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April 23, 2016



















There are many different kinds of poverty, poverty of spirit, poverty of material possessions, poverty of thought, poverty of skills, poverty of education, poverty of money. This last is also sometimes known as a ‘shortage of money’. In this SIG I want  to show how this last kind of poverty, poverty of money arises from our money system and can thus be eliminated by changing the system.

But first, based on my previous experience of YM SIGs on money, I would ask you to please shed any notions about money that you might have, what it  is or isn’t, so that I can present these thoughts on money poverty to you unimpeded by any of your previous ideas about money.Then please raise any issues you might have with what I have said after I’ve finished.


I’d like to start with credit cards.

Credit cards are often derogatorily referred to, half in jest, as ‘plastic money’. The implication being that because the card is plastic we are not dealing with real money.
Well what is said in jest is actually true. Credit, even though we can spend it as if it were real money, is not real money in that it has no backing value, just the promise of backing value some time in the future.

Those of us who have bank accounts probably have automatic access to a credit card facility. Those who do not have bank accounts do not have such access.

Those with credit cards are expected to pay off their credit card debt every month and without doubt their access to a credit card facility exists because they have a bank account. The lack of a bank account is why other people are not allowed to have access to a credit card. But is being without a bank account sufficient reason to prevent people from having access to  the convenience of a credit card?

The answer to this question is, no it isn’t, but we need  to understand the basics of money first before we will be able to see why this is so.

Let us explore the natural essence of money, untarnished by any  conceptual additions that might have later been added to it.

1. What is natural money
2. How is natural money created
3. How is natural money destroyed

I have chosen to use the adjective ‘natural’ here because there is a natural basis to, what we know as money, and on which, ideally, what we know as money should be directly and unambiguously based.
Armed with this understanding we will then be able to see how, by a simple logical change, to the system that administers our money, money poverty can be permanently eliminated.



Before trying to answer the question ‘What is natural money’ we need first to recognise that there are two logically distinct, but not physically distinct, categories of natural money, old and new. A money system that does not recognise this distinction cannot handle natural money correctly.

The two categories arise from  the fact that the units of any currency, i.e. money, carry two values. A visible face value, what it says it is worth, and a hidden backing value, the value of, the real good or service, that it is representing. The two values, when the money system functions correctly, will be equal.

The ‘face value’ is always present on any unit of currency of course but the ‘backing value’ may not be. Units of newly issued natural money, i.e. new money, only gain this value after the money has participated in its first completed exchange. Only then can it correctly enter the category of ‘old money’.


Natural money is a ‘socially accredited’ record of the ‘value of something real, be it a good or a service.

Natural money is just information about the value of something real, nothing more nothing less. It is quite simply a human creation based on the reality of the judgment of value by humans.

There are two phrases in this definition of natural money which are, for us, operationally  significant,  ‘socially accredited’ and ‘value of something real’. This significance arises from the fact that money plays an important role in an untold number of our social interactions. It is therefore essential for the sake of honesty in social interactions that money should be based on reality.

‘Socially accredited’ means that the ‘value of something real’  is agreed upon by two or more people. This is important because the value exists only in people’s heads until, that is, it is externalised in some or other way like money for instance.

Now because natural money is ‘value information’ about something that is real a natural money system has to ensure that the ‘something real’ actually exists. Otherwise the system is defective and there will be no guarantee of a backing value for the face value of the money thus causing social and economic ill-health.

It is only through ensuring this real value basis of money that it can play its three distinct contractual roles within society in an honest way.


These contractual roles are:

Role 1
Here money is a commitment by the first, or initial, holder and user of the money to supply a good or a service into the community, equal in value to the face value of the money. This commitment is what promises a future backing value for the money.

Role 2
Here money is a commitment by the community to supply, to the holder of the money, a good or service  equal in value to the face value of the money.

Role 3
Here relying on, the commitment in role 2, money is accepted as payment for a good or service supplied.



A healthy economy, which is something that we all want, is created from voluntarily completed binary, or simple, exchanges of goods and/or services, nothing more and nothing less. Such completed exchanges are the events that create an economy and one which is also economically healthy.  In other words a healthy economy is constructed from healthy economic events and economic events are healthy when both parties to an exchange are fully satisfied with the completed exchange.

Do such simple, one to one, exchanges exist in ordinary life?

Let us examine an example of what happens in ordinary life.

An artist skilled in producing people’s portraits does so for a living working in shopping malls. The artist wants to try out mall B as a market place for the skills he or she has to offer. B is a long distance from home however and it will take too much time to walk there. A bus or a taxi will have to be used to get there. The nearest bus stop is also a fair walk from home. A taxi service will come right to the door however so a taxi it has to be. There are two choices a metered taxi or an Uber taxi. Both services are reliable but the Uber service is cheaper and booking and payment via a cell phone is easy. Uber is chosen. Mall B proves to be a lucrative market place and so the Uber taxi service can be called upon to get home again at the end of the working day.

Clearly there is no simple one gto one exchange of goods and/or services in the above example. The artist is in effect transacting, via money, with two or more different members of a community, receiving a service for money from one or more Uber drivers and giving a service for money to people wanting portraits of themselves.

What the example shows however is that if more than one other person can be included in the exchange process then the difficulty of organising a ’one to one’ exchange is removed.

Now from an economic health point of view the ‘one to one’ exchange events are like  atoms and if they are split up and, remain split up, they can easily cease to be the naturally healthy economic events that, as of nature, create a healthy economy. The trouble is that,  from an ease of exchange point of view, we need exchange process that involve more than one other person. Is there a way out of this dilemma?

Yes, there is, it involves money.

We saw how money filled this exchange facilitation role in our  example above. But can money also be used to  ensure the economic health of the exchange?

Yes it can.

Money does this by dealing, from the exchange initiator’s perspective, only with the values of the items exchanged, not the items themselves. If the values exchanged by the initiator of the process are the same, that is the receiving and the giving values, then this, more complex exchange, is as economically satisfactorily completed as if it had just been a simple, one to one, exchange.

So the problem of, maintaining economic health, presented by having more than one person involved in an exchange process is solved by the use of money.

Now money is a human creation so when should it logically be created?

Surely as part of a complex exchange process when new money will naturally emerge as old money from a completed complex exchange.

Basically if the initiator of an exchange is short of enough money to enter into the exchange then the money system should issue enough new money, as new money debt, to cover the short fall. That is what happens with credit cards.


A credit card is nothing but an authorisation to produce new money in order to make purchases.

The user of the credit card, in accepting the debt of the new money, is accepting the contractual commitment, in Role 1, to supply, into the community, goods and/or services to the value of the money. This commitment, in Role 1, is  discharged naturally when the new money debt is settled at the end of the month. This is the case because the money used to settle the debt indicates that the necessary goods or services have been suppled into the community by the credit card user.

Anybody who can supply goods and/or services into the community for a fee can settled new money debt. Therefore there is absolutely no economic reason why people without bank accounts should be excluded from triggering the issuing of new money, as new money debt, when they wish to make purchases. In fact there is every economic reason for enabling it.

One, because it would automatically enable everyone’s participation in the cash economy.

Two, because it would grant complete economic freedom to everyone, i.e. the ability to trigger the production of new money when needed.

There are only two provisos needed to make this work:

a) that the new money debt is settle as soon as possible

b) to prevent run away inflation there would have to be a limit on the amount of new money debt that any individual could be carrying at any point in time.


When new money is put into circulation through the purchase of goods and/or services a  new money debt is created. The new money is becomes old when the new money debt is settled because this shows that the exchange in which it was involved has been completed.



Until sometime in the 1970‘s our Rand was based on gold, a commodity. Then in the 1970‘s the government of the day legally removed the Rand’s gold backing and it automatically became a currency backed only by government legislation, a fiat currency. With the change the money system should have been changed to handle a natural currency and it wasn’t. So our current money system is designed to manage a commodity based currency and we no longer have one. So we now have a fiat currency that is based purely on legislation and not based on day to day economic reality.


There are basically three kinds of currencies, or money systems, commodity based currencies, fiat currencies and natural currencies.

Not that there is any perceptible difference between them in every day appearance or usage. It is in the manner in which their backing value is established that they differ.

Units of a commodity based currency are legally compelled to represent the value of a unique fraction of a State’s commodity holding. The holding exists in order to give the currency, from its first issuance, a real backing value.

Units of a fiat currency are legal tender for making payments where a payment is the transfer of an item of value from one party to another.

Notice the following about the above definition, it assumes, without any legal or other proof, that the currency has a backing value that equates with its face value. The statement refers only to ‘value’, there is no mention made of ‘backing value’. The statement must therefore be assuming that the currency used has a backing value that accords with the face value. There is however no legal or other compulsory reason for this assumption to be true.

The consequence of this missing requirement is that there is a constant battle, by the Reserve bank, to curb the inflation caused by the production of too much new fiat money. The main culprits in this regard are the banks. They grant long term housing loans in the form of  new fiat money debt and because these debts are only settled over the long term, twenty or thirty years, they inevitably cause inflation.

However the statement is true if either one of the following conditions holds

a) the currency is commodity based, or

b)  it is a natural currency.

Thus the fiat imprimatur, if it is to be honestly given, should only be given to a natural currency.

A natural currency is one where the face value is unquestionably the same as the backing value because its money system maintains this condition.


Now we are ready to  consider how to change our fiat currency to a natural currency. This switch will mark the end of money poverty.

There will be a lot of work, by many stake holders, involved in making the switch but well worth the doing of it.

1. Firstly we will need to switch to a wholly electronic, or digital, currency, giving up all physical notes and coins.

As the majority of our money transactions are already electronic, and becoming more so by the day, this is quite feasible to do certainly for the already banked, for the unbanked and implementing a natural money system  it is essential.

Giving up all physical notes and coins would save the costs associated with the handling and securing of physical cash.

The details of this switch would have to be worked out by all stake holders.

2. With a wholly electronic currency every person who needs access to money will have to possess a working smart phone which will serve as their electronic wallet.

The State will have to subsidise smart phones for the poor.

A significant opportunity would exist in this for smart phone manufacturers.

3. The State will need to establish a Central Currency Authority [CCA] that will be responsible for:

1. Keeping an up to the minute register of the identities of all economically active persons[EAP] in the country.

2. Acting as the sole issuer of new money to EAPs

3. Maintaining a new money account[NMA] for each EAP

4. Recording one bank account per EAP

5. Serving as the first port of call for all monetary transactions by EAPs whether withdrawals or deposits.

6. For EAP deposits checking their NMA to see whether there is any new money debt to be settled.

If not passing the deposit through to the EAP’s bank account.

If yes settling what can be settled of the debt and passing the remainder, if any, through to to the EAP’s bank account.

7. For EAP withdrawals checking in the EAP’s bank account to see if the withdrawal can be met.

If yes passing the withdrawal through to the EAP’s bank account.

If no checking the EAP’s NMA to see if the shortfall could be met by issuing new money without exceeding the new money limit.

If yes passing the new money through to the EAP’s bank account and adding the new money amount to the EAP’s NMA.

If no notifying the EAP of the situation.

8. As the currency will exist  in electronic form only it can consist of units only, no fractions or multiples, the units being chosen to represent the smallest practical value.
9. A UOC will carry a unique identity.

10. The CCA will keep the originals of all units of currency[UOC] in a database. The originals will be deleted as and when the EAP’s new money debt is settled.

11. Original UOCs will never enter circulation only certified single copies of them.
The copies can consist of single UOCs or, for circulatory convenience, uniquely identified multiple UOCs. If there is a need to divide a uniquely identified multiple into smaller multiples then it is destroyed and replaced by the smaller uniquely identified multiples.

12. UOCs that are circulating in uniquely identified multiples will each carry the identity of the multiple.

13. The copies in circulation will besides carrying the identities of their component UOCs will carry additional holder information. This in order to give them a moral colour. It will be the identity of its very first EAP and the identities of its most recent (?10?) EAP holders.

4. As there will have to be many stake holders involved in this exercise it would have be a carefully planned national project with measurable objectives with regular public progress reporting arising from independent monitoring.

5. Banking functions should be restricted to dealing with old money only. Banking operations should not be allowed to deal with new money.

6. There will be many benefits associated with such reforms to the money system. To list some major ones:

– no person who is capable of being economically active need ever again be short of money to make a purchase, unless they have exceeded their new money limit

– inflation, induced by the way the current money system operates, will stop

– there will be no costs of securing and handling physical money

– people, after looking at the originator and recent holder history of any unit of currency, will be able to refuse to accept it as payment if they so wish.


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