Democratisation of Money

Democratisation of a technology is where access to the technology becomes accessible to most people. Money is a technology. Increased access to money will increase economic activity. This can lead to increased wealth creation.

The cost of producing electronic tokens to use as money is zero. We introduce restrictions on token creation by giving money tokens a value. The way we do this is by charging interest on interest. This puts a restriction on money because we only allow people owning assets, including money tokens, to create money through loans.

This restriction creates a money system that has strong connections. The value of money in one area influences the value of money in another area. This happens even if there is no change in the value of assets that money represents.

Systems with strong connections are difficult to control. To control the value of money we introduce money markets. Money markets prove to be unstable and uncontrollable. Recessions, depressions, asset price inflation, uneven distribution of wealth are all symptoms of an uncontrolled money market. Central Banks attempt to control money markets by setting a target inflation rate. This is an attempt to control the increase in money caused by interest on interest.

Promise Theory says that systems with many strong connections become expensive to control. It says that better control happens if we have systems with weak connections. For money this means going away from the Central Bank control of interest rates. It means a system with zero inflation.

One way to achieve this goal is to remove the value of money tokens. We stop trying to control the creation of money tokens through a price on money tokens. Instead we control by controlling the creation of things that money represents. We can control these through market mechanisms.

But, we already do this. All we need to do is to make money tokens themselves zero value. We do this by removing interest on interest. We do this by changing the way we repay loans. Instead of paying back interest first we pay back the capital value first. This removes interest on interest. We control the effect of inflation by increasing the value of loans with inflation.

We control inflation by controlling the creation of new money tokens. New money tokens are only used to create new community assets with real value. Such things are community infrastructure such as renewable energy and education. We democratise money by giving these new money tokens equally to everyone in the population.

We change the system loan by loan, central bank by central bank. We let the two systems operate in tandem. Loans without interest on interest are lower cost hence they will replace existing loans.

By consciously democratising money we will increase economic value and this will lead to a cooperative society.  We set goals for society such as a stable climate system and equal access to education for all.  We increase our money tokens to achieve these goals.

Economic Policy Options with Low Interest Rates

Other Central Banks issuing money at zero interest forces the Reserve Bank to drop interest rates.  Japan’s rates have been near zero for over a decade. The USA and EuroZone are now zero or negative and it is likely others will follow. The Reserve Bank can no longer depend on changing interest rates to control the money supply.

This is an opportunity for the Bank to rethink its money control mechanism.  This is fortunate because the current method is expensive and leaves Australia vulnerable to other economies.  This leads to fluctuating currency values and stagflation.

The reason this happens is because loans are interlinked.  Changing the cost of a new loan influences the cost of old loans.  This means loans have the risks from a changing money market.  This is on top of the risk of the loan itself.  The mechanisms we put in place to mitigate these money market risks are expensive.  If we could remove the money market risk we would have less expensive loans.

Promise Theory and an approach to money creation

Promise Theory predicts that a strong coupling between loans leads to inefficiencies; if there are a large number of loans.  Here is an outline of Promise Theory from Burgess the author of the theory. https://youtu.be/VTR8GCP4n_M

Promise Theory says we will reduce the cost of loans if we can make each loan independent of other loans.  We can do this by removing the effect of inflation and the cost of interest on interest. Here is a short video that outlines the idea.  https://youtu.be/6L-X90qBP0g

Here is another video that describes how governments can build infrastructure with prepaid taxes. https://youtu.be/pFCyRWR1z_A

How the Reserve Bank can Control the Money Supply

The Reserve Bank can Control the Money Supply by controlling expenditure on some infrastructure.  The Reserve Bank can fine-tune the economy by directing infrastructure expenditure.  The infrastructure expenditure is to areas of the economy showing signs of inflation.

The Reserve Bank asks the government to direct expenditure towards problem areas.   For housing this could be towards releasing new land or high density infrastructure.  Also towards public housing Rent and Buy projects. https://youtu.be/pI–p4dc4vQ

A discount rate of 6% with inflation adjustments will attract super fund investments. The Reserve Bank may not need to create any new money. However it may wish to as a way of funding its operations and providing a dividend to the government.

It is likely that there will be a high demand for fixed discount inflation adjusted loans. Instead of dropping the price of the loans the government issues rights to all citizens. Citizens can then sell the rights if they do not wish to invest. This gives everyone a share in the creation of community credit.

How to deploy the approach.

The Reserve Bank can deploy the approach in small steps.  It can observe and measure the effects and adjust it.  It leaves all existing systems in place and does not change its official approach. It can still keep an inflation target.  It can still change official interest rates.  It can be business as usual until the new approach proves itself.

These ideas need a different approach to building the supporting IT infrastructure.  It needs an inexpensive method of coordinating autonomous agents.  This needs a scalable identity system.  This can happen using ideas supported by Promise Theory. http://www.welcomer.me/welcomer/blog/2016/3/17/build

Reserve Bank Modelling

The Reserve Bank has released a study on economic uncertainty. The report states that uncertainty can be an important driver of economic outcomes.

This is an example of finding causation from correlation.  Economic outcomes is a contributing factor to uncertainty. To now say uncertainty causes economic outcomes is the same as asking which comes first. The chicken or the egg.

The Reserve Bank should spend less time on finding correlations. It should spend more time on finding and removing causes of economic uncertainty over which it has control. The Bank can get rid of monetary inflation.  Instead of having a positive target for inflation the Bank can have a zero target.  Allowing anything other than zero causes economic uncertainty.

The Bank can stop inflation of the Australian dollar. They can do this by creating money in ways that does not cause inflation. We hear all sorts of arguments from economists on why inflation is necessary.  They are chicken and egg arguments.

Economists give advice based on modelling. The model used in money creation is the Efficient Markets Hypothesis.  It is time the Reserve Bank trained their economists in new models that better reflect reality.  One such model is Promise Theory. Another is Complexity Theory.