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Money is a Surrogate for Exchangeable Items

April 14, 2018

‎Before investigating money as such it is necessary to explain the difference between Artificial and Natural money, that is what is meant by artificial as opposed to natural money?

‎Artificial money is money new units of which are produced independent of any exchanges of goods and/or services.

Natural money is money new units of which are only produced when they are needed to complete an exchange of goods and/or services.

‎Initially because of the physicality of money the only production technology available for it meant that new money had to be produced artificially. Subsequent to the development of smart phones, the Internet and information technology it is now quite possible to produce new money naturally.

‎Every community uses its own particular money and this, collectively used money, is referred to as a currency. The Rand for example is South Africa’s currency.

‎Because of money’s social power, along with society’s very long history of using money, concepts generally associated with money are deeply embedded in our culture. The problem is, money is a human creation and how money is created has changed over time but the common or garden concepts associated with its production have not kept up with the changes. Thus in any sensible discussion about money we first need to acquaint ourselves with the natural phenomena, and they exist, on which money, a human creation, is based. Why, because natural phenomena are not subject to changes caused by humans.

‎What are the natural phenomena on which money is based?

‎Living organisms constantly make exchanges with their environments. These exchanges are an unmistakable sign of life. We humans are living organisms making exchanges with our environment. We do it for our survival. We inhale and we exhale, we drink and we urinate, we eat and we defaecate but what we are particularly interested in here is the voluntary exchanges, of goods and/or services, that we make with one and other. This phenomenon is completely natural even though humans create it.

‎These exchanges are, one with another, but viewed in another way they can also be seen as individuals making exchanges with the community. This broader view leads to the concept of an economy because an economy is the product of an accumulation of completed exchanges between individuals.

‎For voluntary exchanges of goods and services to be satisfactorily completed a sufficient degree of trust, between those involved, is essential. This trust can be taken as a given for successfully completed two person exchanges but an economy limited to two person exchanges is very small This is for two reasons,

‎a) successful two person exchanges are very difficult to arrange
‎b) both people have got to accept what the other person is offering in 
exchange for what they are offering otherwise the exchange will not 
complete and as a result there will be no event of any economic 

‎Exchanges involving three or more people are much easier to arrange provided that the participant’s trust in the process of exchange is maintained. Consequently if we wish to remove restrictions on the growth of our economies a mechanism for maintaining trust in this more complex exchange process needs to be found.

‎What is a possible mechanism?

‎If an item could be developed which is Generally Exchangeable within a community, let us call it a GEI, then there would no longer be the difficulties of arranging one to one exchanges of particular goods or services. This is because one of the parties to the exchange could use a GEI as their item to be exchanged thus ensuring the satisfaction of the other party to the exchange.

‎The next problem is how are GEIs to be created?

‎This problem is already solved, GEIs are already in use, they are collectively known as money.

What exactly is Money?

The simplest of GEI’s consists of nothing more than ‭a record of the value of the‬ good or service being exchanged. These values first arise in the heads of the people involved in the exchange.

When only two people are involved there is of course no need for such a record of value. If however three or more disparate people are involved in an exchange then a record of value is definitely required but how is the record’s truth, or authenticity, to be guaranteed?

There is no automatic guarantee when three, or more, parties are involved in the exchange. All are potentially unknown to each other, and each has a strong interest in the value recorded in the GEI. Thus to be fail safe we have to assume that the participants’ interests in the GEI could be totally at odds with one and other so the guarantee of the value’s authenticity has to spring from a source outside of the exchange, in our case, the Money System.

The Money System exists to create money, administer it whilst in circulation, and to remove it from circulation when it is no longer needed. Money creation is the stage when the money’s value is established so this is when the authenticity of the value accorded to the money must be done in such a way that guarantees that it is, from the start,  honest money.

Money is needed and used in three person exchanges so in order  to be able to ensure money’s honesty let us look at the essential elements of such an exchange.

The first person, the initiator of the exchange, offers to someone, a GEI, i.e. money, that they possess, for a good or service that they want. Having concluded the deal the initiator then offers a good or service to someone else who is offering a GEI, i.e. money, in exchange. The initiator will accept the offered GEI if it equals in value the GEI that they offered in payment for the good or service that they just obtained. This satisfactorily completes the exchange, an exchange which involves three, rather than just two, parties.

As previously stated the role of the GEIs is wholly dependent on the three parties’ trust in the authenticity of the values recorded in the GEIs, i.e. in the money. Authentic means that these values recorded in the GEIs are the values of real, exchanged, goods or services.

This was not a problem when the Rand was a commodity based currency as the State’s gold holding guaranteed the value, but as the Rand is now a Fiat currency the Money System has to ensure that the values that are recorded in the money are the values of successfully exchanged goods or services.

The best occasion on which to do this is when newly created Fiat money participates in its first exchange. However because the Fiat money is newly created it cannot be representing the value of an already exchanged good or service, this has still to happen. So the new money has to be issued to its first user as new money debt [NMD] and the point where this should happen is at the point where the user needs the newly issued money to complete a purchase of a real good or service.

The NMD is a reminder, to all concerned, of the fact that a good or service of this value has yet to be offered successfully to the market. When the first user subsequently offers either, a good or a service, and it is accepted, i.e. sold, then the NMD can be settled. At this point, as a by product of the settlement, the newly issued Fiat money automatically gains its authentic backing value. Thus from how the Money System operates it guarantees the authenticity of the backing value of the newly issued money.


A Suggested Money System for Natural Money

‎A Fiat currency, like the Rand, is the ideal currency with which to realise Natural Money. The realisation has to be acheived by means of the Money System[MS] that administers the Rand. Such an MS has three components:

Component one

‎Puts new units of currency[UoC] into circulation at points of purchase, recording them as NMD.

Component two

‎Administers UoCs whilst in circulation

Component three

‎Removes UoCs from circulation as they are used to settle NMD.


General Points about a Natural Money System for the Rand

The form of the Rand

‎It would be most appropriate from a processing, and many other points of view, if the Rand existed only in a digital form.

‎Once the Rand was in digital form it would be unnecessary to create it in anything other than single Units of Currency[UoCs]. The value accorded to these units should probably be that of the cheapest exchangeable item in the economy. In essence when taken together these UoCs would be equivalent to the State’s gold holding when the Rand was still commodity based. Except that the holding in this case would consist of the recordings of successfully completed exchanges of real goods and services.

‎For transactional ease multiples of Rand UoCs would need to be created. The multiples would consist of lists of the created Rand UoCs.

‎The complete digitisation of the Rand would mean that government would have to ensure that all the Rand’s users, and that means everybody in the country, possesses a smart phone to serve as their electronic wallet. The immeasurable benefit of this would be that everybody, whether formally employed or not, through their smart phones could become an active participant in the cash conomy.

The Central Currency Authority[CCA] and The Money System[MS]

‎The CCA would be responsible for running the MS and it would be run as an, apolitical, community service, just like water and sanitation for example. That this would be possible is because the amount of money in circulation would be determined quite naturally by nothing other than the number of exchanges taking place.

‎The CCA itself could be completely divorced from politics. The only slightly political decision to be taken would be the limit to be imposed on individual NMDs.

‎Every cash transaction, whether a withdrawal or deposit, would have to start its life through inter-acting with the CCA’s systems, via the user’s smart phone.

‎If a deposit then the CCA would check if there is any NMD to be settled.

If yes it would settle the NMD by deleting UoCs from the CR and the CMR, then‎ adds the user’s ID to each of Rand multiples on the CMR in the remainder, if any, ‎ of the deposit and then passes them through to the user’s bank account.
If no it adds the user’s ID to each of Rand multiples on the CMR and passes the ‎ deposit straight through to the user’s bank account.

‎If a withdrawal then the withdrawal has to designate who is to receive the money.

‎ If it is for an investment then, because new money is for the purchase of real ‎ goods and services only, the money can only come from the user’s bank
‎ account, so the money is drawn by the CCA and passed to the investment provider’s bank ‎ account.

‎If it is for a supplier of real goods or services then the CCA checks to see if it can ‎ be met from the user’s bank account

If yes the CCA debits the user’s bank account and after adding the ‎ supplier’s ID to the Rand multiples involved passes the money through to ‎ the supplier’s bank account
If no the CCA checks to see if the user has enough unspent NMD to meet ‎ the shortfall

If yes the CCA issues the number of new UoCs to meet the shortfall, creates the necessary Rand multiples, debits the user’s bank ‎ account to complete the withdrawal, and after adding the supplier’s ID to the Rand multiples involved passes the money ‎ through to the supplier’s bank account
If no the CCA refuses the withdrawal.

‎To do its work the CCA would need to maintain a number of registers as follows:

‎- Users
‎- Currency
‎- Currency Multiples

The User Register [UR]

‎The UR would need to contain the ID #s of every person who might need, at any point in their lives, to transact economically.

‎Along with the user ID#s the UR will need to keep

‎a) contact details for the user’s primary bank account
‎b) their current NMD

The Currency Register [CR]

‎The CR will contain a record of every UoC.

‎A UoC itself will not be circulated but a single copy of it, whether single or as part of a Rand multiple, will be in circulation.

‎These single copies will cease to exist when their UoCs are erased from the CR and CMR when settling user NMDs.

‎Each UoC would be represented by its unique ID comprised of

‎a) the ID of the first person to whom it was issued
‎b) the date it was issued, in the form CCCCMMDD
‎c) the time it was issued, in the form HHMMSSx [x= the exact fraction of the second in which it was created].

The Currency Multiples Register [CMR]

‎The CMR would contain a record of every Rand multiple in circulation.

‎Each Rand multiple would consist of

‎a) its unique ID which would be generated from the IDs of its component UoCs
‎b) a list of the IDs of the UoCs that comprise it
‎c) a list of its successive holder IDs

‎There would only ever be a single copy of a Rand multiple in circulation. Thus just as now all financial transactions would have to continue to be closely audited.

‎When multiples are used to settle user NMDs, they are erased from the CMR and their UoCs are removed from the CR.

Component one

‎New money will only ever be issued, as new money debt[NMD], to purchasers at points of purchase.

‎The benefits of this would be profound as there would be absolutely no reason why anyone should be excluded from full participation in the cash economy because of a lack of money. As they earned money from others  their NMD would be settled by the MS .

‎Natural money would render credit cards unnecessary as natural money would allow anybody to make payments up to their NMD limit at any time.

‎Money system induced inflation would cease as any loan awarded by a bank would have to be funded from its deposits.

Component two

‎The current MS does not cater for keeping a history of the different holders of UoCs whilst they are in circulation, consequently current money is anonymous.

‎An MS for Natural Money would keep a history of holder identities on the CMR. This information would enable individuals to refuse to accept a Rand multiple if its holder history was unacceptable to them. Similarly law enforcement could track money, that had been held by identified criminals, during the course of its life.

Component three

‎Deposits would be used by the CCA to settle outstanding user NMD, removing settling UoCs from the CR and CMR in the process.

‎Rory Short [201680414]


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