Perpetual Coin definition, origination, redemption and discussion

[Jordan]

What is Perpetual Coin? (I'll refer to it as 'PC' herein)

From the draft proposal "Digital Coin: A Design for a Technologically Innovative, Sustainable and Self-correcting
Software Medium for Trade and Capitalization of Production" by Paul Grignon Jan 1, 2008. Revised Aug 14, 2009
http://digitalcoin.info/Digital_Coin_Draft_Proposal_Grignon_Aug16_2009.pdf

Perpetual Coin is to be the foundation of the system and the unit in which all things are priced.

Perpetual Coin is to be a permanent and anonymous unit of trade, much like a gold coin.

The essential purpose of Perpetual Coin is to be the unit of value. Functionally it could just be a
definition and not need to exist as an object at all. However, establishing a standard of value is
the challenge.

The system in which he refers is the digital coin system being proposed and discussed herein. But where does PC originate or in other words how does it come into existence? Paul proposes that:

Perpetual Coins be exchanged for existing national currencies. The national currency spent to purchase Perpetual Coins, will be held in trust so that the Perpetual Coin can always be redeemed for the exact same amount of the exact same national currency that was paid for it.

Basically, then PC is like a receipt for the money you deposit with the producer of PC, but what about the value of PC, that's the important part, how is that derived? As with most forms of money today it is simply what the market will offer for it.

So how is the price for PC set? As currently defined, the price is equal to one half of the ratio of the value of the strongest currency of a consistent basket of currencies  compared to the value of the the US dollar.  Or as expressed as an equation:
    
        PC   =   .5   x   ( strongest currency / US dollar )

Once sold each PC retains that particular value in perpetuity or until redeemed and extinguished. As most every mainstream currency, due to its fundamental nature, becomes worth less and less over time, the redeemable value of PC will decline (even though the redeemable amount remains constant). Don't worry it is hard to understand!    The confusion arises from confusing the value of something over time.

Consider if I give you a pound of bacon in exchange for 2 PC and you take the bacon home but forget to refrigerate it. . .for a week. . .    You've lost value!, but the 2 PC in my pocket is still worth the same. You still have a pound but you wouldn't get back the value you paid for it.  Sadly, the money most people use today is like the bacon, it's always losing value.  Converting your currency to PC is like putting your bacon in the fridge!

PC derives it's value from the marketplace not any central authority, hence in trade, its value cannot easily be manipulated. Relative to other mainstream currencies PC is much more likely to maintain it's value over time while your original currency depreciates - think about that.  The value of PC isn't equal to the amount that was paid for it because there is no direct linkage between it's value and it's price.

[swingarm]

Hi Jordan,

 Thanks for your post. This digital coin is fascinating. Like you say it is a little confusing but I'm working on getting a better understanding. I watched the money as debt 2 and I came here for a closer look. I wonder how long it is going to take to get this "online". I'm from Canada. I guess at present there is limited use for this instrument as most do not know it exists, right? I really like the removal of central banking from the equation and it's exciting to see there is a way to combat the financial terrorism thats now taking place.

[Jordan]

Hi SwingArm, Welcome to the forum.  I don't believe that Paul Grignon's Digital Coin system is in use anywhere yet, I am in touch with Paul and he is a member of the forum.

What we need to do at this stage I think, is to share and promote information and ideas that promote liberty and if possible form active groups to share and start developing the ideas.

Cheers,

Tyler

[GovenmentAntidote]

Maybe I'm missing something, but the concept of the PC doesn't make any financial sense. It would be understandable if it was based on a basket of currencies, similar to the currency proposed by the IMF, or a basket of commodities,  or an index of stocks. These are all financial instruments in common use to hedge against inflation or volatility in any one asset class. However tying the PC's value to the strongest currency, begs the question who's going to back this currency? It's a guaranteed money looser for the backer. They cannot know what the strongest currency is in advance, so they will suffer a loss on every conversion out of the PC.

The credit coin makes even less sense. In the market, price is established with the bid/ask process, there is no other way to determine an equitable price that I know of. Setting the price based on instantaneous buy/sell volume doesn't seem practical, the price will fluctuate wildly. No one will risk selling or buying an asset unless they know what price they're getting.

The digital coin system doesn't adequately address the issue of interest. There has been a market demand for loans since money was invented. I think it's an Utopian fantasy that the demand for loans will disappear anytime soon. Replacing loans with partnerships doesn't really address the issue. The partner with the capital will still want to get a return on his money. Whatever mechanism is used to account for the time value of money is by definition  interest.

The idea of replacing one standard of value such as the dollar or ounce of gold with millions of floating currencies doesn't look appealing, simple barter will probably be simpler to implement. There is a reason that corporate bonds or other derivatives aren't used as currencies, they are too difficult to value. The whole point of a currency is to establish a common standard for setting prices, and this has historically been the most marketable commodity. If the PC is accepted by the market as the common standard that's great. As a seller I will only accept PC money. The buyer with self-issued bonds can take his IOU's to a bond dealer and come back with real money.

I understand the motivation of creating an non-political monetary system, and I'm a big supporter of such efforts. However any system will need to be implemented a small step at a time so as not destroy established financial networks. Each small change should have a positive impact on all participants, and it should have minimal risk. I think the next logical step is actually a step back. We need to go back to a commodity based money and use that as a foundation and let the market with it's unlimited inventive capacity introduce innovations. The process of market competition will determine which innovations will be established. This can of course only happen in a free market.

[Jordan]

However tying the PC's value to the strongest currency, begs the question who's going to back this currency? It's a guaranteed money looser for the backer. They cannot know what the strongest currency is in advance, so they will suffer a loss on every conversion out of the PC.

PC is ultimately tied to the value of currency paid for it. If you are living in a world of hyperinflation, a world manipulated by fractional reserve bank credit, then PC will be safer than most other currencies would it not?

As for the current process of making loans, the exponential credit market expansion created by banks via the fractional reserve system is unsustainable in a finite world. It worked while resources were in high supply, but it cannot do so indefinitely.

In regard to interest, it is an abuse of power and fosters corruption. It is does not require creativity nor much risk, but enforcement. As capital loaners (as opposed to capital investors) accumulate with very low risk they would, relatively, quickly come to dominate capital markets unless the credit market grew exponentially, which it does thanks to the fractional reserve system of bank credit.

So, until you can address how the immovable object (a finite world) and the unstoppable force (exponential economic expansion driven by exponential credit growth) can co-exist, I'm a bit dumbfounded as to how the idealism herein can be refuted.

People who have capital will need to take risk and be creative by seeking investments or trust others to do it for them instead of living off of the low risk interest created from exponential credit expansion.

As to the valuation of many multiples of currencies, the answers exist. How are thousands of stocks valued every day - through stock markets. Computers and the Internet can automate the entire process. Many exchanges can be created and market forces and the courts will insure users against fraud.

As a seller I will only accept PC money. The buyer with self-issued bonds can take his IOU's to a bond dealer and come back with real money.

I believe that CC [credit coin] is meant to be created by producers, not consumers. It is a means that allows a producer to buy from other producers using their own products as backing for the credit coin they issue. Each CC can be put onto a trading market (as mentioned above) and it's value can be easily (automatically) determined at each point of trade. Rating agencies may also get in on the act - there are many ways to skin the cat.

Make no mistake, everything should be backed by something. I'd actually preference to see PC backed by energy, although it wouldn't strictly be the PC that Mr. Grignon has proposed.

In the end (beginning) it will be up to the creators of PC to determine. So far as I understand, there is nothing preventing there being many types of PC. We could even consider stock from stable debt-free producers to already be a functional kind of PC.

I do agree that small steps are needed here. I can really see no other way. The market will shape the system as it develops.

[GovenmentAntidote]

Jordan, thanks for the reply.

I'll leave the issue of PC price alone for now as this is not my main concern. Ultimately, it will have to be backed by some commodity, mainstream currency, or combination thereof. If this isn't done, then the whole thing is a non-starter and everything else is moot (read Mises on the regression theorem, for example here:http://www.silverbearcafe.com/private/moneyvalue.html). If someone can disprove the regression theorem, I would be very interested to see it.

My concern with the digital coin system is that it seems to violate several basic economic concepts and human nature in general. These are fundamental issues. There are also many practical issues, such as how to initially establish a new currency without the backing of a major economic power, or how to deal with taxation and all kinds of financial regulations such as legal tender laws for one. For now I assume that we're operating in one of two scenarios: 1. the present financial system collapses and this is offered as an alternative to barter or gold or 2. this system begins operation in the underground economy.

First lets start with interest. A basic aspect of human nature is that people value present goods more than future goods. In order to provide an incentive for people to relinquish present goods in return for future goods, we have to give them something of greater value than what we borrowed. This is called interest. The higher the time preference the higher the rate of interest. Absent the payment of interest there would be no capital available to expand production or even to maintain existing production and the economy will collapse. Take the dark ages as an example when charging or interest was considered usury and frequently outlawed.

I agree that charging interest on money that is created out of thin-air is fraudulent on many counts. And this does lead to business cycles and all kinds of misery. Clearly, if I was the only one that was allowed to counterfeit money I would quickly wind up with owning everything of value. The same applies if there was a banking elite that was granted the right to print money out of thin air. So the problem is not charging of interest but counterfeiting. In a free market interest doesn't lead to run-away debt problems. The system is self-correcting. Higher demand for money leads to deflation, and higher interest rates. Deflation means that a smaller amount of money can service the exchange function in an economy. Higher interest rates also encourages savers to dis-hoard their money and loan it borrowers. Higher interest rates also reduces the demand for long term loans and existing loans are paid back. Of course I'm taking about commodity backed money, not fiat currency. With fiat currency the dynamics get very complicated, and all fiat currencies eventually fall to their intrinsic value: zero.

Beyond the theoretical problem of not being able to charge interest there is the practical issue of how anyone can acquire a capital good without having all the money saved first. Let's take an example of a person wanting to buy a house. Without being able to borrow, he will have to find someone that will take installment payments. Without going into details, he will end up paying much more than if he borrowed the money and would have no equity in the house until he made the last payment. Interest give the poor upward mobility. Without interest they will remain serfs as in the dark ages. Interest also encourages savings and investment which are the foundations expanding economic activity which results in a higher standard of living.

So the alternatives to the current system is either to allow everyone to counterfeit (ala digital coin) or not allow anyone to counterfeit and return to a commodity backed unit of account. The first option is not really an option as this kind of monetary system is not likely to get established in the first place and if it it did, would be extremely unstable and will likely collapse very quickly. In a later post I will argue why a Credit Coin type of system is unstable.

[Jordan]

I'll leave the issue of PC price alone for now as this is not my main concern. Ultimately, it will have to be backed by some commodity, mainstream currency, or combination thereof. If this isn't done, then the whole thing is a non-starter and everything else is moot (read Mises on the regression theorem, for example here:http://www.silverbearcafe.com/private/moneyvalue.html). If someone can disprove the regression theorem, I would be very interested to see it.

Mises paper refers to the value of current fiat money and it's past purchasing power translating into the trust that is required for it to be used as money today. Why would that be any different for PC, when it is bought with dollars? If I go to the UK, I trade dollars for pounds sterling and I expect the sterling to be useful as money. I see no significant difference between the two.

Absent the payment of interest there would be no capital available to expand production or even to maintain existing production and the economy will collapse.

This is where credit coin fills the void. Producers can create money backed by their goods and services. Furthermore, I see no reason why companies can't issue and use their own stock *as a form of money* to raise the capital they require. Everything can be traded and settled through linked bourses.

Beyond the theoretical problem of not being able to charge interest there is the practical issue of how anyone can acquire a capital good without having all the money saved first. Let's take an example of a person wanting to buy a house. Without being able to borrow, he will have to find someone that will take installment payments. Without going into details, he will end up paying much more than if he borrowed the money and would have no equity in the house until he made the last payment.

The third option is that he stays with his parents until he saves up enough to build his own cabin. Honestly I can't think of a better incentive to save money than escaping one's parents -can you!? lol!  But I must reiterate my concerns in regard to bank credit. I don't see the world as being an infinite resource and while I'm ever hopeful, we are not yet pushing into outer space. I'm a big fan of private ownership and someday I imagine that all the land is going to be owned and stewarded by people. So eternal exponential growth *on this earth* is not a realistic thought. At some point we must recognize this and decide that we need to take responsibility for the damage we are doing because of our exponential growth -damage caused by fractional reserve system bank credit.

Interest give the poor upward mobility. Without interest they will remain serfs as in the dark ages. Interest also encourages savings and investment which are the foundations expanding economic activity which results in a higher standard of living.

I'm all about liberty, so I'm not strictly against people borrowing and charging interest if they like, although I'm personally not interested (pardon the pun). So long as banks aren't allowed to create money from the borrowers promise to pay it back - as such money creation is counterfeiting and fraudulent.

So the alternatives to the current system is either to allow everyone to counterfeit (ala digital coin) or not allow anyone to counterfeit and return to a commodity backed unit of account.

Credit Coin is backed by real commodities, thus it is not counterfeiting.

From the draft proposal "Digital Coin: A Design for a Technologically Innovative, Sustainable and Self-correcting Software Medium for Trade and Capitalization of Production" by Paul Grignon Jan 1, 2008. Revised Aug 14, 2009  http://digitalcoin.info/Digital_Coin_Draft_Proposal_Grignon_Aug16_2009.pdf

Credit Coin could be issued by anyone as a contractual claim upon whatever the Issuer produces or provides in services. However, any given Credit Coin would have to be specifically accepted by the acceptor. Non-acceptance is the default.

Credit Coin is directly backed by real products and services, not an artificial intermediary of value like gold or silver. And, the Issuer of Credit Coin is only responsible for providing its own products and or services in return for its Credit Coin, never “money” in any form.

This is a very important point. In the Credit Coin System, an Issuer’s ability to honor its credit is never dependent on the general availability of “money” in the economy, the way the ability to pay back bank loans are. The Issuer’s sole responsibility in issuing Credit Coin is that the Issuer must be able to redeem its own Credit Coin with its own products and/or services.

And customers will only want the Issuer’s products and/or services if they are of desirable quality and competitive price compared to others. Therefore, the Issuer must endeavor to offer the best product at the best price. There is no shelter from competition, just because you issue your own “money”. If too much of an Issuer’s Credit Coin is spent relative to demand for that Issuer’s product, that Issuer’s Credit Coin, and only that Issuer’s Credit Coin, will devalue.

As today, the best position for an Issuer is to be taking in a “profit”. In the Credit Coin system, that means selling your goods for more than it costs to make them, just as in the current system. However, as will be explained later, in the Credit Coin System, profits can only be realized by spending them.

Should an Issuer be unable to honor its Credit Coin with goods and services, the contract with the Bearer is ultimately backed by a claim upon the assets of the Issuer in liquidation. Therefore, it is expected that only limited liability corporate entities would be inclined to take on the risk and responsibilities of being an Issuer of Credit Coin. That would be governments at all levels, corporations, cooperatives and societies.

[Paul Grignon]

Sorry for being absent from this forum for so long. I spent the past 11 weeks making the French versions of MAD1 Revised and MAD 2.

Newbie asked for a refutation of Mises' "regression theory".
I suggest reading Stephen Zarlenga's book very extensive and thorough book, The Lost Science of Money.

The URL below is Zarlenga's refutation of the Austrian School's conception of how money originated.  Zarlenga's is derived from actual history not the theoretical imaginings of Mises and Menger.

http://www.monetary.org/mengerrefutation.html

Credit Coin is a contract for delivery of specific goods and services, possibly at a pre-determined price.  Therefore, unlike commodity currencies of any kind, gold, silver, fiat cash, or debt, any specific Credit Coin's value is not affected by the TOTAL quantity of Credit Coin in existence.  It's value is defined by what its Issuer will supply in exchange for it and how well the Issuer maintains its own balance-of trade.

 The value of any given Issuer's Credit Coin is determined solely by

1. the prices the Issuer places on its product
2. the balance-of-trade of the Issuer

Therefore the arguments between Mises,  Menger and Zarlenga are not all that relevant to any discussion of Credit Coin as CC's value is not determined the same way at all.

If Toyota issues and spends Credit Coin worth 30,000 PC in order to build a Toyota Prius  (including dividends to shareholders and ALL expenses, salaries and profit) and that Credit Coin is redeemable for a Toyota Prius priced at $30,000 PC, that Credit Coin is worth $30,000 PC or one Toyota Prius.   NOTHING CAN CHANGE THAT except Toyota.  It doesn't matter if Honda floods the world with Honda Credit Coin and makes Honda Credit Coin worthless.   That will only affect those holding Honda Credit Coin.

See the crucial difference?

Now that the French is done I plan to expand the Digital Coin website with additional animations to make these points all the more clear.

Paul

[Boldhawk]

Perpetual Coin is to be the foundation of the system and the unit in which all things are priced.

Perpetual Coin is to be a permanent and anonymous unit of trade, much like a gold coin.

The essential purpose of Perpetual Coin is to be the unit of value. Functionally it could just be a
definition and not need to exist as an object at all. However, establishing a standard of value is
the challenge.

I find the concept quite fascinating, and it hits me as making sense on some intuitive level.

As a 'constant' for value, I don't like that a value is altered by the what's happening in the market place for two reasons. Supply and demand will shift up and down with relationship to one another during a trading period, without regards to real value. In general, people tend to agree that value is the final agreed sale/buy price, which allows a transaction to complete. But this is just a working value, rather then a finite value. If there a way to measure value in terms of time/energy/skills accurately, it might noted as a value that is closest to 'real physical value.' That would be a quasi-scientific kind of value. But it would be closer to an understandable real value to most people in a market place, because (this maybe just my notion, but I think is widely used by people in the background of their calculation of how much to offer for something) people set a value on their own products using a time/effort/skill/longevity sense.  Someone who tutors a very specialized subject has a market that can bring him one student a month. He may give them a lesson for one or two hours. To be available to deliver such product it maybe necessary that he spend most of his time on stand-by, thus work for about 5 hours a month (teaching time, plus ancillary activities related thereto).  He would want to issue a credit coin which when spent will help him survive an entire month, plus reserve.  That would be an uncommon situation to determine what credit to issue.

A professional may work 160 hours a week, and add the value of his skill and issue a credit coin of 500 hours of work. Although it would be good if one could implement both, PC, and CC at once, I think it maybe too complex for people to understand... Maybe it's just me, and my math speed. Also if only a CC, and the Time/effort/skill unit of value measurement, people would automatically adjust their own CC value based on trade-ability.

A mark-to-market value (which is what I think PC is being calculated at) is one of the problems where the value of something couldn't be determined because trading stopped at some decay point... so a home ends up being sold for $500, when it has an investment of at least 8000 man hours, and a replacement value way more than $500. It works fine during normal trading, but can't cope with the sudden peaks or valleys; it would tend to halt trading, I think.

[Boldhawk]

OOOOPS.... Sorry.... looks like (in my immediately previous post) I didn't close the quote mark and everything came out as quoted text!

OOOPS again... I was able to correct, so I didn't need this message, but when I tried to delete it, it came back with error!

[Jordan]

No worries about the error Boldhawk.  Great to see thoughtful and interesting comments.  I must confess however that your thoughts are a little beyond my comprehension right now.        I feel like a dunce having to call out to Paul for help all the time, but I'm afraid I'll need more detail from you in order to understand what you're trying to get across.  Paul has been seen on here a fair bit lately so perhaps he'll weigh in.   

Here's my initial thoughts/questions though. . .

Is there anyway anything could ever be fixed in value? Isn't everything trade-able bounded within the laws of supply and demand? 

Warning: much digression follows   
As for myself, and as I've written in this forum previously, I think my 'ideal' would be to have money based on the going price of a given amount of energy. Perhaps 'pure energy' as measured by physics which could, if needed, be translated into a given amount of any type of fuel.  In my 'ideal' one currency would represent energy and another would represent knowledge/wisdom/skill combined with a certain amount of energy.  Thus one money represents the raw force of labor, the other represents value added goods and services.   Don't ask me why. . .it's just my intuition and I've not reasoned the why yet.  Also it is just an ideal, having nothing much to do with my pragmatic side that tells me that just about any system (initially at least) would be better than what we have now. So I'd be happy to see some change - any change. 

Someone who tutors a very specialized subject has a market that can bring him one student a month. He may give them a lesson for one or two hours. To be available to deliver such product it maybe necessary that he spend most of his time on stand-by, thus work for about 5 hours a month (teaching time, plus ancillary activities related thereto).  He would want to issue a credit coin which when spent will help him survive an entire month, plus reserve.  That would be an uncommon situation to determine what credit to issue.

If the tutor is supplying a service that is valued by the community at the rate he requires then he'll be able to put into circulation the credit coin that he requires to make a living. If not then he may have to find other goods or services to trade to make ends meet. In a free market we are all subject to supply and demand and this is a very democratic process. - Socialists find it scary      Perhaps I'm not addressing your question, you want to know how he determines what amount of credit coin to issue??  If so, I'd just think he'd make up his budget and figure out how how much he'd like to earn.  He might ask lots of people in the community beforehand to gage how much they would be willing to pay -maybe this is your question eh?  by what measure does the community use to gage?  Of course the answer would be PC, but then if PC is itself hard to gauge because it may jump up and down relative to other currencies, then it might be hard to get a good measure of value - is that what you're explaining - I tell you I'm very slow in the head   

So I don't have a good answer for you.  If metals or energy were in the basket of currencies, perhaps it would help. . .or maybe not.  Thoughts?

Does there need to be 'one' digital coin system?  Maybe people could try out different variants.  Perhaps model computer exchanges could be built to test PC theory and we could get some ideas about price stability. If real people interacted with the model it might produce some realistic data.  At some point completely abstract hypothetical model aren't able to give us anything, we need to see what complexities develop (or don't develop) in an interactive system.

Just my two bits!   

[Boldhawk]

Is there anyway anything could ever be fixed in value? Isn't everything trade-able bounded within the

Depends... Ultimately value is really subjective from a human perspective. However, when we trade the least we want to do is have our time properly rewarded, thus time spent on something can give a sort of energy measurement. If we have an heirloom we might not accept "time to manufacture" as sufficient. Same for works of art, and old wines in collections and relics, and so on.

Skill level, experience, education, and so forth would make that person's rate per hour ten or more times that of a High school grad, with no skills, but bright enough to start to learn and do stuff.

I think my 'ideal' would be to have money based on the going price of a given amount of energy. . . . [snipped]  would represent knowledge/wisdom/skill combined with a certain amount of energy.  Thus one money represents the raw force of labor, the other represents value added goods and services.   Don't ask me why. . .it's just my intuition and I've not reasoned the why yet.

 

As I said before, if there were a way to measure all the energy that was used to build something, we might be getting closer on one hand, but on the other is efficiency, doing more with less energy is preferrable... a time/skill standard would be loose enough to allow for variations and improvements and at some point early in the system people would work out adjustments that should themselves set further standards with refinements.

So I'd be happy to see some change - any change. 

I agree, provided it's comprehensive enough, and if not, it leave many windows for further improvements and refinements.

In a free market we are all subject to supply and demand and this is a very democratic process. -

Starting with a time/skill base, supply and demand would run pretty much the same, and also would adjust prices as well.  

Perhaps I'm not addressing your question, you want to know how he determines what amount of credit coin to issue?

There was really no question being asked; just a comment for a different preference to establish value rather than the PC.

So I don't have a good answer for you.  If metals or energy were in the basket of currencies, perhaps it would help. . .or maybe not.  Thoughts?

There are all sorts of things that would need resolving, such as how you handle the indigent, handicapped, elderly, social security, and so on, but they are solvable within a system like this... it's just a matter of thinking it through.

Does there need to be 'one' digital coin system? 

A game should be built that allows people to play it, and from there, work out minutia, and handle other details that wouldn't come up except in a game or real life.

[1 currency now]

Does there need to be 'one' digital coin system?

If denominated in numbers, yes, since they are unique.  Different algorithms can compete side-by-side to be the "best"/most favored measure of the value of something in relation to everything else, or one other thing.

If you mean "digital" merely in the sense of "electronic", then several already exist and an open-source global currency can exist side-by-side with national or international government/central bank currencies--  a little like how"public" and "private" education, transportation, library, utility systems can coexist.

[Paul Grignon]

Hello all,

I see a number of good questions have been posted recently.  I will do my best to come back to this forum more often.


1. How close is this to being a working system?
Not close. Technologically, I believe the capability is imminent. Politically and practically it is still just a subject for discussion. I am trying to spread a new idea, that is all I can do.  I have not been “giving talks” other than in conversation. But that may come. My sequel, already widespread online, directs viewers to explore the Digital Coin website.  I am also corresponding with several interested people, including some academic economists, all over the world. I’ll supply more news if and when these prospects solidify.


2. Defining value
There is a suggestion that Perpetual Coin have a hard value definition.  The same is suggested for national currencies, like the movement to return to the gold standard. Some folks propose that money should be defined as energy. For example:

http://anewworldsociety.ning.com/xn/detail/3615860:Note:1038

However, to my mind, the idea of defining the value of currency as a certain amount of ANY commodity always creates the same problems, which are serious.

For energy specifically, a Joule of coal and a Joule of electricity both represent the same amount of energy as defined by physics but they are not the same thing and don't have the same value.  The Joule of electricity is far more versatile and useful to most of us. You can't plug anything into a lump of coal! But for someone who only has a mud hut and a heating stove, electricity is worth nothing.

Even oil comes in many grades from thick and sour to light and sweet.  The same raw energy content requires many times the energy expenditure to acquire from tarsands as from a Saudi gusher. 

The same arguments apply to most any commodity you can name.  Value is subjective and variable and most commodities are not uniform.  The best commodity to use as money is precious metal, the uniformity of which can be proven by assay.  Gold has proven to be the penultimate uniform commodity to be universally used as the measure of “money”.

However, our current money system is the inevitable result of the gold as money commodity system.  For convenience and security, actual transactions in gold became transactions in paper promises to pay gold, and then promises based on previous promises and so on until there were so many promises, the promise of gold had to be abandoned. The truth is... that which functions best as money will be used as money. And right now the most useful money is worldwide bank credit which is nothing more than unfulfillable promises to pay worthless paper fiat money!!

People say let's go back to commodity money. But bank credit is commodity money!  It is a commodity valued by its abundance amongst other commodities. The more of it that is in circulation the less it is worth, just like gold or silver.

The basic question is... what does the supply and value of ANY commodity have to do with the need for money?  Is it not obvious that the need for money is created simply by the need for trade?

Why do people trade?  Locally, it is because they have adopted specialization of labor.  Rather than meeting all their own needs themselves as in a pure subsistence economy, the specialist serves others’ needs in the expectation they will serve his or her needs though the mechanism of fair exchange.

Over distance, the need for trade arises because of differences in what can be produced in different environments. For example, certain minerals can only be found in a few places. The world was explored by Europeans who risked their lives for spices that grow only in hot environments.

I gave up trying to define the value of Perpetual Coin as anything but a linkage to the existing value units people already understand, existing national currencies, which are themselves not backed by anything. And, even if they were backed by gold, as they used to be, what is gold worth to me in practical terms? If money were backed by food, clothing, houses, utilities and so on, it would have a value to which I could truly relate my needs.

That is why, in my proposal, Perpetual Coin eventually becomes an independent unit, the value of which is set by the prices charged for real goods and services by the Issuers of Credit Coin.

2. Issuers
People tend to use personal examples like the “tutor” and then show how the system won’t work.  I suppose that is because we are looking for a grassroots escape from the oppressive world system. Unfortunately we will always run into the exact same problems existing “alternative currencies” already do. The one advantage Digital Coin could offer is the potential to eliminate accounting costs and thus transaction fees.  Digital Coin technology could significantly advance alternative currencies that way, but limited acceptance and unreliable credit would remain the most serious obstacles.

If I were a tutor, (or an artist!), I wouldn’t be an Issuer. Who would accept my Credit Coin?  IF I could establish a network of people to buy from who would accept my Credit Coin and use it as money amongst themselves, I would be FREE to issue my own Credit Coin if I really wanted to, but where’s the advantage?  It would be much, much simpler to just earn and spend third party Credit Coin, just as we earn and spend third party money now.

If I were an established university that was turning away applications for admission, issuing Credit Coin would be very feasible, as it is clear that this Credit is worth something in trade because everyone knows the university won't disappear tomorrow and it is certain that someone somewhere will want its Credit Coin to spend on tuition.

The same would apply for governments at all levels and taxes, utilities and utility bills, groceries etc.

Anyone would be FREE to issue Credit Coin but their Coin would be rejected by default in all transactions.  The seller has to AGREE to accept it.  Therefore, the only Credit Coins that would be likely to reach near-universal acceptance would be those of governments and dependable corporations.

That said, the same technology and unit could be used within any number of smaller networks of acceptance, at any scale from a few individuals to an entire industry. As each individual user would be choosing whose Credit to accept, these networks would develop organically, overlapping with each other informally through the choices made by individual entities, just as social networking systems do today.  However, the Digital Coin system, does not require membership in a central website possibly hosted by a surveillance agency. It is all strictly anonymous by default and peer-to-peer.

In the Digital Coin/Credit Coin system, the need for more transaction medium in any area of the economy, can always be met by someone becoming a new Issuer.  If there is demand and the ability to meet demand then money can be created. No bank and no government is required to supply and approve “credit”.  The Issuer and its future customers can do that themselves.  That is why I call it libertarian.

In practicality, it would work best if Credit Coin were issued by governments and essential industries.  Paper notes and durable coins would continue to be issued by government as legal tender. However, they would just be spent into existence, debt and interest-free. Government cash would be denominated in PC and would always be valued at par in payment of taxes just as ALL Credit Coin would be required to be valued at par by its Issuer, no matter its market trade value.

3. Pricing and Value
In private networks not connected to the Coin Market, one Credit Coin would always be worth one Perpetual Coin. Acceptance of anyone’s Credit would be an individual risk.

In a global market of Credit Coin as described in the full Beyond Money proposal, the value of an Issuer’s Credit Coin would vary automatically based on real time supply and demand.  In order for an Issuer’s Credit Coin to remain at par with the Perpetual Coin unit, the Issuer must have a balanced budget. Income must equal spending. The Issuer must supply the market with exactly the right amount of purchasing power to absorb the Issuer’s production.

As all prices are in Perpetual Coin, the value of any given Credit Coin determined by the formula CC=buy/sell PC would simply adjust the value of the Issuer’s CC to the demand for the Issuer’s offerings. Devaluation would mean more Credit Coin taken in per PC price and over par valuation would mean less CC per PC.  The math is inescapable.

The remedies would also be inescapable.

Under par Coin would require either an increase in demand or a reduction of spending (and probably production) to meet proven demand.  It would usually be the latter case as trying to increase demand by lowering prices would aggravate the problem.

Over-par Coin simply hands the Issuer’s potential profits to its customers who pay less CC than they would at par.  To prevent this and reap the profits for itself, the Issuer MUST SPEND more Credit Coin into circulation. Profits can only be realized by spending them.


4. Interest, Investment and Mortgages
I have posted a new document at http://digitalcoin.info/Digital_Coin_Mortgages.pdf   Feel free to point out any flaws you see in my reasoning.  The way I see the proposed Credit Coin system working for mortgages, and all long term credit is VERY different than today’s.

Those who claim there would be no money to invest in the Digital Coin system simply have not understood the idea at all.  In reality,  there is no "money" in the Digital Coin system, there is ONLY investment, as all money is an investment in near future delivery of goods and services. A guaranteed "interest" (more accurately a dividend) is offered when spent on the Issuer’s product or service at a specified time in the future.

Thus the Issuer issues their own credit over their own desired time frame. The Issuer also sets their own "interest rate" on this credit.  The "interest" or dividend as well as the "Principal" is ONLY payable in product or service of the Issuer, not in "money" so that there can never be a money debt. The only way to default on self-issued credit is to not be able to provide the promised product or service.  Thus no matter how badly a business could shrink, bankruptcy would be impossible as long as product is available for sale.

Devaluation of an Issuer's Coin to the point of losing acceptance would force the Issuer out of Issuing.  The failed Issuer would likely go out of business unless bought out and turned around by an Issuer whose Coin was doing well.  Devaluation would socialize business losses amongst those who had voluntarily agreed to accept the Issuer's Coin (essentially shareholders), and, as devaluing Coin would be automatically spent first, a hot potato effect could distribute the losses widely in very small doses per transaction, harming no one.

But... ultimately no Credit Coin is devalued below par if spent on the offerings of the Issuer so it could be expected that as an Issuer's Coin devalues in trade, a point would be reached at which the Issuer's sales would rebound.

As for interest, Margrit_Kennedy has done a full accounting of all the ways we pay and collect interest.  According to her research, only the richest 10% make more from interest (twice as much) than they pay.  The next 10% slightly better than breaks even. 80% lose.  The poorest lose the most.

http://userpage.fu-berlin.de/~roehrigw/kennedy/english/fig4.jpg
http://userpage.fu-berlin.de/~roehrigw/kennedy/english/chap1.htm

Did I miss anything important?

Paul

[1 currency now]

Thanks.  Very helpful.  I'm still digesting the valuation and tax issues of your proposal, and am a little bit concerned that third-party users (like small-business "tutors) will be wary of a system where mainly governments/central banks or multinational corporations are the issuers.  I suppose that third-party open source systems could develop to take over the role of credit agencies, accounting auditors, fraud prevention, etc., reducing the substantial current costs and flaws in these functions.

I'll look at your mortgage proposal and link it at Calculated Risk.

As for value, we want the illusion that our store of capital forever retains the purchasing power that we believed it would have when we obtained/created it, but even the "value" of an energy constant changes as machines that do work become more efficient in using it.  (For example, http://shepherdengine.com/our_technology/index.html) 

Consumers and producers of value want profits to go to zero.  Profiteers do not.