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Our economy is suffering from a major systemic flaw: the private creation of liquidity by credit through banks. This results in the automatic siphoning-off from the economy of much of the plus-value created by economic activity, through the mechanism of interest. There is an urgent need for the development of a more equitable system that leaves the plus-value in the hands of those who created it.




April 1, 2010

The Future of Money

The March issue of Wired Magazine carries an article titled: The Future of Money: It’s Flexible, Frictionless and (Almost) Free.

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Illustration from Wired - Aegir Hallmundur; Benjamin Franklin: Corbis


"The banks and credit card companies have spent 50 years building a proprietary, locked-down system that handles roughly $2 trillion in credit card transactions and another $1.3 trillion in debit card transactions every year. Until recently, vendors had little choice but to participate in this system, even though — like a medieval toll road — it is long and bumpy and full of intermediaries eager to take their cut. Take the common swipe. When a retailer initiates a transaction, the store’s point-of-sale system provider — the company that leases out the industrial-gray card reader to the merchant for a monthly fee — registers the sale price and passes the information on to the store’s bank. The bank records its fee and passes on the purchase information to the credit card company. The credit card company then takes its share, authorizes all the previous fees, and sends the information to the buyer’s bank, which routes the remaining balance back to the store. All in all, it takes between 24 and 72 hours for the vendor to get any money, and along the way up to 3.5 percent of the sale has been siphoned away."

Paypal, which at the time of its founding was intended to introduce an alternative to money, has become a web interface with the world's banking system and the credit card companies, simplifying transactions, but still using the same currencies that are in our wallets and in our bank accounts today.

Third party applications that interface with Paypal like Twitpay, simplify that interface even more, allowing you to send money to someone's Paypal account by a simple tweet.

Jack Dorsey's Square is another one of the payment alternatives discussed in Wired. It is a physical plug-in to smart phones that allows users to accept credit card payments without having to have a merchant account.

Obopay, which runs on Nokia phones, is a mobile payment system that allows transfers from one mobile phone user to another. It interfaces with Mastercard, a few banks and some major mobile phone providers. Zong is another phone based mobile money transfer application, aiming to take a bite out of the credit card business, while GetGiving specializes in micro payments or small donations to charities.

Those systems, as described in the Wired article, all interface with banks and "real" money. They merely seek to find a way around the immobility and clunkiness of the service provided by banks and credit card companies.

For anyone advocating changes to the current monetary system, local currencies or an internet-based alternative to bank-issued money, the article may be a bit of a disappointment, because it is all about how to move money more efficiently and more cheaply than banks and credit card companies, rather than reforming the money system itself.

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Continue reading "The Future of Money" »

January 29, 2010

Davos and the Importance of Social Media

The World Economic Forum is being held in Davos, Switzerland. Until Sunday, 31 January, the economic powers-that-be are meeting in the secluded ski resort town.


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The Growing Influence of Social Networks is one of the themes to be discussed in Davos this year. Public input was invited, but the request was somewhat hidden in a brand new Ning group with little more than a hundred members, and it reads as follows:

Given the topic of the workshop it was natural to open it to input from the different social networks. We want to hear from you:

1. "How are social networks changing society?"

2. "What are the most important implications and risks for society?"

3. "What should individuals and institutions do to leverage the power of social networks and improve society?"

Are social media going to change the world?

A big question to be hidden away in a group with very few members. Still, some great comments and suggestions were made. To get the whole conversation, see the posting

The Growing Influence of Social Networks

And indeed, how do social media influence and change society? I tried to answer those questions, and was surprised at my answers. Social media are more important than we might believe. We are having conversations, mostly for fun, and sometimes with the intention of changing things we perceive to be going in the wrong direction. Yet, the implications of what we are doing are profound, indeed world changing....

Continue reading "Davos and the Importance of Social Media" »

November 28, 2009

BIBO - A Standard for Stable Currencies

BIBO - Bounded-Input-Bounded-Output is an engineering term. It comes from Control Systems Theory and signifies that any system, to be stable, must respond to a bounded input with an equally bounded output.

Our system of bank currency - the money we are using every day - has a fatal design flaw - it violates the BIBO principle. Economic instability is built in to our money right from the start. This leads to the imperative that the economy must keep expanding endlessly. We are unable to achieve sustainable economic activity, to preserve our planet's finite resources, lest we face financial collapse.

This, in short, is the situation as argued by Marc Gauvin and Sergio Dominguez of bibocurrency.org

A formal stability analysis from the standpoint of control systems theory has shown that the mechanism of interest inherent in money creation and in everyday lending practices must lead to monetary instability (inflation) and eventually to the collapse of economic activity. Adding interest to the principal of any loan to be repaid creates an excess debt that, within the confines of the economic system, can never be fully paid off, resulting in an inherently unstable economic situation.


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Financial System walkthrough

1. Wealth is generated by ingenuity, human effort and resources made available through past investment of units of currency.

2. Through the process of asset evaluation, a fixed amount of existing wealth is attributed a fixed collateral value in the form of a sum of units of currency.

3. The fixed collateral sum is used as the basis for the creation of new currency in the form of a second fixed value i.e. the principal sum of loans issued into circulation through current account entries. Since both the collateral and principal loan sums are fixed, they maintain a constant ratio to the wealth pledged.

4. Current account units are distributed back to wealth producers through purchasing transactions or may be saved or stored (at a compounding interest rate) or used to cancel debt thus reducing the total amount of money in circulation.

5. Total debt due is the principal sum entered as a negative number in a loan account to which interest is added such that the debt grows as a function of time.

6. Because the total debt created always exceeds the amount of money available to satisfy it, the system produces a minimum residual debt that must be refinanced in subsequent cycles thus compounding it.

Continue reading "BIBO - A Standard for Stable Currencies" »

October 30, 2009

The End of Money and the Future of Civilization

(this article was first published in September 2009. It has been revised and updated in March 2010)

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Large parts of our economy appear set to go belly-up. The banking system, which should be of service to the productive economy, is itself on the verge of collapse. Speculators who brought those banks to the brink by pushing "creative" investment opportunities are being lavishly rewarded with bail-out funds amounting to huge gifts that are ultimately being financed by the tax payers.

Unless we want to spend the rest of our lives working to pay off those huge government debts being incurred to keep banks afloat, we should try to understand what exactly has been happening - where things went wrong. And we should learn how money and banking can be re-configured to support, rather than ruin, real economic efforts.

This can't be left to corrupt politicians. We can't even rely on the economists. They are part of the problem. Not only did they not warn us of impending disaster, they were the ones who convinced government that loose rules in banking were good for the economy.

The only way out of this mess is to understand for ourselves. Thomas Greco's new work The End of Money and the Future of Civilization is an encouraging book in this respect. Amongst all the confusion, it provides a stable foothold, a starting point for this quest to understand the subjects of economy and money.

Greco reduces the complicated stuff down to the very essentials. After providing an overview of historical developments and an indication of the reasons for our current trouble, the book points to a future where currency may be at the service of actual economic activities, rather than being a source of easy profit for bankers and speculators, those who have been gambling with our savings and our mortgages.

Continue reading "The End of Money and the Future of Civilization" »

March 16, 2009

SCEC - Solidarity and Local Complementary Currency in Italy

SCEC stands for Solidarietà che Cammina - Solidarity that walks. It is a complementary currency that is designed to start its life circulating in common with the official currency, the Euro.

It is adapted to the Italian situation, where alternative currencies are looked upon as competition to the official one. So SCEC defines itself as a complementary currency. It circulates together with the official currency.

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SCEC is in the form of a discount chit denominated in Euro equivalents (in denominations of 0.50 Euro, 1, 2, 5, 10 and 50 Euro). It is distributed for free and acquires value only when used. Businesses and professionals agree to give a discount to buyers who pay (in part) with SCEC, usually around 20 %, but ranging mostly between 10 and 30 %.

A full description of the project in English - a bit lengthy but certainly of interest - is available here:

http://www.arcipelagoscec.org/doc/ArchipelagoSCECproject1.pdf

SCEC is putting first emphasis on actually supporting local production and commerce over imports from far away and world wide commerce by multinationals. The currency makes local exchanges more convenient for people who use the system, as they get a break by virtue of getting substantial discounts on the normal price.

The SCEC, once issued, stay in circulation and can be spent at any business or professional that adheres to the program and states how much discount they are willing to give. In this way, SCEC is tax neutral - no tax is to be paid on it as it is merely a discount.

Users of course, who are not subject to value added tax (VAT) when buying/selling second hand goods or exchanging favors and transactions in the social area can use SCEC to replace the official Euro currency in these direct exchanges.

SCEC is a discount as far as the government is concerned, but it is a fledgling alternative currency as far as the users are concerned.

It favors local commerce and as it gets more and more accepted, future uses might even include the payment of rates or (local) taxes.

An electronic system to run side by side with the currently available paper currency is in the planning stage. This would work like any bank account. You can make transfers to other users of the system, and you can convert paper into electronic or electronic into paper, if so desired.

Organizationally, SCEC is organized as a non profit "archipelago of several islands" which are the regional associations that are independent of each other, but agree to use the same kind of currency and to exchange information on who are the member businesses and professionals who accept SCEC as part payment for their goods or services.

SCEC are issued periodically and equally to all participants in the system, in exchange for a voluntary contribution intended to defray the costs of printing and administration.

Loans in SCEC to participating businesses are possible. They are given as an advance on future distribution of the currency. Once someone has received a loan they will not receive any future SCEC distributed to others, until they are "caught up" and are once again eligible to receive the normal distributions. Anyone entering the system gets 100 SCEC to start trading. To get more, they have to either wait for another periodic distribution or have to start giving some kind of service for which they accept SCEC in payment.

Continue reading "SCEC - Solidarity and Local Complementary Currency in Italy" »

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Web of Debt: The Truth About Our Money System
The Story of How Humans Came to Live in Peace and Plenty
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The Peak Oil Deception: Squeezing Energy for Profit
Share the Wealth ... with Socioeconomic Democracy
Free Money 'Replaced Almighty Dollar'
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