Context : OnMoney / OnMarkets

See Also :

Quora Answer : If a new economic system with No Usury and with stable currency value, will all the people switch to it?

Dec 26, 2013

People are VERY conservative when it comes to money. Understandably, money is the main resource they have. And if you're poor, losing it is disastrous. So you're very inclined to stick with the "devil you know". Particularly once the experts start warning that if too many people mess with money they'll create instability that hurts everyone. How money really works is fiendishly obscure and abstract and most people don't want to have to think about it. (They just want to have more.)

Demurrage currencies have been around for a long while and have clearly had some success in small communities who know each other and don't have much alternative. We don't have much evidence of mass adoption of alt.currencies simply because they work better. And demurrage might be a great thing when your currency is established. But it's a very hard sell to persuade people to switch : "hey, buy our money ... it evaporates after a year".

I'd say that if you just announce that you've invented "new, better, money" and write a few technical papers explaining why it's better, people will ignore you in droves.

Certain organizations might be able to bring such a currency in by the back door. For example a Facebook / Google sponsored currency would attract people, and if they happened to fold in a demurrage as a kind of service charge, people might well accept it.

But the two trends of that moment that I think offer most promise in this direction, though not going nearly as far as you probably want, are BitCoin and crowd-funding like Kickstarter.

Why? Well, BitCoin, for all its faults, does resolve the most egregious problem of debt-money : that being created in the form of a loan, means that there's more debt in the economy than money to pay it off. (See Positive Money for a good overview.) At least with BitCoin, you can't possibly have a bigger debt in BTC than the number of BitCoins that exist to pay it off. BitCoin does have other problems though. As a deflationary currency, it rewards hoarding, not spending. The opposite of the effect you're trying to achieve with demurrage.

KickStarter etc. seem to offer a promise that stuff can get made just with loans from potential buyers. That cuts out the need for the professional, profit-making investor. When you prebuy on Kickstarter you are effectively making a loan, but your ROI is early access to something that might otherwise not even get made. You aren't worrying about how that works out in terms of percent profit over the next year or so. The crowd-funding market can work perfectly well without usury.

Quora Answer : What would happen if we denationalised money and allowed private banks to issue their own currencies?

Nov 15, 2016

Firstly you'd have competition between LOTS of currencies.

And people would be confused. And start to trust, at most, one or two of those currencies. One or two winners would get "lock-in" within the market. (Much like Android and iOS for mobile phones, or Windows / Mac for PCs, or Facebook and .. er Facebook ... for social networking. Etc.)

Then the private banks that owned and issued the lock-in currencies would become a de-facto oligopoly of the money supply. They'd be able to charge whatever interest rates they liked. They'd print as much as they could get away with.

Here's the thing. Private banks DO issue currency today. (via Fractional reserve banking.) Under certain constraints.

During the 2000s housing bubble, what happened was this : banks were really keen to create new money to lend against house buying ... because houses held their value and could be repossessed and resold if the mortgage borrower defaulted. (This fulfilled the criteria under which they could print the money.) But the same banks weren't interested in creating the new money to lend to small businesses, where the money would be spent on things like salaries. And the business could go bust and not repay anything.

So, during the housing bubble, private banks "printed" money, inflated house prices, and then the high prices of houses justified them printing even more money. OTOH, there was relatively little money available to lend to small business to grow. When the housing bubble collapsed, all this "money" was destroyed, while the debts remained, and home-owners have been struggling to pay it off ever since.

The banks' incentive to grow the money supply was that while it cost them nothing to create the extra money for mortgages, they could still charge interest on the mortgage repayments.

It's difficult to see why privately issued currencies by private banks would be any different. They'll still prefer to print the money for secured loans rather than unsecured investment in business. They'll still have an incentive to inflate the money as much as they can get away with. Which will still lead to bubbles (and crashes). And the network effects and lock-in means that there won't be a competitive level playing field between currencies.

The only difference from the events leading to 2008 is that there won't be any democratically accountable institution in the loop that might interfere if it sees things going wrong. (Not that this helped much in practice)

If you really want private money, then something like BitCoin or a similar decentralized blockchain based coin where there are algorithmic constraints on the growth of the money supply, and money creation is, in principle, open to anyone, are a better bet than money created by banks.