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May 23, 2016


Money is a human creation and as a consequence over time has been produced in different forms regulated according to the current theoretical understanding of money and it is with the theoretical understanding of money that any discussion of money has to begin.

Why was money created in the first place?


On our own we are unable to supply everything that we need for our nourishment and  survival so we have an ever present need for the voluntary exchange of goods and services with others. The following is an example of a completed simple exchange.

The initiator [A] of a simple exchange has to locate a person [B] who wants item Ia that A is offering, whilst themselves offering item Ib, something that A is willing to accept as a fair exchange for Ia because the value given by A to Ia and Ib is the same and the same must be true for B otherwise the exchange would not be completed.

A completed simple exchange, as above, is a wholly natural event in a human life and is thus undeniably healthy. Now because we are thinking in economic terms we term these wholly natural events, economic events. Any economy is comprised of an aggregation of economic events terefore a healthy economy is created  from healthy economic events.

Such completed simple exchanges are difficult to arrange however because their completion has to meet the coincident requirements for goods and/or services of two different individuals. Thus an economy comprised of only, completed simple exchanges, would be very small.

A’s difficulty, of arranging an exchange with B, who is only one individual, could be reduced however if the coincident receiving and supplying requirements placed on B were split from one and other. Then B would continue to supply item Ib to A whilst another different individual C would receive item Ia from A.

But how is this split to be implemented without jeopardising the economic health of the completed exchange?

In order to maintain the economic health of a more complex exchange it is in fact only necessary to ensure that the values, accorded by, the individuals involved, to the items Ib and Ia, are the same, i.e. the value of Ia must equal the value of Ib.

How is  this to be done?

It can easily be done if A takes the following six steps:

1. Agreeing the value of Ib with B, say vIb

2. Creating two recordings of vIb, vIb-r and vIb-ex, where

a) vIb-r is A’s own debt = vIb
b) vIb-ex is an exchangeable form of vIb

3. Giving vIb-ex to B in exchange for receiving Ib from B

4. Agreeing the value  of Ia with C, say vIa, vIa  = vIb otherwise the exchange cannot be healthy

5. Giving Ia to C in exchange for vIa-ex received from C

6. Settling A’s own debt, vIb-r, with the amount VIa-ex received from C .

This procedure completes the more complex process of exchange and ensures that the resulting economic event is economically healthy which in turn means that vIb-ex has the backing value of a healthy economic event .

It is obvious that the economic health of the exchange was maintained through the consistent equality of the prices, vIb and vIa, and, vIb, after the completion of the process, can unquestionably be regarded as representing the value of item Ia thus validating vIb-ex’s  value. This validation has occurred quite naturally as a result of the completion of the exchange process so that is why vIb-ex can quite comfortably be classed as natural money, i.e. NM.


To clarify our thinking about money we first need to realise that any currency is just a representation of the value inhering in something else, a good or a service. Thus the units of a currency[UoC], i.e. money, have two values, a face, or ostensible, value and a backing, or real, value. The face value is the value of  good or service that the UoC purports to represent. The backing value is the value of the actual good or service that the face value is ‘purported’ to be representing because there may or may not be an actual good or service for the UoC to represent the value of.

As is clear from the above description of the procedure which gives rise to NM the backing value of NM is always real. The same cannot be said for our current conventional currency because it is a fiat currency whose backing value exists only by government decree which may or may not reflect economic reality.

Fiat currency is money that is guaranteed by the State to be exchangeable for goods or services to the value of its face value. Unfortunately there is no concomitant guarantee by the State that it will produce these goods or services when the money is presented. For this the State is totally reliant on unspecified others. Consequently the State guarantees enshrined in a fiat currency are flimsy or at best uncertain. Also there is no natural curb on  the State to prevent it from producing, either deliberately or by accident more fiat money than the amount of goods and services actually available in the economy warrants. This results in the exchangeable value of money falling below its face value. This is currency debasement, also known as inflation.

The honesty of our current fiat money’s representation of the values of actual goods and services is not, and cannot, be guaranteed, whereas it can be guaranteed for NM because the money system naturally ensures it.

Previously, when our currency adhered to the gold standard,  this was not the case. Then all UoCs were by law compelled to represent the value of a specific fraction of the State’s gold holding. Thus from the point of first use they already had a real backing value.  NM UoCs on the other hand get their backing value once they have participated in their first completed complex exchange.

Two major problems arise from the use of our current fiat currency.

The first arises from the days of our adherence to the gold standard. This problem should no longer exist as we now operate on a fiat currency which does not adhere to the gold standard. The problem is the fact that the current fiat money system cannot issue new money to anybody who needs it to make a purchase. This was correct and necessary when we adhered to the gold standard, money from issuance had a backing value, but with a fiat currency this is no longer the case and new UoCs could be issued free to anybody who needs them to enter into the purchase half of a full complex exchange. There need only be two provisos attached to this issuance. One that the new money is issued as non-interest paying debt to its recipient, and two that a limit is placed on the amount of unsettled new money debt that any person can carry at any point in time. This latter proviso is to prevent any free-loading on the community.

Currently banks issue Credit Cards to their customers for this purpose but unbanked or poverty stricken persons have no access to credit cards.

The second problem is constant inflation caused by the money supply exceeding the volume of the goods and services in the economy. Because this money system induced inflation is theft it is only advantageous to those who profit from it. It is enormously disadvantageous to everybody else by constantly eroding their financial wealth. This problem arises because the production of new money is not inextricably bound to the actual exchanges of goods and services as it would be under NM.

Thus a switch to NM would enable the eradication of both of these problems.


A) As money is an exchange facilitator that benefits the economic lives of every individual and thus the community as a whole the system which administers money should be provided as a completely a-political community service by the State. This should be done at the tax-payer’s expense not that of the individual. A name for this system would reflect its purpose, the Money Administration Service [MAS] is suggested.

B) With NM the amount of money in circulation will quite naturally always meet the needs of  economically active citizens so the MAS can be completely divorced from everything political in order to carry out its single task of administering money.

C) For any individual to be able trigger off the issuance of new money at the point of purchase the following functionalities will have to be available through MAS:

a) a register of all economically active entities[EAE]
b) for each EAE MAS will keep a record of their new money debt as well as their allowed maximum new money debt
c)   access to a single bank account for every EAE, used by them for all their monetary transactions
d) all monetary transactions will have to be digital so that

i) new money can be issued by MAS anywhere provided that the point of issue is             accessible via the cell phone network

ii) each EAE’s new money debt can be controlled by MAS

iii) clearly a switch to a completely digitally based currency is the logical thing to do

e) MAS will keep the only register of UoCs called UoC_REG
f) there will be no fractional UoCs so a UoC will be designed to represent the value of the smallest viable economic entity be it a good or a service
g) each UoC will have a unique identity making UoC_REG the digital equivalent of the gold holding of a gold standard based currency
h) each UoC will carry the unique  identity of who currently holds it
i) only copies of single, or defined collections of, UoCs will appear in circulation, and as single copies only
j) as new money debt is settled the settling UoCs will be deleted from UoC_REG
k) every EAE will have to have a cellphone capable of interacting with MAS, in other words a cell phone will be an EAE’s electronic wallet
l) all monetary transactions by an EAE, receipts or deposits, will have to be initiated through MAS
m) for a deposit MAS will check to see if the EAE has any new money debt to be settled before the remainder, if any, is placed in the EAE’s bank account
n) for withdrawals MAS will:

1. check to see if the intended payee is registered with MAS

2. If not it will tell the EAE and refuse the withdrawal
3. If yes it will check to see if there are sufficient funds in the EAE’s bank account

4. If yes it will extract the withdrawal from the EAE’s bank account and pass it through
MAS to the payee
5. If not it will check to see if the EAE’s new money limit has been reached

6. if yes it will go back to step 2
7.  if not it will check to see if sufficient new money could be added to the EAE’s new money debt to allow the withdrawal

8. If yes it will add the new money to the EAE’s new money debt,  put it in the EAE’s bank account and go to step 4
9. If not it will go to step 2

Switching to NM as outlined above has many additional potential benefits for society.

a) the Reserve Bank will no longer be required to police new money issuance

b) the Reserve bank will be able to devote itself solely to supervising institutions which deal with old money

c) the commercial banks can return to their proper role which is to serve as brokers between savers and borrowers of old money

d) the costs associated with physical money will disappear, i.e. its production, its  distribution and the associated security and insurance costs

e) because the identity of the holder of any UoC will be kept on UoC_REG criminal activities that involve money will be easily traceable and therefore pointless

f) at long last money can have a moral colour. If say the last 5  identities of the holders of a UoC were kept on UoC_REG then anybody who was about to receive the UoC in payment could view its holder history and reject it if they did not approve of the activities of any of the previous holders.


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