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Identifying & Overcoming Flaws in the Money System

April 16, 2017


Why money?

The first flaw and its solution

The second flaw

    Why money works

    The Problematic Way of gaining backing value

    The Honest Way of gaining backing value

The Current Money System

A Reformed Money System

     Essential Requirements for

    The Benefits of


In order to have a healthy economy we desperately need to reform our Money System. Why? Because it is through money that our economy functions and any flaws in how the money system operates will negatively effect the health of the economy and of us as individuals.

The money system is responsible for:

a) issuing new money and maintaining the amount of money in circulation

b) money only representing value, no information is  contained within money about what is valued.

It is with regard to a) & b) above that flaws are to be found in the current money system.

Why money?

We have to start with this question, why do we need money in the first place?

It is because money is an unsurpassed support for our economic activities.

A healthy economy is comprised of an accummulation of healthy economic events and healthy economic events are comprised of satisfactorily completed voluntary exchanges of goods and/or services.

Now completed exchanges can be split into two types of exchange, simple exchanges and complex exchanges.

A simple exchange involves two parties who voluntarily make a ‘quid pro quo’ exchange of two items, the items being either a good or a service. The two items are obviously of at least equal value in the eyes of the two parties otherwise the exchange would simply not have happened. A completed simple exchange is thus a healthy economic event.

The trouble is simple exchanges are logistically very difficult to organise. This is because of the number of coincident conditions that are a prequisite for the exchange to happen. These conditions are: Both parties have to have, at the same moment in time, an item that they are willing to exchange and both parties must be happy to accept the other party’s item in exchange for their own item.

The invention of money removed these organisational difficulties. Money, being a socially accepted record of value, enables the above compulsory conjunction of coincident events to be delinked in  time and place. By being an independent record of value money opens the way for one of the parties to the exchange to be replaced by two or more different parties. This enables the remaining party to purchase an item that they want from somebody and then subsequently sell, for the same price, their own item to somebody else who wants it. This sale completes the exchange economically and in this way, what would have been a simple exchange if it could have been organised, has, through the use of money, enabled a collection of transactions to become a complex exchange.

Not surprisingly, by enabling simple exchanges to become complex exchanges, money has resulted in the demise of simple exchanges. This has however opened the way for the emergence of a different kind of flaw or problem, this time, not so much with exchanges er se, but with money itself.

The first flaw and its solution

First because all the participants  in  a complex exchange do not have sight of one and other, or of all the items involved in the completed exchange, the health of complex exchanges is not a given. To remedy this lack of information, for the participants in a complex exchange, the participants need to be informed of the sources of the backing value of the money used in a complex exchange. To this end the money system should record identities of the successive holders of any Unit of Currency[UoC] and be able to make these identities known to anybody upon request.

The second flaw

The second flaw is not as conceptually simple as the first one however as it is the result of the money system ignoring the conceptual  differences between the face value and the backing value of a UoC. When  the conceptual differences are ignored by the money system it allows for fraudulent behaviours becaus they are hidden from public view.

What is the face value of a UoC? It is the amount recorded on the UoC as it is produced.

What is the backing value of a UoC? It is the value the UoC earns through its participation in its first completed complex exchange.

The trouble is  the face value  is identical to the backing value and  the backing value, if it exists, is not physically discernable. This invisibility of the backing value opens the way for committing fraud.

When we operated with commodity based currencies recognising this distinction was not necessary because,  right from its point of issue into circulation, a newly issued IoC had a backing value, it was in a specific fraction of the State’s commodity holding. This is not the case with fiat currencies however and we have been using fiat currencies since the 1970‘s.

A fiat currency is money in its purest form. It is just a socially accepted record of value, that is all, and consequently the first issue that has to be resolved for any UoC is this, ‘The UoC represents the value of what?’

Exactly how this question is answered gives a UoC its backing value.

Because money deals with successfully exchanged goods or services a newly issued UoC has to get its backing value from such items. Ideally this happens as the result of, a well orchestrated, completedcomplex exchange of goods and/or services. The completion of a complex exchanges is not visible to the participants in the exchange however so this has to be ensured by the money system. The money system needs to do so by only issuing new UoCs, as non-interest paying debt, at the piont of making a purchase of goods and/or services. Once the new money debt has been subsequently settled  it is then clear that the complex exchange is completed and then the new money has naturallygained its backing value.

Unfortunately this is where things can go wrong because newly issued money can come by its backing value in one of two ways,  a problematic way because it is sometimes dishonest, or an always honest way. The operation of the money system determines in which of these two possible ways newly issued currency gains its backing value. But first before considering these possible ways we need to consider how money works.

Why money works

Money relies on public trust. Money only works as a record of value because the public trusts that it has the backing value for its face value. This trust applies whether the money is newly issued into circulation or not. What this means for newly issued money is that whether it has, or does does not have, the value of actual goods and/or services behind it to back  it up, the public will treat it as though it has such a backing value.

The Problematic Way of gaining backing value

Wnen the economy is growing faster than the rate at which new money is being produced then, by default as the complex exchanges which can serve as backing value for the new money have already been completed its  backing value is honestly gained but only at the community level as the individuals who created it are unknown therefore this backing value actually belongs to the community by default.

Otherwise the new money actually has no honest backing value and the backing value has to be gained dishonestly  by default through an operational allocation of backing value by an enforced  sharing of the backing value of the money already in circulation. This is plainly and simply wrong as it is the theft of backing value from the backing value of the money already in circulation. The theft it is euphemistically hidden from public view by calling it inflation.

The Honest Way of gaining backing value

The honest way of providing the backing value requires the money system to ensure that new money is only issued to any individual who  has insufficient money to complete a purchase and that this is  done  at the point of purchase. The new money would be issued to the individual as, non-interest paying debt, but only if the individual had not yet reached their money system controlled new money debt limit. Any money that the person earns subsequent to the issuing of the new money would have first be used by the money system  to settle any outstanding new money debt, with the remainder, if any, of the money being passed through to the person’s bank account. Once the new money debt is settled the new money in circulation has gained an honest backing value.

The Current Money System

The current money system operates in the problematic way.

Firstly new money is issued by banks as interest paying debt, either long term, e.g. housing loans, or short term, e.g. credit cards.  As a fiat currency has no backing value on issue the banks charging interest on it is a fraudulent practice benefitting the banks rather than the community.

However short term loans escape being fraudulent at the individual level during the first month of debt, because courtesy of the banks, they are usually interest  free. If the card holder misses the settlement due date however then the fraud is activated because then interest is charged.

The interest charged on long term loans is fraudulent from day one and in addition such loans debase the currency until they are paid off. The only exception occurs at the community level if, by good luck, the economy is growing faster than new money is being issued into circulation then no currency debasement will occur but the banks as institutions are still gaining at the community’s expense having appropriate the backing value of the new money to themselves when it actually belongs to an indefinable other and by default therefore belongs to the community.

A Reformed Money System

Essential Requirements for

The details of such a reformed money system would need to be worked out and agreed by all stake holders but they will need to include the following:

1. A switch to a completely digital currency

2. Acceptance of government resonsibility to ensure that every person has the use of a cell phone to serve as their electronic wallet

3. The establishment of a completely apolitical Central Currency Authority[CCA] to manage

a) money

b) the money system

c) users of money

4. The issuing and management of all new money to be the sole responsibility of the CCA

5. The exclusion of any and all financial institutions from issuing and handling new money

6. The keeping, with each Unit of Currency[UoC], of a  history of the identities of its holders  

7. The acceptance that all cash transactions, deposits or disbursements, will begin their lives through the systems of the CCA.

Benefits of


All sorts of immediate and possible future benefits will flow from the implementation of the above seven things

1. The end of money system induced

a) poverty

b) inflation

2. Removal of the costs associated with the handling and securing of physical money. Digital money will of  course have its own security requirements, which because monetary transactions are already digitised, are already catered for in many ways.

3. The possibility of eliminating all crimes founded on the conversion of stolen or illegal items into money as money will no longer be anonymous

4. The posssibility of replacing the present tax collection system with a minimal levy applied to all cash transactions as these transactions will all have to pass through the CCA’s systems. This will vastly reduce the costs currently associated with tax collection.

5. The massive simplification of the logistics of disbursing any public money to citizens.


 Rory Short 2017-04-15


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