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April 22, 2017


Why money?

The first flaw

The second and third flaw

   Face value vs Backing value

   How money works psychologically

       Gaining backing value the inflationary Way

       Gaining backing value the inadvertently honest way

The Current Money System

A Reformed Money System

    Essential Requirements

    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 all of us as individuals.

The money system is responsible for:

a) issuing new money into and removing old money from, circulation

b) controlling who can trigger the production of new money

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

It is with regard to a, b & c above that the 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. Our economic activities consist of voluntarily exchanging goods and/or services with one and other and such voluntary exchanges are not only necessary but vital to the continued survival of us all.

A satisfactorily completed voluntary exchange of goods and/or services creates a healthy economic event and the accummulation of healthy economic events  creates a healthy economy.

Now economic events can be split into two different categories, 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 fullest sense of the word, in the eyes of the two parties otherwise the exchange would simply not have happened. A completed simple exchange is thus a naturally 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 pre-requisite 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 present to each other and happy to accept the other party’s item in exchange for their own item.

The invention of money removed these  logistical difficulties. Money, being a socially accepted record of value, enables the above compulsory conjunction of coincident events to be dis-associated in  time and place. Because money is an independent record of value it 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 complex 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, the removal of the logistical hurdles inherent in simple exchanges by enabling them  to become complex exchanges,  has resulted in the demise of simple exchanges. This has opened the way however for the emergence of a different set of problems, or flaws. This time, not so much with exchanges per se, but with money itself.

The first flaw

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 natural 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 and third flaw

These flaws are not as conceptually simple to discuss as the first flaw however as they are 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 the way opens for discriminatory access to new money as well as the fraudulent use of the new money.

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 either honestly 

 a) through its participation in its first completed complex exchange, or dishonestly

 b) by theft through skimming off some of the backing value of the money already in circulation and as

 this theft debases the currency the backing value is inevitably less than the face value

The trouble is neither the backing value nor its source is physically discernable whereas the face value is so people naturally presume that the backing value exists and is identical to the face value. This presumption opens the way for the commission of two possible immoralities 

 a) preventing some people’s access to new money and

 b) fraud.

Face value vs Backing value

When we operated with commodity based currencies recognising the distinction between face value and backing value 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 thus the first issue that has to be resolved for any fiat UoC is this, ‘The UoC represents the value of what?

Because money records the value of exchanged goods or services a newly issued UoC has to get its backing value from the value of such items. Ideally this happens as the result of, a well orchestrated, completed complex exchange of goods and/or services.

Now as the completion of a complex exchange is not visible to the participants in the exchange its completion has to be ensured by the money system.

How is the money system to do this?

The money system needs to do so by only issuing new UoCs, as non-interest paying debt, at the point of a person making a purchase of goods and/or services. Once the person’s ‘new money debt’ has been settled that signals that the complex exchange is completed and therefore that the new money has gained its backing value, quite naturally and honestly.  

When new money is issued not linked to a specific purchase, the current situation, it has to come by its backing value in either one of two basically dishonest ways but here we need to first see how money works psychologically in order to understand how the wrongs relating to backing value  creep into the money system.

How money works psychologically

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.

Gaining backing value the inflationary way

 a) if the economy is not growing skimming it off the money already in circulation or

Gaining backing value the inadvertently honest way

 b) if the economy has grown sufficiently to warrant the new money then it does not have to skim it off

 the already existing currency and therefore the currency is not debased by its issue. This is, inavertently  honest when viewed at the level of the currency and therefore the community but the trouble is the

 banks issue the new money and profit from its stolen backing value, not the community.

The Current Money System

The current money system operates in problematic ways.

Firstly new money is only available to the already banked through loans and credit cards. The unbanked have no access to new money which they, like everybody, need access to when they are short of money to complete purchases.

Secondly 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 the stolen backing value 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 an 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 engagement with the CCA’s systems.

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. Every one without exception will have access to new money should they need it to complete a purchase.  

3. 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 being catered for in many ways.

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

5. 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.

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


 Rory Short 2017-04-22


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