|
by Frederick Mann
Revised
12/23/98
NOTE (01/21/02): This article has been
overtaken by events. A number of successful alternative currency
systems have been developed and implemented, foremost among them e-gold. This
article has become largely irrelevant, because it's unlikely that
the kind of system proposed here will be able to compete
successfully with e-gold, etc.
Nevertheless, the article may be of educational, theoretical, and
historical interest.
See:
[Note: This article was originally
published on 11/4/97 as "Alternative Currency System." It was
extensively revised on 10/2/98. It has now been further revised. I
now propose a "free software," "open source," "multi-currency"
system, as explained below.]
Complementary Money System
Introduction
The
Economic Means to Freedom is one among many strategies that any
individual could follow to expand freedom. Nothing in this article
should be regarded as a suggestion that other freedom strategies
should be changed or abandoned. This is a proposal for a
complementary money system to be developed, launched, and
implemented as a matter of urgency.
One of the reasons for urgency is that
the international monetary/financial system could be a house of
cards. The banksters in control may be able to prop up the system to
recover from the current "Asian crisis," but they may not be able to
keep their system going indefinitely.
The urgency is exemplified by Economics
professor Michel Chossudovsky's article "Financial Warfare" in which
he says:
"Humanity is undergoing in the
post-Cold War era an economic crisis of unprecedented scale
leading to the rapid impoverishment of large sectors of the World
population. The plunge of national currencies in virtually all
major regions of the World has contributed to destabilising
national economies while precipitating entire countries into
abysmal poverty.
...[T]his Worldwide crisis marks the
demise of central banking meaning the derogation of national
economic sovereignty and the inability of the national State to
control money creation on behalf of society.
...This ongoing pillage of central bank
reserves, however, is by no means limited to developing
countries..."
Click here for
the complete article.
I propose the development of a "free
software," "open source," "multi-currency" system. By "free
software" I mean that the software is made available free of charge
to anyone who wants to use it as they wish. By "open source" I mean
that the source code is made available free of charge to anyone who
wants it and they are free to change it as they see fit. This
follows the Linux Development Model -- see the Freedom Technology
Resource Directory - Linux, particularly 'What is Free
Software?'; 'The benefits
of "open source" software'; and 'The
Cathedral and the Bazaar' by Eric S. Raymond.
Note: Such a system has been developed:
lucre
By "multi-currency" I mean that the
system can be used for a multitude of kinds of currencies or forms
of money. If someone wants to use the system for a kind of currency
or money the software doesn't cater for, it should be relatively
easy to change the system or add modules to allow for the new
currency or money.
The idea is that all over the world
groups of people will set up and operate their own local currency
and/or money systems, using the basic software provided by this
project. They are free to adapt the software as they wish and use it
any way they like.
Ideally, there will also be modules that
enable members of any local system to transact with members of any
other local system. The most practical way to achieve this might be
to have one or more currency/money types common to all or most local
systems, e.g., silver, gold, and maybe a few national currencies.
Members of local systems would be able to exchange their local
currency/money for silver, gold, etc., which could then be used to
transact with members of other local systems. Such an arrangement
would make it possible for people all over the world to transact
with each other, without the need for any central organization or
clearinghouse.
This is the fifth in a series of articles
on the Economic Means to Freedom. The first four articles
are available at this website. The emphasis of the Economic Means to
Freedom is on: (a) Building freedom, rather than "fighting tyranny"
or "fighting for freedom"; (b) Bringing about a massive shift of
economic power into the hands of individuals.
Disclaimer: This article
constitutes the dissemination of information in accordance with the
right to free speech. Nothing in this article is to be interpreted
as legal, accounting, tax, currency, banking, or investment advice.
Anyone seeking such advice should consult a properly qualified and
accredited professional. All readers of this article are
emphatically advised to obey all laws on Earth and in the Universe
to the letter.
1. Money
"The
pinnacle of power today is the power to issue money." -- Thomas H.
Greco Jr., author of New Money for Healthy Communities --
see Appendix
2.
One of the kinds of money the new system
caters for could be called the "Riegel." Each member in the Riegel
system has the power to issue Riegels. Riegel called this the
"individual money power" -- see Appendix
1. E.C. Riegel described his proposed money system in The
New Approach to Freedom and Private Enterprise Money.
Riegel called his type of system a "split
barter system." Currently there are numerous "barter clubs" in
operation. Strictly speaking, they are generally not barter clubs in
that they utilize some "barter currency" as medium of exchange. Some
call this type of trade "reciprocal trade." It is characterized by
utilizing a medium of exchange other than those issued by coercive
political agencies.
LETSystems use a form of
money similar to the Riegel. It should be possible to use the new
system to operate a more or less standard LETSystem (whose money
unit is conceptually close to the Riegel).
Money is created when an individual wants
to buy something, but doesn't have the necessary Riegels to pay for
it. In this case, a transaction takes place, the buyer's net balance
decreases, and the seller's net balance increases.
Money is redeemed ("destroyed") when a
buyer with a positive balance buys from a seller with a negative
balance.
A principle of the system is that the
total Riegel balances of everyone in the system will always be zero
-- the total positive balances always equal the total negative
balances. Hence the Riegel is virtually inflation-proof. (WBE, the
entity that operates the Riegel system (paragraph
3 below), could effectively inflate the Riegel by itself running
up a large negative balance. So there also needs to be limits on WBE
itself -- see paragraph
8 below.)
The purchasing power with respect to
particular goods and services, and the exchange value with respect
to particular currencies, of the Riegel will also tend to fluctuate
because of other factors.
The Riegel is backed by: (a) An initial
80% guarantee -- paragraph
2; (b) The expectation that those with negative balances will
produce and sell products and services to eliminate their negative
balances; (c) Limits on negative balances -- paragraph
8; (d) Default insurance -- paragraph
9; (e) Allowing negative balances based on the established
trustworthiness of debtors -- paragraph
10; (f) The pledging of assets as collateral to safeguard large
negative balances -- paragraph
11.
The Riegel is intended to serve as a
standard of value, a medium of exchange, and a unit of account. It
is not intended to be used as a store of value. Members of the
Riegel economy can use precious metals and other instruments as
stores of value.
Important question: Why not just use gold
as money? Why do we need a Riegel or similar system? This question
is addressed in Appendix
3.
For more information on E.C. Riegel and
alternative money/ currencies, see Appendix
2.
2. Initial Value
and Guarantee
The initial "reference value" of the
Riegel could be defined at about FRN 1.00 (US$1.00). During the
first six months of operation of the system, WBE could guarantee
that anyone with a positive Riegel balance can exchange those
Riegels at a rate of FRN 0.80 for each Riegel.
In Appendix
4, I give three suggestions for defining the Riegel reference
value. The definition I regard as most functional is defining the
Riegel reference value in terms of the U.S. Consumer Price Index,
specifically one Riegel = CPI / 160. This yields: Jan 98: One Riegel
= 161.6 / 160 = $1.0100 Feb 98: One Riegel = 161.9 / 160 = $1.0119
Mar 98: One Riegel = 162.2 / 160 = $1.0138 Apr 98: One Riegel =
162.5 / 160 = $1.0156 See Appendix
4 for more details and qualifications.
3. World Business
Exchange
I propose that the software be developed by a
group of individuals who form a business or company called, e.g.,
World Business Exchange (WBE), and that they follow the "free
software" and "open source" policies of the Linux development model
as indicated above.
I further propose that WBE, in addition
to being the coordinator of the software development, also operates
a WBE money/currency system. WBE is responsible for the rules of
this system, managing and operating the system, maintaining a system
to determine creditworthiness of members, processing transactions,
etc. -- see below.
WBE could be "domiciled" in a venue, such
as Belize, Antigua, Anguilla, etc., which provides the greatest
economic freedom, privacy, and security. WBE should have no physical
office or assets in its venue of "domicile."
WBE needs to operate its money/currency
system in a profitable manner. The profits could come from
attracting visitors to its website and promoting certain
opportunities to them, such as BIG
International and Stockgeneration. Other income sources are
suggested below.
4. Membership
Any
individual, group, business, or company is eligible for membership,
provided they satisfy criteria to be determined by WBE. One of the
criteria might be that coercive agencies not be eligible for
membership. Membership should be free. (The membership for a company
in a typical barter club costs several hundred dollars per year. Any
system such as WBE which charges membership fees is likely to
eventually be outcompeted by a system that charges no membership
fees.)
Of course, anyone (including coercive
agencies) is free to use the WBE software in any way they wish to
set up their own systems with whatever membership requirements and
rules they wish.
5. Global Village Bank (GVB)
& Nella Pages
(It seems that GVB is no longer
online. In any case, this Section is only relevant to the Riegel
part of the WBE system.)
See http://www.gvb.org/ and http://www.nellapages.org/. I
propose that GVB be used as a model to develop the WBE system.
Anyone interested in playing a role in the development of the
WBE/Riegel system should study all aspects of GVB.
Following are the major differences
between WBE and GVB: (a) With WBE, every member has the power to
issue money. With GVB there is a central money-issuing authority.
(b) The nella (GVB money unit) is not convertible into commonly-used
currencies. The Riegel is freely convertible into anything else. (c)
The nella economy will be isolationist with a limited appeal. The
Riegel economy, which easily integrates economic activities between
the Riegel and commonly-used currencies, should have a much greater
appeal and offer vastly greater convenience. (d) WBE charges
demurrage (negative interest, explained below) on certain positive
balances, thereby encouraging economic activity and accelerating the
speed of circulation.
(The GVB system is currently "on ice,"
but you can open an account and do a few other things.)
6. Convertibility
Any
member of the WBE system should be free to make a market between, on
the one hand, Riegels and other WBE money/currencies; and on the
other hand, gold, silver, $s, DMs, etc. From the point of view of
the WBE system, gold, silver, $s, DMs, etc. are simply products like
any other, so no special provision has to be made in the WBE
computer system to achieve convertibility.
The e-gold system
could play a role in convertibility in that any WBE member could
open an e-gold account. Two members who both have e-gold accounts
could use them to buy/sell Riegels and other WBE money/currencies
from/to each other.
A major drawback of practically all other
"barter systems" (more accurately called "split barter systems" or
"business trade exchanges") and alternative currency systems is that
their currencies are often not convertible and that some members get
stuck with large positive balances they can't easily spend on
products and services they need or want. WBE convertibility
eliminates this problem and widens potential acceptance in the
marketplace.
7. Demurrage and
Interest
(This may apply to parts of the WBE system.) I
propose that a "demurrage" (negative interest) be charged on
positive Riegel balances, on a sliding scale. The purposes of
demurrage include encouraging trade and economic activity and
promoting long-range thinking. For more details on demurrage,
including historical examples, see:
I propose the following demurrage formula
for positive balances: (a) No demurrage charge on the first Rgl
1,000, or monthly average of previous 3-months' transaction volume
(MA3/3), whichever is greater; (b) 0.5% demurrage charge on the
second Rgl 1,000, or MA3/3, whichever is greater; (c) 1.0% demurrage
charge on the third Rgl 1,000, or MA3/3, whichever is greater; (d)
2.0% demurrage charge on the fourth Rgl 1,000, or MA3/3, whichever
is greater; (e) 3.0% demurrage charge on any positive balance beyond
(d).
(There may have to be a different formula
for lending- and other financial institutions. See paragraph
11 below.)
I propose that no interest be charged on
negative balances, making the Riegel an interest-free form of money.
(However, there needs to be default insurance to cover the risk of
members leaving the system while balances are negative, i.e.,
defaulting.)
Demurrage constitutes earnings by WBE. At
the end of every month, WBE adjusts account balances to reflect
demurrage payments and receipts.
8. Limits and
Defaults
Obviously, a potential weakness of the Riegel
system is that someone can buy products and services, building up a
negative balance, and then dropping out of the system and/or
disappearing.
For each member of the system, a limit
negative balance can be set, depending on the creditworthiness of
the member. This limit can be changed from time to time to reflect
the changing creditworthiness of the member, based on criteria to be
determined.
Rules need to be specified to determine
what constitutes a default. Members with negative balances are
expected to "pay off" or "produce off" their debit balances over
time.
9. Default
Insurance
In the Riegel system, a negative balance comes
into existence when a seller sells to a buyer who doesn't have a
sufficiently positive balance to pay for the item or service. The
seller is effectively granting credit to the buyer.
I propose that default insurance be paid
in respect of any additional debit to a negative balance (i.e.,
account becomes more negative) resulting from a transaction. (No
default insurance is necessary when the buyer has a sufficiently
positive balance to pay for a purchase. The amount that needs to be
insured is the extent to which the buyer's account goes negative or
more negative as a result of a transaction.)
Sellers have responsibility in granting
credit. I propose that the seller has to buy default insurance to
cover the amount involved. Rates can be determined by WBE (and other
insurance companies) depending on the trust- and creditworthiness of
the buyer. WBE may grant permission to others to provide default
insurance, subject to conditions to be determined by WBE.
WBE will maintain a fund to cover
defaults. A member who defaults is removed from the system and the
default amount is deducted from the fund. If another insurance
company insured the negative balance involved, then that company's
account with WBE would be debited accordingly.
Sellers are free to vary their prices to
recover default insurance costs.
10. Credit and
Trustworthiness
A formula can be developed based on: (a)
References provided by existing members; (b) Past performance; (c)
Other criteria to be determined by WBE.
A trust and creditworthy index could be
calculated for each member and would be available to other
members.
11. Pledging
Assets
There needs to be provision for an individual or
business to pledge assets as collateral for credit. This service
could either be provided by WBE or by other institutions, in the
form of loans.
People granted loans would have to pay
default insurance to the lending party.
(A lending institution could acquire the
large positive balance it requires in order to make Riegel (and/or
other money/currency) loans by, e.g., selling or pledging precious
metals, national currencies, buildings, etc. to WBE in return for
Riegels (and/or other money/currency).)
12.
Product/Service Listings
The WBE system would include a
"buy register" and a "sell register" -- respectively consisting of
products/services wanted and products/ services offered. This would
make it possible for buyers and sellers to link up.
A classification system will be necessary
and the registers would have to be searchable.
WBE will eventually charge a fee for
listings in the registers. The initial listings should be
free.
13. Computer System &
Transactions
WBE would require a computer system to
manage and operate the system. All Riegel-type transactions should
take place via Internet and should be processed by WBE. When a buyer
and a seller agree to a transaction, the buyer will submit the
relevant and necessary information -- including verification details
-- to WBE, whereupon the transaction will be recorded and the
necessary account balance adjustments made, subject to limits not
being exceeded.
Provision needs to be made for
one-to-many transactions, e.g., to enable a company to pay
employees.
The above applies to Riegel-type money,
as opposed to currency issued by an issue authority. The WBE
software system should also cater for the latter -- see paragraph
25 below.
14. Escrow
WBE may
want to allow for escrow transactions.
15. Transaction
Fees
Barter clubs typically charge a fee of 10 - 15% on
transactions. I recommend that WBE charge no transaction fees. (Any
system such as WBE which charges transaction fees is likely to
eventually be outcompeted by a system that charges no transaction
fees.)
16. How WBE Makes
Money
(a) From demurrage charges -- see paragraph
7 above. (b) From Product/Service Listings -- see paragraph
12 above. (c) WBE's website(s) should get many visitors -- thus
WBE could sell advertising. (d) WBE will be in a powerful position
to market almost anything to its members, e.g., BIG
International and Stockgeneration.
17. Riegel Vending Machines
(RVM)
The idea of RVMs comes from http://www.gvb.org/admin/policy-plans.shtml.
An RVM consists of some code (HTML, Java, etc.) that can be pasted
onto a website. An RVM is the cyber-equivalent of a physical vending
machine. The big benefit of an RVM is that a buyer doesn't have to
go to the seller's website to buy; he buys direct from the RVM. He
also doesn't have to go to the WBE website to enter the transaction
details. Thus the RVM will make many transactions more convenient.
(The buyer also provides shipping details to the RVM.)
A vendor can persuade any number of
website owners to place his RVMs on their websites. The RVM can be
programmed so the website owner gets a commission for each sale.
RVMs will be linked to the WBE system, so account balances are
automatically updated. RVMs will also provide valuable marketing
data to vendors.
To minimize fraud, RVMs will require a
high degree of security.
18. Simulation
A
skeleton computer system needs to be developed as soon as possible,
with the various percentages, fees, etc. as variables. Then the
system needs to be simulated, using various assumptions and
parameters, to determine workability and viability.
19. Privacy and
Security
Communication between WBE members, and between
members and WBE, needs to be encrypted, private, and secure. WBE
could provide a module enabling members to communicate to each other
and to WBE via automatic encryption, or SecureCom http://www.securecominfo.com/
could be used for this purpose. [If you open an account, please
specify "1127736B" as your sponsor.]
WBE needs to maintain confidentiality of
all transactions. WBE needs to be "domiciled" in a venue that
requires no financial reporting. Thus WBE will not do any reporting
to coercive agencies.
If any members want to report their
transactions to coercive agencies, that's up to them. A potential
problem that needs to be catered for is the eventuality of one party
to a transaction wanting to report the transaction while the other
doesn't. At the time of entering into a transaction this issue needs
to be settled by mutual agreement.
20. Disputes, Mediation, and
Arbitration
WBE, or one or more other entities, need to
provide for mediation and arbitration services to settle
disputes.
21. Additional
Features
The WBE design team needs to analyze current
barter systems, particularly those on the Internet, to determine
what additional features need to be incorporated in the WBE
system.
22. Potential Prospects for the
WBE System
(a) Members of other barter clubs (WBE
provides huge advantages not available from the others); (b)
International traders; (c) People involved in barter and
countertrade; (d) Businesses owned by freedom lovers; (e)
Freedom-loving individuals; (f) Businesses with "expiring
commodities" -- hotels, airlines, radio stations, restaurants, etc.
have "expiring services" -- if the hotel room isn't rented in time,
the plane seat not sold, the radio advertising not sold, the
restaurant seat not occupied, that potential revenue expires and can
never be recovered -- "expiring service" businesses are hot
prospects for the WBE system; (g) Businesses that would like to have
access to an additional market for their products and services; (h)
Professionals such as doctors, dentists, lawyers, accountants,
consultants, etc. with "expiring time" -- if available time isn't
being paid for by a client, the potential revenue from that time is
lost forever and can never be recovered; (i) People in the
alternative currency/money movement.
The Riegel economy creates a greater
potential market for all the above people.
23. Growth and
Decentralization
If the WBE system becomes successful,
there will be many independent WBE-type systems around the world.
They could be organized that members of one system can trade with
members of other systems. Every sizable city could have one or
several exchanges. Local members should also be able to access the
product/service registers of other exchanges. There will also be a
variety of kinds of money/currency used by the various
systems.
24. Credit Cards and
ATMs
Once WBE has become a viable operation, it will be
relatively easy to organize the necessary interfaces with existing
systems to enable members to use credit cards for purchases and to
withdraw cash at ATMs.
25. Coinage and
Banknotes
The WBE system needs to cater for an issuing
authority having the ability to issue a currency, similar to the way
national currencies are issued. The system also needs to cater for
the issuance of coins and banknotes. Furthermore, the system needs
to enable members to transact via secure, anonymous digital
cash.
26. Promoting the WBE/Riegel
System
The folks at travelzoo.com have developed an
excellent method for promoting their business -- see http://www.travelzoo.com/.
Anyone can get a few free shares just by signing up. And you can get
a few more shares by persuading a few other people to sign up. (They
also address the problem of some people signing up under more than
one e-mail address in order to fraudulently obtain extra shares. GVB
experienced a similar problem -- see http://www.gvb.org/admin/policy-security.shtml.)
In any case, if you decide to acquire
some free shares from travelzoo.com, please specify
<f-prime@activist.com> as the person who told you about them.
Go to http://www.travelzoo.com/.
As soon as WBE has a "promotable"
website, a similar system can be implemented, whereby new members
receive a number of Riegels for signing up, as well as additional
Riegels for persuading others to sign up. The listing of Riegel
businesses could also be "jump started" by initially issuing a
number of Riegels to those who list their businesses.
27. Participation
If
you're interested in playing a role in the development of the WBE
system, please contact Frederick Mann at f-prime@activist.com and/or
subscribe to the World Business
Exchange List. The development of the WBE system will be
discussed on the WBE List. Subscribe if you'd like to be kept up to
date on developments.
28. Education and
Objections
As you can imagine, launching WBE
successfully will be a formidable challenge. Certain issues related
to what might be necessary to achieve success and how the
development team might have to operate, as well as some objections
to the WBE system, are covered in Appendix
5 - Education and Objections.
I welcome your feedback to Frederick Mann
feedback@buildfreedom.com.
Copyright Exception: Anyone is free (and
encouraged) to circulate this article in electronic form in
accordance with the generally accepted customs of netiquette,
provided the article is circulated in its entirety without any
changes.
Feedback: What did you
think of this article? We'd like to hear your thoughts. (Please
mention the name of the article to which you are
responding.) | 
