The Future of Money and Historical Perspective

[bae]

Every few years my community investigates setting up a local currency.

The arguments advanced in favor of the use of "local currency" tend to be:

- it keeps money circulating within our community, instead of having it leak out to the mainland/mainstream economy so rapidly.
- it encourages production and consumption of local goods
- it encourages use of our fallow local resources, especially labor
- it provides an easy method of implementing price discrimination to fleece tourists while charging locals a sane amount for goods
- it facilitates non-IRS/non state Department-of-Revenue transactions :-)

The folks on a nice island in Canada right next to us have been doing this for ~15 years or so:

http://www.saltspringdollars.com/

http://en.wikipedia.org/wiki/Local_currency

[kib]

I am sure this is well intended but I find it hard to see the point of it all. Currency is just an exchange medium. It doesn't matter if it is dollars or cattle or seashells or gold or whatever, all that matters is that people agree to use it. It is necessarily amoral and exponentially more useful the more people agree to use the same medium, which is contrary to creating illiquid local substitutes. What's the point of measuring "individual human time, goods and services represented by an exchangeable certificate" when you can do the exact same thing with dollars or Euros, only better? Currency is just a tool that solves the problems of scale and transferability in barter. No conundrums at all.

The thing is, the number of dollars, euros etc. are not at all limited by the creation of actual wealth. They are directly tied to debt-based value creation. Tying certificates or coins or dollars or pet gerbils to an actual asset, whether tangible goods or intangible services, is the different kettle of fish that ideally presents a non-debt-based, possibly inflation-proof local economy.

In re bitcoin, bitcoin is not limiting itself to real asset backing, as far as I know, and so I see no reason why it would turn out any differently than other global currency, except that it's playing with a different set of rules and so, for the time being, favoring a different set of players.

[Packy]

I have a suggestion: use a valuable metal, such as copper bars for your medium of exchange. Stamp the weight on them, and the name of your Island, and a serial number. Yes, they may weigh something, but it will be okay. Anything else, with no intrinsic value, could be considered counterfeiting.

[Xmac]

There is a misconception that money needs to be a store of tangible value. This country had a successful fiat system before the Revolutionary War for a long time because it was responsibly controlled in relationship to goods and services, no inflation and no boom busts (which do not occur naturally in healthy economies). Its value was usage level and trust in the issuer(s).

Kib is exactly right, Yossarian, about the currency being used today. We haven't had substance redeemable currency for many decades. But, we don't have just simple fiat either. We are using debt instruments as dollars. All dollars are created out of a demand for debt, as debt and the interest owed is not created with which to pay back that debt (read Modern Money Mechanics issued by the Federal Reserve). This means that most fiat currencies are Ponzi schemes that slowly decrease spending power. It is a profit system for banks and explains a lot. So, what is used as money matters a lot.

The value in Bitcoin is that it is frictionless currency: no third party interlopers and near instant transferability with a level of encryption that used on nuclear silos. There is also incredible value in the block chain itself which is open source consensus of all transactions of any type.

There is no such thing as "intrinsic" value. What is abundantly available and needed has no value, even if it is food. That which is limited/scarce and desired is what gives a thing value. Bitcoin has that feature also. It is deflationary.

What determines value is not a government or old ideas of value about things like gold. Value is determined by demand/scarcity and a currency is determined by the level of usage, no matter what any one says.

In Kenya a currency evolved out of cell phone minutes because the people saw its utilitarian value. It now accounts for 40% of the Kenyan GDP. Bitcoin also has amazing utilitarian value far beyond a currency. Currency is just the first app.

[Xmac]

Will this currency lead to: fairly valuing natural capital and natural resources, the soils ability to regenerate, the value of the oceans ecosystem, the value of a stable climate, the undiscounted value of the future etc.. Will it lead to: valuing durability, efficiency, rather than the wastefulness that is gdp, valuing that which increases human well being, not which is made necessary by detracting from it? Will it lead to valuing: all the unmonetized social capital that makes up life, all the unpaid labor that makes everything else possible? Will it lead to valuing individuals for thier own sake as more than just economic machinery? Valuing human potential where it is wasted? Valuing peace over war? Valuing cooperation?

Absolutely, no to all of the above. No currency that is conditional give and take will. Some currencies are closer than other though.
Your questions are very important, thanks.

Utopian? Well yes if one expects it out of whole cloth and for the world to be entirely perfect. That's not the point. The point is: so much of what is destructive these days is driven by money. And people have done a lot of thinking on currency and human values (Thomas Greco, Bernard Lietaer) and how currency could be used to value and encourage all that is valuable, and I think that's the desirable direction to head in.

Right, Bitcoin is not Utopian, except maybe in contrast to what we have now.

[Packy]

Huh? No Copper, No Sail Fones.

[Yossarian]

Sorry, but I feel you folks are zig zagging all over the place.

The thing is, the number of dollars, euros etc. are not at all limited by the creation of actual wealth.

So have we moved on from the whole values based currency to a discussion of value based currency? The relationship between the money supply and economic growth is a known, if not fully understood issue. But I don't think bitcoin or barter certificates are the answer.

There is a misconception that money needs to be a store of tangible value. This country had a successful fiat system before the Revolutionary War for a long time because it was responsibly controlled in relationship to goods and services, no inflation and no boom busts (which do not occur naturally in healthy economies). Its value was usage level and trust in the issuer(s).

Kib is exactly right, Yossarian, about the currency being used today. We haven't had substance redeemable currency for many decades

.....

There is no such thing as "intrinsic" value. What is abundantly available and needed has no value, even if it is food. That which is limited/scarce and desired is what gives a thing value. Bitcoin has that feature also. It is deflationary.

What determines value is not a government or old ideas of value about things like gold. Value is determined by demand/scarcity and a currency is determined by the level of usage, no matter what any one says.

Yes, that is my point. So far most people are willing to hold dollars or euros because the convention is steady and supply and demand have been roughly equal. The real value of what I can exchange my dollars for when I defer my purchase and hold dollars over time is acceptable. The dollar stores the value of my labor generated at time A and lets me buy goods or services later at time B at acceptable levels. What's not to like? I don't see how you can promote a currency that doesn't store value.

There is a risk that could change in the future. None of this convinces me local exchange certificates or bitcoin will solve the worlds problems.

[kib]

I guess for me, the problem with world currency is that money which grows exponentially through debt is dangerous. The "wealth" through debt creation scheme rigs itself so obviously in favor of the rich, whether we're talking individuals or countries, and so much worse for those on the bottom. It also encourages the rape of the planet as the increasingly poor have less and less leverage about protecting the planet's assets essential for long term stability. IMHO, the more money is created purely as a matter of real resources or time expenditure, the more checks and balances exist. I don't know that local currencies are the answer, but a revamp that doesn't include debt-based wealth creation is crucial.

[Yossarian]

I guess for me, the problem with world currency is that money which grows exponentially through debt is dangerous. The "wealth" through debt creation scheme rigs itself so obviously in favor of the rich, whether we're talking individuals or countries, and so much worse for those on the bottom. It also encourages the rape of the planet as the increasingly poor have less and less leverage about protecting the planet's assets essential for long term stability. IMHO, the more money is created purely as a matter of real resources or time expenditure, the more checks and balances exist. I don't know that local currencies are the answer, but a revamp that doesn't include debt-based wealth creation is crucial.

I read what you are saying, but I can't follow what you mean. How does the money supply do any of that? If you could waive your magic wand and cut the number of dollars in existence by 95%, what effect would that have on anything?

[Xmac]

Yes, that is my point. So far most people are willing to hold dollars or euros because the convention is steady and supply and demand have been roughly equal. The real value of what I can exchange my dollars for when I defer my purchase and hold dollars over time is acceptable. The dollar stores the value of my labor generated at time A and lets me buy goods or services later at time B at acceptable levels. What's not to like? I don't see how you can promote a currency that doesn't store value.

Acceptance and adoption. As acceptance grows, price or exchange value levels out. The world has never had currency issued by algorithm before. Do you think gold has always been accepted? Someone thousands of years ago decided it was valuable and then others agreed until agreement became widespread adoption was achieved. That process is now beginning with cryptocurrencies.

We have a currency system that is designed to create levels of scarcity that encourages the individual to think only about their own well being. It works well. As kib so eloquently pointed out there are many problems the state issued fiat system creates that are not immediately visible to individuals who don't look. It's also designed to fail and that failure is close.

Countries are beginning to hoard gold, BRICS are moving away from the U.S. dollar, China has taken action to help Russia in a move that was heretofore done by the institutions of Bretton Woods. We are going to need a system in place to facilitate world trade that is not predatory, unsustainable and encouraging of environmental degradation.

There is a risk that could change in the future.

There is a bigger risk: that it won't change.

None of this convinces me local exchange certificates or bitcoin will solve the worlds problems.

Understanding the technology and the current system is what it takes and those who do are putting hundreds of millions of dollars behind that understanding.