Skip to content



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.





















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.

The Future of Money

The system which monitors our use of money is in essence dysfunctional and as a result it creates all sorts of unnecessary mis-allocations in the economy.

A healthy economy is created from voluntarily completed binary exchanges of goods and/or services, nothing more and nothing less. Such completed exchanges are the events which create an economy.

From an economic point of view these events are like atoms because if split up they immediately cease to be the holistic economic events that naturally create a healthy economy.

A healthy economy is constructed from healthy economic events. Economic events are healthy when both parties are fully satisfied with the completed exchange.

Our current money and money system basically prevents healthy economic activity in two ways.

1. Through only representing the ‘quantitative value’ element of completed exchanges money ignores the equally important social impacts of completed exchanges.

This enables economic actors to be destructive, either environmentally or socially, in how they earn money because money currently has no moral colour attached.

2. Through removing the power to produce new money from the individual and giving this power to the State the current money system immorally removes this capability from  where it naturally belongs.

The State then delegates this immorally appropriated power to produce new money to financial institutions like banks. Banks will only supply new money to their existing customers in the form of interest bearing loans and as a consequence the unbanked are denied access to new money.

In addition these new money loans are actually worthless. We have a fiat currency which means that on issue new money naturally cannot have backing value. It has to participate in a completed exchange before it has backing value.

Thus the banks are:

a) defrauding their customers,  when charging interest on new money loans

b) causing inflation, because the new money, when first put into circulation, is worthless, i.e. has no backing value

The banks only role in the economy should be to act as brokers between investors and  borrowers, that is all. New money should only be issued to individuals when they are in need of it to enter an exchange process.

Money was invented because one on one exchanges are difficult to arrange. The purpose of money is to facilitate the voluntary exchange goods and services between one individual and multiple others.

From a single individual’s point of view the exchange process that results in an economic event consists of a receiving half and a giving half. The use of money enables the two halves of an economic event to be separated from one and other both in space and in time, but the second, the giving, half of the event still has to be completed by the individual if an economic event is to  result.

The reality is that once the use of money in exchange processes becomes the norm within an economy an individual has to have enough money to be able to enter into any exchange process. Consequently by removing the individual’s power to trigger the production of new money, should they need it, the current money system is curtailing the freedom of the individual, who is short of money, to enter into exchange processes.

To create the basic conditions for a healthy economy we need the reform of both money and the money system. There would be a lot of work involved in the reform but well worth the doing of it

1. We should switch to a wholly electronic currency. This is quite technically feasible but the implications and the details of this switch would have to be worked out by all stake holders.

2. An electronic currency should enable an identifiable instigator to be recorded for each unit of the currency thus giving its birth a moral colour. A rolling record of the identities of up to [10?] of the most recent holders should be also kept so adding to the depth of its moral colour.

2. The money system should be changed so as to only issue new money to individuals who need it to make purchases.

3. Banking functions should be restricted to dealing only with old money. Any dealing with new money should not be allowed as part of banking operations.

There will be many benefits associated with such reforms. 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

– 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 instigator and holder history of any unit of currency, will be able to refuse to accept it as payment if they wish

Essential Purpose ofMoney

The intention of this paper is how, working from the essential purpose of money, it is quite possible to simultaneously eliminate money poverty and inflation induced by the money system.


Voluntary exchanges of goods and services between individuals forge the links between individuals that create and strengthen community.

Completed exchanges between individuals are the events which create an economy.

How are these exchanges effected?

The simplest exchange

A voluntary exchange of goods and/or services between two individuals is the simplest possible exchange.

Completion of simple exchanges presents a major difficulty however in that the search for a single exchange partner requires the investment of much time and effort and could easily fail because each party must offer the other party an item for exchange that the other party is prepared to accept in exchange for what they are offering.

The finding problem would be lessened however if completed exchanges  involved more than one other party. Such exchanges would be complex in nature but quite doable.

A Complex Exchange

Party A receives an item IB, that they want from party B. Then A supplies an item IA, that they have and equal in value to IB, to another party C.

A’s effort to find the exact single exchange partner that they need is drastically reduced even though A has to involve two other parties in the exchange rather than just one.

A new problem arises from this solution however,and that is, how to ensure that IA and IB have equal value?

In order to maintain the value in the exchange a  link between these two separate transactions is needed, i.e. it must forge a link with constant value between the ‘obtaining item’ part of the exchange and the ‘supplying item’ part of the exchange. If this value could be recorded in a manner that is acceptable to all the parties concerned then this problem would be solved.

This is where the concept of money enters into the exchange process. Money is the enabler of complex exchanges. This is because money forges the value link between the obtaining part of the exchange and the supplying part of the exchange. In addition the money enables B, using the money received for IB, to obtain any item IX, that they want, equal in value to IB.

Money is not without a potential problem however. What is this problem?

Money’s Potential  Problem

To serve its purpose money has to be an honest representation of the value of something. The unambiguous recording of the socially accepted quantitative value of exchanged items is what results in honest money. There is no problem with honest money, its face value represents the socially proven value of a specific actual good or service.

Money is only a representation of value however and it is therefore quite possible to produce money independent of any exchanged items. Such money can create a problem  because on issue it represents the value of nothing specific. Consequently it
has to either steal any value that it has, from the value represented by the money already in circulation, thus creating a problem, or, if it can validly do so, represent the value in completed exchanges which value is as yet unrepresented, this is not a problem.

The stealing of value is a problem because it  debases the currency. We know it as inflation. Currently we live with endemic money system induced inflation but this does not have to be.

Eradicating ‘Induced Inflation’

We just need to make a small change to the way in which new money is issued into circulation in order to eliminate induced inflation. This suggested change is now possible because

a) we  use a fiat currency and

b) smart phones are available to serve as electronic wallets.

The change would

a) enable our money system to properly align with economic reality from scratcyh and thus eradicate inflation induced by the money system

b) totally eliminate money poverty.

Some History of Money

Historically the money used in economies was either a fiat currency or a commodity based currency.

Commodity based currencies are not of any interest to us here because since the 1970s, we have, in the Rand, been using a fiat currency.

Fiat currencies are in essence pure money in that they are just recordings of value nothing else. Fiat currencies represent the values of items in completed exchanges or they don’t because they are representing nothing and are thus fraudulent. Fiat currencies are naturally fraudulent on issue, they only get their real value once they have participated in a completed exchange.

Gaining Benefit From a Fiat Currency

The fact of fiat currencies being naturally fraudulent on issue could be utilised to the benefit of everybody in the economy but our current money system does not do this.

The money system should allow anybody, who wants to enter into an exchange but is short of sufficient money to do so, to trigger off the money system to produce sufficient new money to meet the short fall. The new money would need to be recorded against its recipient as non-interest paying debt defrayed as and when, the recipient pf the received new money, receives money for goods and/or services supplied by them. To prevent  free-loading on the wider community there would have to be an enforced cap on the size of the new money debt that any person could hold at any point in time.

Credit cards give this new money facility but credit cards can only be held by people who have bank accounts. People without bank accounts have no access to credit cards and thus have no access to new money.

In fact new money should only ever be issued to individuals who are short of enough money to make a desired purchase. This would ensure two things

a) that nobody, capable of making exchanges, is ever short of money, and

b) that ‘money system induced  inflation’ never happens.


Honest Money

Money has a representational role. In order to fulfill this role it has two values associated with it, a face value and a representational value. The face value is the stated value and the representational value, which if it exists is the same as the face value, is the single representation in money of the value of an exchangeable economic good.

Honest money is money where the face value is backed up by the value of a single exchanged economic good. Dishonest money is where the face value is not backed up by the value of a single exchanged economic good.

How do we ensure that money is honest?

Historically, in the days of adherence to the gold standard, which most countries, including ourselves, no longer do, this was ensured by the State enforcing a link between each unit of currency and a specific fraction of the State’s gold holding, which is an exchangeable good. This legal link ensured, from issuance, the reality of each unit’s representational value and thus its honesty.

But since the 1970‘s we have not adhered to the gold standard, our currency has become a fiat currency. This means that if the currency is to be honest then each unit of currency in circulation must singularly represent a specific fraction of the country’s total wealth. At present this simply cannot be achieved because the issuing of new currency is happening at one step removed from actual economic activity, the values of which exchanged items are supposed to be represented by the currency. As the State does not issue new money at the point of need it tries to control the volume of currency in circulation by controlling the rate of inflation. This is akin to trying to thread a darning needle with gloves on so it is not very successful in this endeavour.

How could this be fixed? Could we issue new currency at the times and places where economic activity is taking place?

To be able to answer this question unambiguously we need to fully comprehend exactly where new money could be introduced into economic acts and, recognised as such. For this we need to dis-sect economic acts into their component parts.

The Components of Economic Activity

Humans make voluntary exchanges of goods and services with one and other. These exchanges are economic activity. Some of these exchanges are also essential for the continued existence of the exchanging parties.

Before the invention of money these exchanges were perforce simple. After the invention of money this was no longer the case and complex voluntary exchanges became possible.

A Simple Voluntary Exchange

A completed simple voluntary exchange is comprised of the following components:


– two parties A & B
– two items IA, belonging to A, and, IB, belonging to B
– two mirror image exchanges where A gives IA to B, and, B gives IB to A

Mental: [i.e. in the two parties’ heads]

– in A’s head two values, IAav for IA, and, IBav for IB, and IAav <= IBav
– in B’s head two values, IAbv for IA, and, IBbv for IB, and IBbv <= IAbv
Note: Whether (IAav = IBav) = (IBbv = IAbv) has no relevance for the completion
of the exchange.

A Complex Voluntary Exchange

A complex voluntary exchange is comprised of two independent components, a Purchase Component and a Sales Component which must both be completed for the exchange to be completed and this will only be the case if both components contain two elements which are the same throughout, i.e. one of the parties and the value of the money used.

NOTE: The age of the money used, i.e. whether it is newly issued or old, determines which of the components of the exchange comes first in time.

Purchase Component:


– two parties A & B
– one item, IB, belonging to B
– one set of money, Ma, belonging to A
–  A purchases IB from B with Ma

Mental: [i.e. in the two parties’ heads]

– in A’s head one value, IBav for IB, and IBav = Ma
– in B’s head one value, IBbv for IB, and IBbv = Ma

Sales Component:


– two parties A & C
– one item IA, belonging to A
– one set of money, Mc, belonging to C, where Mc = Ma
– A sells IA to C for Mc

Mental: [i.e. in the two parties’ heads]

– in A’s head two values, IAav for IA, and, IAav = Mc
– in C’s head two values, IAcv for IA, and, IAcv = Mc

The two elements that link the purchase and sales components are party A and the values of Ma and Mc, Ma must = Mc.

If A uses old money, Ma, in the Purchase Component then it means that A has already executed the Sales Component of a complex exchange thus the complex exchange is completed.

If A uses newly issued money, Ma, in the Purchase Component then it means that the Sales Component of the complex exchange has still to take place before the exchange can be regarded as complete.

Thus the following actions have to take place:

a) the Money System must issue A with  a new money debt of Ma to fund the Purchase Component of the complex exchange
b) A has to execute the Sales Component of the complex exchange
c) subsequent to the sale the Money System has to settle the new money debt Ma with Mc removing Mc from circulation as Ma has replaced it in representational value.

The complex exchange is now complete and new money has been accepted into circulation without debasing the value of the currency.

A system solution for the problems caused by the current money system

Societies, and individuals, economic problems are exacerbated by how our money systems operate. The systems were developed for commodity based currencies and as such correctly assume that the Units of Currency [UoC] have not only their face value but also have  a real value equal to the face value right from the point of issuance. This was correct because each UoC was supposed to be backed by real value in the form of a legally stipulated fraction of the State’s gold holding.

We now operate with a fiat currency however and the same is not true for the UoC of a fiat currency. Incidentally fiat currencies are now what most , if not all, countries of the world  use.

At issuance a fiat currency has no real value to back its face value. The real value comes about in one of two ways. The always honest way is when the newly issued UoC directly participates in a completed voluntary exchange.

The dishonest way is when a UoC is issued not connected to any particular voluntary exchange. If its issuance sometimes happens to  coincide with participation in a completed exchange then it gains its real value from that exchange and it’s real value is honestly acquired. If there is no completed exchange for its issuance to coincide with then it has to get  what it can, of a real value, by stealing it from the real value of the already issued currency. In this case the newly issued UoC debases the currency giving rise to inflation.

This is what is happening with our current money system. It operates as if we were still dealing with a commodity based currency, when we aren’t, we are operating with a fiat currency. This means that our money system is following the dishonest way of issuing new money. This explains our constant battle with inflation.

This problem would be solved if the money system was changed to issue new money, as new money debt, to anybody who needed it to enter into the purchase half of an exchange. They would execute the supply half of the exchange as soon as they received money from the sale of a good or service of equivalent value and thereby settled their new money debt.

Such a change would also mark the end of money poverty in society and open the way for everybody to become economically active.

Its implementation would require political will.

a) Because business as usual would not be possible for financial institutions like banks.
b) In order to be able to issue new currency at any point of need it would need to be done through a smart phone and for that ideally we would need to convert to a completely  digital currency.

The Systemic Roots of Money Poverty

The Systemic Roots of Money Poverty

False Assumptions
A simple exchange
A complex exchange
Some Other Facts about an Economy
The money system


Now unlike a commodity based currency a fiat currency has no backing value at the point of issue and, we have a fiat currency. Thus it is actually not necessary for South Africans to be without the authority to trigger the creation of new money for themselves as part of their normal exchange activities. However under our current money system this is not possible.

In view of our massive problems of poverty and unemployment shouldn’t this flaw in the money system be fixed and, if yes, can it be fixed?

The essential purpose of money is to facilitate exchanges of goods and/or services so yes, this flaw in the money system should be fixed.

In essence money is nothing but the recorded, agreed upon, value of an item exchanged between two parties so there is no logical reason why any individual should not be able to trigger the production of new money, should they need it,  to enter into the first half of an exchange, i.e. into the purchase half on an exchange.

Can the money system be fixed to enable this to happen? Yes it can. It just needs the political will to take on the challenge and, it is a challenge. There are significant vested interests who are profiting from the false assumptions upon which the current money system functions.

False Assumptions


The first and foremost economically damaging false assumption is that, like a commodity based currency, a fiat currency has on first issue a backing value equal to its face value.

This is simply not true.

However those who behave as though it is true can get away with it because units of newly issued fiat currency will by default either

a) steal what they can of their, backing value, from the currency already in circulation and  thereby cause inflation, which the general populace has come to accept as an unfortunate given of the current monetary system


b) if there is insufficient currency already in circulation, for the volume of already completed exchanges, the newly issued units of currency will naturally fall into representing this currently unrepresented value and will not be inflationary.


Newly issued currency cannot be issued free to anybody except as charity.

This is true for a commodity based currency because right from its issuance it has a legally enforced backing value derived from the commodity. Therefore a commodity based currency has to be earned.

This is not true for a fiat currency which has no backing value at the point of issue. It only gets its backing value from the completion of the second half of the first exchange it participates in, i.e. when the new money’s user supplies [sells] something of equivalent value into the community and thereby settles the new money debt.

People may or may not have enough knowledge to be comfortable with the above informed reasoning so let us make sure that we know what the fundamental components, including money, of an economy are.

The foundational element of any economy is the voluntary exchange of goods and/or services. How then does money become part of such an exchange? Now exchanges can be either simple, i.e without the involvement of money, or complex, i.e. with the involvement of money.

A simple exchange

A simple exchange is one which involves the following:

Physical elements:

Two parties, A & B
Two different items, IA & IB, to be exchanged
Two simultaneous exchange processes, A gives IA to B and, B gives IB to A,
[ i.e. two simultaneous zero sum games]

Mental elements:

In A’s head are the values Vaia & Vaib with Vaia = Vaib
In B’s head are the values Vbia & Vbib with Vbia = Vbib
[For the exchange to complete it is clearly not necessary for
(Vaia = Vaib) = (Vbia = Vbib).]

A complex exchange

A complex exchange is one which involves money. When completed it must result in the same result, economically, as a completed simple exchange, i.e two zero sum games which cancel one and other out, otherwise it is economically flawed in which case the value of any new money used in it remains unbacked up by the value of an exchanged item and thus a possible source of inflation.

A complex exchange happens in two halves, these halves happen independently but with a link maintained by the constant value of the money involved.

First  Half of Exchange

Physical elements:

Two parties, A & C
One item IC, owned by C and desired by A
A set of newly issued money Mn, owned as ‘new money debt’ by A
A purchase process where A gives Mn to C in exchange for IC

Mental elements:

In A’s head the value Vaic and Vaic = Mn
In C’s head the value Vcic and Vcic = Mn

Second Half of Exchange

Physical elements:

Two parties, A & D
One item IA, owned by A and desired by D
A set of money Md, equal to Mn, and owned by D
A sale process where A receives Md from D in exchange for IA
A uses Md to settle A’s new money debt, Mn, as Md=Mn
[The backing value of Mn, now in circulation, is socially affirmed.]

Mental elements:

In A’s head the value Vaia, where Vaia = Md
In D’s head the value Vdia, where Vdia = Md

Now let us look at some other facts about economies.

Some Other Facts about an Economy

As already said at base any economy is comprised of voluntary exchanges of goods and/or services; that is all.

To prevent any confusion in the meaning of exchange as used here it must be made quite clear, that an exchange here means a voluntary swapping of ownerships of, either goods and/or services, between two independent parties. Basically each party is participating in two zero sum games simultaneously which when, completed and  taken together, cancel one and other out so each party gains.

These exchanges fall into one of three groupings as follows:

G1. Completed exchanges
G2. In process exchanges
G3. Exchanges that are still only in somebody’s mind’s eye.

Money is just a socially accepted way of representing the socially affirmed values of the goods and services in the economy. This means that honest money can only come from G1 exchanges  because these exchanges are completed and therefore the values involved in the exchanges have been unambiguously, socially, affirmed.

Money can also be seen as signifying a contract between the individual, who holds it, and the community, a contract to supply goods and/or services of value equal to the face value of the money.

The contract from the community’s point of view is  always to supply, to the holder of the money, goods and/or services to the face value of the money.

The contract from the holder of the money’s point of view depends on whether it is a fiat or a commodity based currency.

If it is a commodity based currency then the holder must have earned it therefore there is never any contractual demand placed on the holder.

If it is a fiat currency then there could be a contractual demand placed on the holder depending on the money’s usage history as follows

– no usage history, money

In this case the first user of the money is contracted to supply, into the community, goods and/or services of value equal to the money’s face value in order to give it backing value.

–  already used, i.e old money

In this case no user of it must have earned it and is therefore not contracted to supply anything into the community as they have already done so.

Changing the money system

The money system currently operates on the understanding that new money is only issued by the State. Currently the State is only responsible for issuing physical money. The State has handed over the issuing of new electronic money to the banks who are naturally only interested in dealing with people who already have money. Thus for anyone to have money they must have  got it from somebody else, preferably legitimately, not through theft or fraud. Thus the only way to get money is through someone, who already has it, by them employing you or by them buying something from you. People without money are 100% dependent on finding someone else, who already has money and has needs which they can satisfy. Currently in a money poor community this is very difficult, if not impossible, to do.

This need not be. The money system could administer a changed situation quite easily by creating a non-interest paying new money debt for the receiver of  the new money which debt would need to be settled by its owner when they received money from selling goods and/or services into the community. In other words the money system could issue new money as non-interest paying debt to anybody who wants to enter into a complex exchange and is short of the needed money to enter the first half of  the exchange, i.e. purchase. All that would then be required of them is that in due course they enter the second half of the exchange by selling something, of value equal to the debt, and thus settle their new money debt. There would of course have to be a democratically agreed cap on the amount of new money debt that any individual could hold at any point  in time in order to prevent free loading on the community and the consequent uncontrolled inflation

Such a change to the money system  would

a) offer everybody, and I mean everybody, the opportunity to enter the cash economy, under their own steam, and in a completely natural unforced way that did not require the involvement of anybody else. This involvement of everybody in the cash economy would be of immense benefit to our systemically hobbled economy.

b) ,in addition, if new money could only be issued in this way, end debasement of the currency and thus inflation induced through the flaws in the current money system.

To bring about the change there would need to be significant investments made in changing the current money system. Investments in time, resources and people but ultimately these investments would be beneficial to the whole country and its inhabitants.
We would need to switch to a wholly digital currency. This would relieve the economy of the cost burden of handling physical cash but it would also mean that government would need to ensure that every economically active person had a smart phone which could serve as their electronic wallet. It would also mean that every cash transaction, deposit or withdrawal, would have to start off in the money system run by a Central Currency Authority [CCA] . The  CCA would be responsible for issuing new money and enforcing the cap on new money debt. Thus every economically active person would need to be registered with the CCA in order to be able to transact and so that the CCA could control the amount of their new money debt. Each economically active person would also need to have a bank account to which the CCA would have transparent access as well as being able to deposit new money into it should it be required provided the new money cap was not being exceeded of course.

This simple change to the money system is logical and technically quite feasible, it has already been done, but only for the already banked, in ‘snapscan’ [