How Money Systems Work
What is Money?
Money is an agreement
The agreement may be voluntary or coerced, conscious or unconscious, and
may fluctuate with time or remain fixed.
within a community
All kinds of communities--large and small; local, national,
international, or virtual; cooperative or competitive--may create such
an agreement.
to use something as a
medium
of exchange.
The money itself can be issued en masse by a
central
authority or created ad hoc by two consenting parties in a
mutual
credit system; it may store value or merely mark transactions; it
may be
backed
or valued with something tangible or merely by the issuing authority;
and it may take any shape--
coins and bills,
some chalk marks on a blackboard, or bits of data inside a computer.
Design Characteristics of Representative Currency Systems
A
growing
number of currency and
payment systems,
each oriented toward different
social and
material incentives, are available for use today.
The most appropriate one for any given transaction will depend on the
needs and objectives of those taking part in the exchange. We
present here an overview of the design characteristics of some
representative currency systems, all of which are explained in further
detail in our
glossary
of important terms and concepts and under discussion in
The Money
Conference.
Social Implications of Currency System Features
- Fiat money
requires by definition an Authority (a Central
Bank, in the case of national
currencies) to be issued and to keep its value.
- Backed
currencies can be issued by whoever owns the commodity or service
which backs the currency.
- Scarce
currencies will tend to induce competition among participants.
All our national
currencies are created by interest-bearing bank debts. They are
scarce because:
-
"Debt money derives its value from its scarcity relative to its
usefulness." --Jackson and McConnell, Economics.
(Sydney: McGraw-Hill, 1988.).
- currencies created by interest-bearing debt generate a
negative sum game
among participants (see "The
Eleventh Round").
- Sufficient
currencies (not to be confused with overabundant inflated
currencies) are exemplified by mutual
credit systems such as LETS and
Time Dollars,
which are created
as a debit and credit by the participants themselves at the moment of a
transaction and thus always in sufficient supply. They are therefore
more compatible with gift
economy- like social bonds.
- Currencies that store value (such as any commodity-backed
currency, including electronic forms of it such as E-gold) encourage
hoarding, and therefore competition.
- Currencies with demurrage
charges discourage hoarding and thus encourage transactions and
cooperation among participants.
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Join us in The Money
Conference, where we hope to compare insights on all kinds of
money
systems--old, new, high- and
low-tech, real or theoretical--and to synthesize from our shared
experience wiser and more efficient models of exchange media. |
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