X marks the spot


06 July, 2016

Designing a local currency system (very advanced / simple)

Very few people ever consider the workings of a financial system that they, for want of a better word, enslave themselves too for a lifetime.

Let us have a go at designing our own. Imagine, if you can, a small community. For whatever reason, they want to run a local currency system. The currency needs a name as people like names. I am going with Quatloos. Now we need prices. People like fixed prices. One Quatloo for a loaf of home baked bread, 15 minutes of baby sitting, a small basket of garden produce, ten minutes gardening and so forth.

Now, many such local currencies just issue a fixed amount of tokens to everyone but a problem soon develops. Someone hoards the tokens. Fewer tokens are in circulation and the project fails. In this example, I will be the banker and will loan the tokens out at 0 - 6% interest. Therefore, should someone hoard tokens and they become scarce, I am fully prepared to loan out more. Initial borrowers pay zero percent interest to get our local financial system started. Heavy borrowers must pay higher and higher interest rates to encourage them to earn local currency rather than continually spend.

We can also encourage the especially productive to return the Quatloos to me, the banker, for a fixed 3% interest rate.

Do you feel that the system is fair? Of course you do. That is what we all use and feel comfortable with anyway.

As the banker, I simply love the system. Even if I generally loan at just 2%, I will soon have the largest hoard of Quatloos for very little work.

How? Let us say I have loaned out 1,000 Quatloos at 2%. That is 20 quatloos to me every year. Should 100 of the loaned out Quatloos find themselves in my one year fixed rate fixed term savings account, then that is 3 Quatloos, leaving me with 17. Which I can readily exchange for 17 essentially free loaves of bread, each year.

All I really need is more people using my quatloos for me to become immensely wealthy.

None of that is likely to bother anyone. I have to provide the Quatloos, administer the loans and keep records.

Now, our financial system is, more or less, identical to the 'real' one. The banks are far greedier than I, so interest rates on savings is low and interest rates on loans much higher.

Nothing to worry about? Nothing to be concerned about?

Let us imagine, for whatever reason, my Quatloo currency catches on. The entire village of 2,000 homes is using it. Lots of baby sitting is happening, lots of local produce being grown, gardening, ironing, DIY and the rest of it, all using Quatloos.

You might ask why? Perhaps the three percent on savings is enticing. Or perhaps the low finance rates? I'd like to think it was a community spirit type of thing. Perhaps, this financial system actually contributes to humanity?

Now, with the entire village on board and everybody doing something for the local currency, there could easily be 50,000 Quatloos in circulation. Each household spending / earning just 25 Quatloos each week. My take is now 850 a year. Which is nice.

With all the village on board, maybe there is some community work that could be done? Building a village pond? Revitalizing part of a disused canal? Restoring some public footpaths? The bank could easily loan any amount of Quatloos into existence but who to and who would pay the loan back? Easy, a small village council of elders could borrow and organise the village works. A small tax on the community could pay the loan back.

Beginning to feel uncomfortable yet? I am. What was a local currency that encouraged local people to produce goods and services locally is now a means to centralise a portion of Quatloo wealth into the hands of a select few. All manner of scans could now readily arise.

So, whichever Government is in power, they need to be watched like hawks to ensure that they are using our collective wealth wisely.

The banks only provide a public service. They should not be allowed to accumulate vast amounts of our wealth.

I might think a little too deeply. In my Quatloo example, the wealth is easily seen to be generated by the people in the village. Me, the bank, has no actual wealth, I just issue the Quatloos and keep records. The same is true of the real world. We just don't understand how.

There is no difference between the Quatloos I made up earlier and our pounds, dollars or euros. NONE. Well actually, one difference. You are forced to accept a pound in settlement of a debt, no one is forcing you to use a Quatloo or any of the many local currencies or global ones, such as bitcoin or gold and silver.

Provided the banks never get greedy or our Politicians lie then the Quatloo, pound, dollar or Euro system works fine.

In my village system, humanity is encouraged and local works would be undertaken from bank profits. One off taxes to directly fund local projects unnecessary.

Should the Quatloo catch on, banks and governments would be rendered bankrupt and powerless fairly quickly. So, how would I fund roads, rail, armies, hospitals and schools? Easily, I would free issue Quatloos to any and all institutions we, as a civilised human and humane society, felt were of value.

Put simply, my Quatloo financial system is simple. Our actual financial system is absurd.

In our actual 'real' system, things have already gone far too far. Humanity is being crushed and not encouraged. I am sickened to my bones. This is the motivation behind this blog.

Not convinced? Is that your conditioning kicking in? Just give it some critical thought.

By the way, I don't much care for your thoughts on my pretend Quatloo financial system. Just on your own dollar, pound or Euro system. For the obvious reason, I have only just made it up to compare it with what we have inherited from hundreds of years ago.

I use pounds but I treat them as I would Quatloos. Pounds are for spending, a few saved for emergencies is wise. Storing wealth is problematic. Having a pension fund with a million dollars in it might sound good but try telling someone you have a million Quatloos. Dollars and Quatloos are fundamentally the same. Have a Critical think about that too, I have.

If you haven't understood something in this post, please feel free to ask a question in the comments section.

You take care and remember, a dollar, a pound, a Euro or a Quatloo are all worth about the same. NOTHING, unless you and your family and your village and your town and your country decide it is. The banks and governments really do want you to believe because the moment you don't, both banks and government collapse.

What do I believe? A dollar is worth a pound is worth a Euro is worth exactly one Quatloo, in other words - NOWT (nothing)

A word to the boomers about their pensions. BOOM.
The technical word is ILLIQUIDITY.