Help! My society needs more money. Part 4 — Executing the design
This is part 4 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
Part 4: Executing the design
Risks & mitigating actions
Humans are amazing at finding short-cuts to try and get something for nothing. They are especially good at doing this if a system is new or still maturing. However, the potential benefits of providing a source of livelihood & improved consumption to under-developed communities makes up for these short-falls.
Starting up a complementary currency has been full of pitfalls, and false starts. However, we finally have technology that can overcome many of the challenges faced by earlier experiments.
As a starting point, the remaining article highlights some problems that earlier experiments have faced, along with mitigating technical solutions.
1. Bad actors creating “free” money. It could be possible to create CC dollars for fake services rendered. A small majority of bad actors doing this could still lead to hyper-inflation or lack of trust in the currency.
As mentioned, placing limits on amount of money that can be created will go a long way, but the free-rider problem is hard to ignore.
One proposal is to include features of a self-regulating community into the design of the complementary currency itself. In fact, the overall design can incorporate and pay participants (in CC dollars) for activities that enhance trust-building in the currency.
For example, AI can detect patterns of fraudulent behaviours and send participating community members to see if actual transactions are taking place. Members will get paid for this checking activity, and if it is proven that bad faith actions are taking place, the offending parties will be barred from participating in the CC. This should again be possible using a combination of AI, blockchain, and digital infrastructure (e.g., Aadhar).
2. Putting money creation in hands of consumer could lead to huge volatility in prices for similar goods. If the amount of money created is in the hands of the consumer, two different people could be willing to pay two very different CC dollars in exchange of the same massage. Such volatility of prices charged for same goods could lead to inflation or loss of trust in the CC.
The core problem here is that scarcity of traditional money incentivizes people from overpaying for services, but may not incentivize anyone in a complementary currency that is “created from nothing”.
Here too limitation on money creation will go a long way. However, we can do even better. We can give up some of the freedom that is associated with traditional money systems, and
a. Allow only certain high-volume or high-impact activities & goods to be traded through complementary currency system
b. Classify each allowed activity into one of 5 categories. The five categories will represent the difficulty/value to the good/service delivered. And can range from 1 (easily available good service) to 5 (lot of work or valuable service).
Finally, the scale (and activities allowed in each category) will have a pre-determined CC dollar rate associated with it.
Participants will lose the ability to customize offerings and charge whatever price they’d like. However, the gains from having a standardized rate-card for common activities/services will avoid any issues related to overpayment.
3. No incentive to improve performance. A classification of allowed activities standardizes rates, but should not standardize the quality or output. Ideally, better quality work deserves to be rewarded accordingly. Otherwise, bad actors could try to put in minimal effort and extract maximum value from the CC — thus destroying trust in the system.
For this reason, the receiver of goods/servies could assign a rating of 1–5 for activity performed. With the amount of money being created being dependent not only on the standard rate-card of activity, but also on rating of output performed.
For example, if a massage is an approved activity with a centralized rate card is 100 CC dollars, this mean a person who received 3/5 score in massage would lead to creation of 100 CC dollars. However, a 5/5 massage could lead to creation of 130 CC dollars as well, while a 1/5 could be 50 CC dollars.
This incentivizes people to continue to perform their best.
There may be bad actors that will try to give too many people 1/5 to only stretch their CC creation limits, but these people can be identified using AI & given warnings.
4. Preventing expiration of CC. People may try to hoard money by creating fake transactions with family members before the expiration of their CC dollars. There are ways to automatically monitor such behaviour. A simple suggestion — we can track the recipients of near-expiry CC dollars & compare them with non near-expiry CC dollars for each user.
Theoretically the recipient list should be similar. The presence of recurring characters within near-expiry CC dollars could hint at bad faith actions and investigated.
5. Financially unsustainable operations. The traditional monetary system has participants that help grease the wheels (e.g., central banks, commercial banks) to make everything run smoothly. These participants have operational costs that are met by charging taxes (central government) or interest-rate arbitrage (commercial banks). In a complementary currency system, we may not have access to tax & there is no interest rate arbitrage — so how does the whole thing become sustainable?
While there may be additional ways, one strong contender could be a self-sufficient system. By this I mean that activities that help maintain integrity of complementary currency can be included in list of activities allowed to be traded on the CC.
Therefore, people could earn CC dollars by helping out in making sure operations are running smoothly. Thus reducing reliance on any central governmental body.
Conclusion
While difficult, I truly believe we should continue to experiment with social economics systems to improve them. Furthermore, I believe our current monetary systems are ripe for improvement. There are a few reasons for this. Firstly, excessive competition and chasing after scarce commodities with unlimited greed is leading to an eco-system breakdown in our planet.
Secondly, all the progress made due to existing monetary systems have not benefited people equally. Inequality continues to rise & certain communities continue to get left behind.
Finally, the underlying rationale of using scarce mediums of exchange for scarce goods are no longer as sacrosanct as they were 100 years ago.
Implementing a complementary currency system that specifically solves for development issues in under-funded communities could help a little. Maybe even a lot. In any case — isn’t it worth trying?
