Help! My society needs more money. Part 3 — Designing a non-scarce monetary system
This is part 3 of a 4 part series. Read up on the rest:
Part 1: Money & the lizard brain
Part 2: Scarcity — the solution to & cause of all problems
Part 3: Designing a non-scarce monetary system
Non-scarce money. Can it really exist?
The question becomes: can we devise a complementary currency that can kick-in when there is a clear case of a good or service existing in Zone 4?
I.e., a good or service that may actually be abundant but is perceived to be scarce (usually because of the scarcity of money available).
This should help grease the economic wheels to encourage trade of goods & services. The final aim would be to improve conditions of certain under-developed communities without involving traditional money — which is often in scarce supply.
Our basic goal is to prevent “the scarcity paradigm” from completely taking over this complementary currency. I propose four rules that will help us achieve this.
These laws directly attack the scarcity-led design choices that exist in our regular currency so as to ensure the complementary currency & traditional currency solve for different problems and aren’t interchangeable.
1. Limited trading of scarce goods on complementary currency. This condition should be obvious — if underlying goods (whose movement money is supposed to facilitate) are scarce in nature, you HAVE to have scarcity built into the medium of exchange itself.
Failure to do so results in inflation (even hyper-inflation) or deflation. Thought of another way, inflation is simply the difference in changing levels of scarcity of underlying goods vs medium of exchange.
So inflation is said to occur when supply of underlying good becomes much more scarce compared to supply of money. Deflation occurs when supply of money becomes much more scarce than supply of underlying goods.
Inflation & deflation are both risky businesses and we want to avoid them. To do that we must make sure that scarcity of medium of exchange matches the scarcity of the underlying goods. The matching may not be perfect, but we should avoid total mismatches.
Therefore the complementary currency we design (which will not be scarce in nature) should be restricted to goods that are digital or underutilized service-related; i.e., goods that are at least not very scarce in nature themselves.
Development of a region is often about getting local people incentivized to put time & effort (two attributes that they have extra reserves of) in certain high-impact initiatives or to help each other out. A complementary currency could really help solve this problem in a way that regular currency has failed.
Of course, people in these communities still need scarce commodities to survive too (e.g., bananas, rice etc.). In order to help them, I propose setting up of government depots that allow people to exchange their CC dollars (‘complementary currency dollars’) for certain basic goods needed to survive.
However, there should be a limit/ration that should exist — i.e., a maximum quota of physically scarce goods that each individual is allowed to trade for non-scarce CC dollars. This allows people to survive, while simultaneously lowering any concerns about runaway inflation for physically scarce goods.
The rationing & its implementation should be technically possible using technology such as blockchain (to track rations) and linking it to a national database (e.g., Aadhar in India). There are also ways in which these government depots can be funded in traditional currency — e.g., traditional currency tax breaks, corporate sponsorships, CSR initiatives etc.
Risks of hyper-inflation lead to a loss of trust & that is one of the biggest deal breakers of any monetary system. Thus checks & balances for avoiding inflation will keep propping up throughout the rest of this article as well.
2. No central supply-of-money constraint. The currency can still be approved by a central government, but to break the scarcity paradigm, it is imperative that it follows demand-side economics versus supply-side ones.
In practice this means, that IF a service or digital good is needed, money can be created on the spot to facilitate the exchange of that good. E.g., If you are selling me a massage, and I am out of CC dollars, it should be possible for me to create cash (much like central governments or banks do today) to pay you. Most likely, this can only happen in the digital world — through use of smart phones. Given the prevalence of smartphones across the remotest areas of the planet, this is not a big constraint.
Of course, this could lead to run-away inflation — services like a massage will always be much scarcer than magically “creating” money at the press of a button on your smart phone.
However, this risk can be managed by setting limits on number of transactions, amount of CC dollars per transaction & timing of CC transactions that can be created by any single person. Governments or public bodies can have their own limits that are higher than individual limits, but the point is — everyone has a limit.
We may not get rid of differences in scarcity between CC and underlying goods but our aim is to lessen its impact.
Again, implementation should be possible using a combination of blockchain and identity records.
The complementary currency system may not be able to help out private initiatives requiring large amounts of capital expenditure, but these projects are best left under the purview of traditional monetary systems anyways.
3. Encourage spending. In an effort to encourage spending and prevent hoarding of capital, I propose that each CC dollar created will have a re-setting expiry date.
This simply means that every time I am paid for an activity, there is a timer that is associated with each individual CC dollar. And each of these CC dollars will cease to exist if it is lying in my own account for greater than 3–5 years.
Money in an account can follow a FIFO (first-in first-out) system, so that your oldest CC dollars are used up first. The timer on each CC dollar can re-set as it moves from one account to another, so that each receiver always gets 3–5 years of usable CC dollars.
This should encourage spending within the community & even increase the demand for services. Of course, the desire to save for a rainy day cannot be ignored, but is left in the purview of traditional monetary systems.
4. Finally, the CC should stay away from the concepts of return on investment or interest rates. There should be no need to borrow money if it can be created. Additionally, growing capital may not be the greatest strategy if the capital has an inherent expiry date.
Implementing the features above should be possible using technology that is already commercially available.
The end-state should be a complementary currency that creates & promotes consumption of digital goods or underutilized services to improve livelihoods of certain communities.
Read on to see a first perspective on how such a design can be implemented.
Part 1: Money & the lizard brain
