A good primer on central bank perspective from the Bank of Thailand

http://www.bot.or.th/Thai/EconomicConditions/ResearchPublication/MonthlyWorkshop/Documents/Reassessing_Piti2556.pdf

Currency creation and economic growth

Most central banks today create currency at the time of bond purchase.  Since bonds have interest attached, that means every unit of currency has a debt repayment obligation.  To simply use a unit of currency contains an interest fee.  That is what I term the "perpetual fee".

Historically, most central banks created currency to represent gold or silver.  That limits economic growth some describe as the "cross of gold" and is one of the reasons for its discontinuance.

The solution is to decouple bond purchase from currency creation.  Fractional reserve is the interest-based creation of currency that is responsive to economic growth.  It is not a perpetual fee because the loan is paid back to the commercial lending institution that issued the loan.  While, in theory, bonds are also paid back, this is not usually the case due to political issues.  It forces the central bank into a difficult position.  The central bank cannot force repayment to remove that perpetual fee.

So, if currency creation cannot be tied to either gold or bonds, what can it be tied to?  It is my recommendation to look at the productive output of the country and peg the amount of currency to that number.  If recalculated monthly, the economy has room to grow with adequate currency supply.  Fractional-reserve lending can handle the minor fluctuations intra-month.

A common language of monetary transactions removes the friction and clarifies issues such as described above.  The efficiency allows what I term "wealth translation" to perform the money supply contraction/expansion without the need for direct manipulation.  The system described below is also a common interface that will work with any payment system on earth.

The problem with money today

Money is not necessarily currency.

Money is a promise to deliver value, although it might have value unto itself.

The description of value is not money.


Two major problems with today's monetary systems:
1. language differences create misinterpretations of value.  Also, sometimes a value transfer has cultural implications that are not explicitly described.  Language differences exist between countries and between vocations.  Accountants, finance, legal, bankers, computer, and business people might use the same words, but none really understand the unintentional mis-communications.
2. language and cultural differences allow a few to deliberately create ambiguity to leverage a theft that is difficult to detect.

A common language to describe transactions eliminates the mis-communications, whether deliberate or not.

Bond/currency relationship today (Debt-based currencies)

All existing currencies are said to be debt-based. Originally, the USD was backed by gold/silver. That gold was stolen behind the scenes. So today, there is an accounting problem at the point of creation that derives from the theft. A common language does not entirely prevent theft, but does provide accountability in the future, while also providing alternatives to money supply constraints via wealth translation.

Bonds were not originally the creation of paper USD without value. Bonds were a debt, based on collateral (gold). The USD was a receipt for such. When the gold was stolen, the Fed defaulted on that receipt in 1933 (domestically), then in 1971 (internationally). Since then, dollars are created at the time of bond purchase with only legal limitations set on their creation.

Interest

Interest is a measurement of assigning value to risk. Time-based. All transactions have a time component which, today, is rolled up into the bond/currency relationship. That creates a perpetual fee. Promise Language describes that time component while also removing the ambiguity in value descriptions that are complicated by multiple languages and intentional obfuscation.

The New Approach to Freedom - 1949

"When the people of the world have a common monetary language, completely freed from every government, it will so facilitate and stabilize exchange that peace and prosperity will ensue even without world government.

A union of peoples rather than a union of political governments is what the world needs."

E.C. Riegel, monetary theorist

Distributed transactions

A common language/protocol creates efficiency to allow distributing all components of a transaction.  Trust is distributed.  Value translation is distributed.  Every transaction is composed of a value translation and a temporarily trusted 3rd party to assure the value is transferred.

A common language allows barter and allows currency transactions.  The language also describes Time.  All transactions take time, so the current reporting of transactions in a receipt does not accurately describe the transaction and how long it took for each side to deliver on their end of the bargain.  Finance-types should understand that.

A common language allows individual choice in every transaction.  One of the derivatives of a common language is a common peer-to-peer marketplace/exchange described below.

Looking for investment capital

Working prototype is complete.  See below.

It is a free exchange software, however, does much more than that.

Value-added services to assure agreements are met.  As well as what I term "wealth/value translation".

All transactions are searchable.  Privacy can be kept.

It works with all existing systems/businesses on earth.

Screenshot of the working prototype

This works for exchange software (EG. NYSE, Amex, Nasdaq, CBOT) as well as functions as a free E-Bay or Craigslist-type sale software.

Anonymous users (or not).
Accountability.
Reputation.
Full audit trail (will satisfy law and finance).

Rough draft of the exchange software (works for anything)

            //selling IBM
            TransactionItem item = Transaction.Sell("100 IBM", "myCommerceID");
            TransactionItem terms = Transaction.Terms(item.TransactionID, "5000 USD", "myCommerceID");

            item = Transaction.CorrespondingValue(item.TransactionID, "4900 USD", "hisCommerceID");

            item.Accepted();  //becomes a contract here

            TransactionItem deliverStock = Transaction.Delivered(item.TransactionID, "100 IBM", "myCommerceID");
            TransactionItem deliverCash = Transaction.Delivered(item.TransactionID, "4900 USD", "hisCommerceID");

            Transaction.Completed(item.TransactionID, "complete", "myCommerceID");
            Transaction.Completed(item.TransactionID, "complete", "hisCommerceID");

            //buying IBM
            TransactionItem item2 = Transaction.Sell("5000 USD", "myCommerceID");
            TransactionItem terms2 = Transaction.Terms(item2.TransactionID, "100 IBM", "myCommerceID");

            item2 = Transaction.CorrespondingValue(item2.TransactionID, "100 IBM", "hisCommerceID");
            item2 = Transaction.Modify(item2.TransactionID, "5100 USD", "hisCommerceID");

            item2.Accepted();

Database:


1 faeb6594-ca25-494c-b506-2b8cc76f06fb myCommerceID Initiating Value 100 IBM 2014-05-11 15:23:50.493 NULL
2 faeb6594-ca25-494c-b506-2b8cc76f06fb myCommerceID Terms 5000 USD 2014-05-11 15:23:53.813 NULL
3 faeb6594-ca25-494c-b506-2b8cc76f06fb hisCommerceID Value 4900 USD 2014-05-11 15:23:53.833 2014-05-11 15:23:53.847
4 faeb6594-ca25-494c-b506-2b8cc76f06fb myCommerceID Delivery 100 IBM 2014-05-11 15:23:53.853 NULL
5 faeb6594-ca25-494c-b506-2b8cc76f06fb hisCommerceID Delivery 4900 USD 2014-05-11 15:23:53.860 NULL
6 faeb6594-ca25-494c-b506-2b8cc76f06fb myCommerceID Completed complete 2014-05-11 15:23:53.867 2014-05-11 15:23:53.867
7 faeb6594-ca25-494c-b506-2b8cc76f06fb hisCommerceID Completed complete 2014-05-11 15:23:53.873 2014-05-11 15:23:53.873
8 24370bb9-ac0c-4546-bcd7-dd131f5f7aa4 myCommerceID Initiating Value 5000 USD 2014-05-11 15:23:53.880 NULL
9 24370bb9-ac0c-4546-bcd7-dd131f5f7aa4 myCommerceID Terms 100 IBM 2014-05-11 15:23:53.883 NULL
10 24370bb9-ac0c-4546-bcd7-dd131f5f7aa4 hisCommerceID Value 100 IBM 2014-05-11 15:23:53.887 NULL
11 24370bb9-ac0c-4546-bcd7-dd131f5f7aa4 hisCommerceID Modification 5100 USD 2014-05-11 15:23:53.893 2014-05-11 15:23:53.900

Imagine you are running a stock exchange using the Promise Language specification

Initiating Promise:    100 IBM
Notice - accept: 5000 USD

Initiating Promise:    5000 USD
Notice - accept: 100 IBM


Note the structure is identical for both the Bid and the Ask.  Effectively this means everything is a commodity.

"Notice" messages become part of the contract.  Terms and late payments can be specified.  Clearing companies as well.

The Origin of Money

Once upon a time, some guy had an orange and you wanted it.  So you offered to trade a banana for his orange.  But your banana was way back at your hut.  So you picked up a seashell or something and handed it to him in exchange for his orange.  You promised to go get your banana and deliver it later.  That is the origin of money.  The seashell was a symbol that represented a contract to deliver a banana.

Alternatively, both people could have yelled out to the surrounding village that you owed that person a banana.  Then you didn't need the seashell.  Everyone knew you owed that person a banana.  Then you go back to your hut the next day and get the banana.  Then you yell out to the village that you paid back the banana.  Let's hope that banana did not go bad overnight.

Would it be possible to have a computer store these transactions so the villagers wouldn't have to remember?

Closing out the transaction and EDI format

See below for the context, but two more EDI messages might be a good idea:

"Completed" to show that both sides delivered on their promises and all was acceptable.

"Closed" with a something in the description field to describe transactions that were voided or otherwise rectified if disputed.

The solution to money

Promise Language is a standard way to yell to the global village who owes what.  If placed into a peer-to-peer database, all promises would be tracked.  Open promises and delivered promises.  I was thinking today how to design that database:

Promise table

Type of entry (Initiating promise, promise, notification)

Id (GUID for that promise or a GUID corresponding to the person)

Description (describes what was promised)

TimeStamp

So.. it would work like this:

[transaction]

  [promise]

    1 banana

  [endpromise]

  [promise]

    1 orange

  [endpromise]

[endtransaction]

One entry for the Initiating Promise:  my Id, his Id, "1 banana", 12/21/2003 12:15:34
One entry for the Promise:  his Id, my Id, "1 orange", 12/21/2003 12:15:45
One entry for the Delivery: his Id, my Id, "1 orange", 12/21/2003 12:15:48
One entry for the final Delivery: my Id, his Id, "1 banana", 12/22/2003 8:23:32

That's it.


Now.  That shows you made good on your promise.  That's your rep.  Now you can go anywhere in the world with the Promise App that shows your history of promises.

It's free.  No transaction fees.  Works with any currency on earth.

Does this solve monetary science?

The root of money is a "promise to deliver value".

Money is a human construct.

Money originally was a form of bookkeeping to see who delivered on their promises (or who had outstanding undelivered promises).  Sea shells worked in some locales.

Until recently, paper money was a receipt for gold or silver stored on one's behalf.  That promise was reneged upon in 1933 (domestically) and 1971 (internationally).  So today, paper money is a "note" with nothing of value behind it.

Where does the value derive?  Contracts are denominated in dollars.  Rent, salary, mortgage, contracts at the grocery store, etc. are all contracts denominated in dollars.  That is where the value derives.

In small communities, money was a temporary placeholder for one's promises to deliver value.  However, today, the world cannot track who delivers.

That is what "Promise Language" does.  It is a standard format to describe transactions.  The results can be stored on paper or in a computer so you know who delivers on their promises.

Theoretically, wealth translators replace the need for currencies.  However, that is an expensive process, so currencies will always likely remain due to their economies of scale in reducing transaction costs.

What is money?

Anything of value that is agreed upon by both parties in a transaction.