuming the systems above where in place. In short, the insurance costs would be minimal.

Where would the insurance companies come from? The same place as car insurance companies, health insurance companies and so on. In fact it would be expected that the cheque insurers would be the same businesses that insure our cars, houses and health today. In short the infrastructure to secure this system already exists.

It could be argued that the counterfeiting issue is the only thing that has stopped people from issuing their own currency up until now. However the dawn of the mobile phone and smart phone apps have almost completely eliminated the chance of counterfeiting and at negligible cost. It is this easy accessibility and low-cost that makes the issuance of personal currency and easily obtainable concept even from today.

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