Category: Currency Traceability

What, How and Why

During the last few months, I have channeled my spare time towards the implementation effort (updates at tyaga.org), which has obviously affected my ability to post regularly on this blog. I would like to catch up by discussing the ‘what’, ‘how’ and ‘why’ of currency traceability as promoted on this site. Hopefully, potential collaborators would see immediately whether or not satconomy fits well with their own vision.

Traceable to ‘WHAT’?

While many non-traditional currency design promotes currency that is traceable to a community or individual, satconomy’s emphasis is traceability to a market entity or organization. This emphasis leads to design issues that are not considered important in currency projects that promote self-sufficient collectives or personal currencies as issued by autonomous individuals. One very important issue is that each entity-issued currency brand is tracked in its own ledger (a collection of  entity-owned accounts and NOT just one account.) The one-to-one correspondence between an owner and an account in a mutual-credit system may be practical for an individual, but not for an entity with many ongoing budget and organizational concerns.

HOW will it be Traceable?

An entity’s budget effectively becomes its currency. As is common practice today, each entity will be expected to administer its own ledger/budget without a requirement to open an account in a centralized database. In the OCAUP accounting model, a flow transaction results in the corresponding cancellation of the payer’s expense budget and the recipient’s revenue budget. Credits are not reusable and do not circulate among entities. Each entity independently manages the life cycle of its currency brand, including account organization, budget creation (i.e., currency issuance), assignment, use and reporting.

WHY should it be Traceable?

Currency traceability, in the context of a dynamic currency index, enhances the ability of an entity to determine the currency brand reputation of other entities. The focus is on being able to reject payments from disreputable currency brands and thus exert pressure on the entity that issued the rejected currency brand. This focus is different from systems that track reputation to guide participants to decide which currency system to join (membership in a community currency) or which network node to extend credits to (lending to a creditworthy participant). In satconomy, participants can support and pressure each other even if they do not belong to the same community or are not networked in some way.

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Busting Currency Myths

In exploring the workings of various currency systems, I’ve had to overcome ingrained ideas that thwarted my informal study of core design issues. These myths are quite powerful. It is worth spelling them out in detail, hopefully to serve as reminders since these myths come up often in currency-related discussions.

“If everyone has the ability to issue money, then that particular currency would soon be worthless due to inflation.”

This assertion is true only if market participants unconditionally accepted that particular currency, regardless of how much was issued. In fact, it is possible to design a currency system where published information about potential over-issuance helps regulate the behavior of currency issuers. The design should make currency traceable to particular issuers, so that market participants would have the informed option of rejecting over-issued currency. The design requirement for traceability led to the core concept of independent currency brands in satconomy.

“All currency systems involves notes or credits that circulate in a market.”

This assertion is true only for commodities and reusable, or transferrable, physical representations of credits such as coins and currency notes. However, in ledger-based currency systems which do not require physical representation of credits, it is quite easy to design a system where credits are not transferrable between currency issuers. There would be different motivations for issuing currency, especially in light of the fact that — if everyone could truly act as an indepedent currency issuer — no one would need to receive currency from others in order to accrue credits. The budget-centric OCAUP accounting system was conceived to provide a currency lifecycle framework for bona fide currency issuers.

“It is possible to design a large-scale currency system that is technically and administratively much simpler than current systems.”

It is tempting to look at the simplicity of a mutual-credit system and assume that its design could be scaled easily with minor tweaks and network or sociotechnological features.  I had the same hopes about five years ago when I started looking at currency systems, but I have since learned to embrace the challenges of dealing with complexity. It is true that the basis of any system might be simple and easy to understand. However, the policies and technical standards that are required to implement a simple system into large-scale, decentralized setting imply continous effort towards solving small and complex problems that come up regularly. In my opinion, a decentralized currency system that does not have an effective approach to auditing and indexing a diversity of issuers will not scale and influence anyone other than its limited membership base.

To summarize the counterpoints to the above myths:

– Even if currency issuance is decentralized, it is possible to encourage self-regulation and discourage inflationary tendencies by making currency traceable to specific issuers and not having guarantees of future currency acceptability between issuers

– It is possible to design a currency system where the currency lifecycle (e.g., budget creation, assignment and cancellation) is emphasized instead of currency circulation (e.g., credit transfer and velocity)

– Emergent complexity is inevitable in large-scale currency systems or frameworks, and must be carefully considered in the design of supporting  information systems, policies and standards.

“Charity” by Accepting Another Entity’s Currency

In previous posts, I have discussed targeted noncooperation with specific market entities through the rejection of its currency brand. However, it is worth noting that satconomy also encourages informed acts of cooperation with reputable entities that issue independent currency brands. For example, individuals and corporations could support nonprofits not just by donating or granting funds to other organizations, but also by accepting an organization’s independently issued currency units in a market transaction.

Think about it. A church needs construction material for a shelter that it is trying to build – would a hardware/lumberyard company accept that church’s self-issued currency as payment for its products? How about a grocery store accepting a school district’s currency brand to support the school’s lunch program? The main requirement is for the lumberyard or grocery store to also issue their own currency as unused budgets, so that they could use the payer’s credits to cancel equivalent units of unmet revenue budgets. In this way, an entity accepts currency from another entity to cancel its self-determined obligation to the market, and not to have more ‘spendable money’ .

Looking deeper into this dynamics, it is easy to see the importance of knowing which entities to support or avoid. A lumberyard could instead accept stolen money for construction material used in building a mansion for a con artist (such as Bernie Madoff) — would it have been better if the lumberyard accepted a church’s currency to support a more worthwhile economic activity? With generic currencies that are not traceable to specific market entities, it is difficult to answer such questions. To make such determinations easier, tyaga.org is attempting to develop practical implementation of the concepts of independent currency brands, OCAUP accounting and auditable reporting.

Currency Traceability, Madoff and AIG Executive Bonuses

While currency traceability to a specific issuer brand is not a cure-all for all of the world’s ills, recent news stories continue to show its importance in relation to currency design. If, for example, madoffholdings.com and somebroker.com are each expected to publish corresponding currency outflow and inflow record copies, then it would have been much more difficult for Madoff to run an undetected Ponzi scheme for so long. The potential for fraudulent schemes will never be eliminated, but transparency and technology could help lead the way in deterring and catching such occurrences.

Traceability would also be extremely valuable in enabling targeted noncooperation with disreputable market entities. In light of AIG’s woeful neglect of its responsibilities , those who disagree with AIG’s intent to award bonuses to its executives could easily refuse to accept AIG’s currency brand  in interentity trades – if currency is indeed to be traceable to independent currency brands.  Without currency traceability, those who end up accepting any payment from AIG’s executives would be unaware that their products and services are being redeemed with inappropriately earned, anonymous currency.