[p2p-research] How Open Money Ought to Work

[Ryan Lanham]

Marc,

First, no offense taken, no worries there, ever.  The economics and
especially the behavior economics of local currencies is pretty limited.
We're all shooting in the dark and trial and error is the most likely way to
gain knowledge.  That said, some theory of design is also worthwhile, and we
do no a lot about Paypal, Ebay, FX trading, etc.

I've tried to use existing models that work.  People trust MyC4 or Kiva
models, the software is there and the means are understandable.  People
certainly trust Ebay.  The interfaces to both are simple and easy to
understand.

Second, I think the basic questions of currency exchange are fungibility and
liquidity.  What can be exchanged for what, when and how.  I started from a
program that recognizes that currencies have value and can be traded like
anything else.  One ought to maximize that within reason.  It creates
safeguards against inflation and other woes and it crates incentives for
good governance of LETSI systems.

Third, the problem with fiat money is exactly that governments can play
games--print too much money, goof up exchange rates, etc.  In short, they
have monetary policy.  To minimize the local impact of such games and to
assure demand exists for local policy aims (e.g. keep the small businesses
going), localities need capacity to minimize the buffeting that
international markets can bring to local functions.

Control is achieved when you can set the scale and scope of your network and
implement your own governance plan that promotes its own objectives.  Bad
plans will fail.  Good ones will endure.  A good currency governance plan
for a currency is one that assures availability, usability and value
preservation.  These ride on top of fungibility and liquidity.  I like to
think of the old trading stamp models.  By X get some S&H green stamps.
What you get for your S&H green stamps is all important.  That's where local
policy can be made.  Yet there should always be a market in US$ for S&H
green stamps.

By floating local currencies and creating a liquid currency market,
exchanges between LETSI networks can be normalized without actual
distribution of goods and services across various LETSIs.

Let's say Seattle cares about reducing carbon with its local currency.
Therefore carbon reducing strategies trade at a premium to their value in
the rest of the world by allowing a local currency the local currency to get
high value for exchanges related to carbon reduction.  I can arbitrage that
value in another local currency I care about by having my "central bank" in
Seattle offer a good exchange of value of their currency versus one that
encourages, say, reducing homelessness in New Orleans.  All this can be done
without recourse to US dollars while still maintain liquidity and
fungibility throughout the whole system.

Here's what I've been thinking about in the Cayman Islands.  A health
network.  Surplus health goods (e.g. health club services like training
sessions, sessions with a dietician, etc. can be traded for local
network scrip.  These can be exchanged at some floating rate for other types
of currency--both "real money" and other items--like coupons for dollars off
on certain types of healthy food.  Thus, a company can encourage healthier
workers by giving them health scrip which the company can buy for dollars.
People can then trade for really good value in health, or relatively modest
real cash values.  Those firms that offer good scrip value do so because
they want to encourage good health or use resources they have in quantities
greater than the local market can consume.  In another case, let's say a
philanthropist wanted to improve local health.  She could donate cash to a
group to purchase health scrip that would then be useable only
for health (or local business purchases or local conservation/green
enterprises, etc).

This enables a location to have 4-5 different types of scrip and accounts
that are dedicated to a cause and yet fungible.  Churches could join
together in health and family networks but not in conservation, if they were
so inclined.  Yet conservation dollars could trade for real cash or health
cash with relative ease.  The central bank could standardize its approaches
to ppolicy by choosing the sort of governance they wanted to emphasize.

Hospitals and phyiscian groups might take Health bucks in partial payment
but not conservation bucks.  Yet I can trade conservation bucks for
health bucks if the central bank has incentives to push that.

Incentives are essentially schemes of coupons--the alternative scrip is
really just a coupon.  Just as grocer create incentives for one sort of
consumption or another through a newspaper, the central bank can finance and
push various sorts of currency incentives--not JUST being local...but
anything they want from energy efficiency to curing social ills.  It's all
in the exchange rates.  Ride a bike to work, get 5 health dollars.  Each one
is only work 20 cents, but you can get $5 off on a prescription or a trainer
session at the gym.    The gym gets capacity use, exposure, etc.  Then gets
health dollars it can use as a local incentive for its employees.  And so it
goes.

Ryan Lanham



On Wed, Mar 25, 2009 at 3:11 PM, marc fawzi <marc.fawzi at gmail.com> wrote:

> How does this money differ in its basic nature from the existing money?
>
> What are its propositions? (or deductively provable benefits)
>
> How does it work with respect to supply-demand economics? Does it enforce
> scarcity by moving the price higher with demand? or does it move money into
> increased supply?
>
> There are more questions but I'm not sure I'm asking the right ones until I
> fully understand the context.
>
> It does sound like you've put a lot of thought into it. I'm just coming at
> it from my own context (the P2P Energy Economy) which addresses the above in
> a radical way (which may not be practical as what you're suggesting but it
> is radical and new so I guess I'm trying to bridge evolutionary to radical
> thinking by trying to understand thel aspects (if any) of what you're
> proposing that are a radical departure from the kind of economy and currency
> we have now.
>
> Marc
>
>
> 2009/3/25 Ryan Lanham <rlanham1963 at gmail.com>
>
>>   I've been thinking a long time about LETSIs and Open Money lately.  I
>> have a few thoughts on the execution of a larger scale scheme than those
>> typically handled in current LETSI frameworks.  I'll throw them out here and
>> welcome any feedback.
>>
>>
>>
>> 1.      Those who honor one or more types of local currency are members
>> of a LETSI network.  Think of the old credit card honored symbols on
>> retailer doors.
>>
>> 2.      A LETSI network, or more generally, the [exchange network] (in my
>> example below, the hypothetical Bay Area Bucks Network) is a membership
>> organization.
>>
>> 3.      Any person or organization making offers (or bids) in the
>> [exchange currency] requires [membership] in the exchange network (like
>> having an Ebay account).
>>
>> 4.      Scrip can be used by anyone whether or not they are a member so
>> long as it is used at a member organization.  Scrip is essentially local
>> legal tender as accepted by a member (e.g. for 50% of any bill or for all
>> purchases under $20 US etc.)
>>
>> 5.      To get currency without being a retail member, members create an
>> [ask bid]—like selling something on Ebay--for a good or service (or loan) to
>> attain exchange currency.
>>
>> 6.      When an ask bid is accepted or a [counter offer] is made and
>> agreed—like from an Ebay buyer member—a [contract] is recorded at the
>> network administrators at a given [exchange price] set in the network
>> currency.  The issuing person is the [asker], the one who accepts the ask
>> bid or sets a counter-office that is agreed is the [offerer].
>>
>> 7.      There is also meta-market of local currencies with inter-currency
>> pricing linked to other standards of value such as $US and to each other.
>> This central exchange point is called the [grand market].
>>
>> 8.      The [network administrator] is an entity responsible issuing
>> currencies following a contract.  It could be a community foundation,
>> chamber of commerce, group of market makers, etc.  It manages electronic
>> account credit and debits and also trades scrip for electronic account
>> debits.
>>
>> 9.      All contracts require that the offerer complete
>> transaction comments within an agreed period based on the goods or services
>> specified in the ask bid.
>>
>> 10.  The network administrator can freeze accounts of those who do not
>> issue comments and/or investigate negative comments and resolve them as
>> appropriate in the membership provisions.
>>
>> 11.  The grand market set of exchange prices is set once per 24 hour
>> period to simplify administration of the participating networks.  For
>> example, the Grand Market would publish that LETSI currency A is worth 0.2
>> US dollars or 1 garden fresh tomato, 20 aluminum cans, 1.4 units of LETSI Z
>> (etc.)
>>
>> 12.  Any participant in LETSI A could fulfill a contract be delivery in
>> kind quantities of specified items to the network administrator (usually
>> US$), but could be pounds of canned goods for a local food pantry, etc.
>>
>> 13.  As an example, Say someone wanted to issue 1000 Bay Area Bucks (a
>> hypothetical network currency) to themselves in exchange for a large good or
>> service (an ask bid).
>>
>> 14.   There would be known ways to use those BAB units publicized and
>> supported by the network administrator (the catalogue) and the local network
>> would encourage advertising schemes.
>>
>> 15.  I would put my ask bid (1000 BAB) up for offer to participants in
>> the pool (the retailers, etc. would honor the bucks)...for, say 500 lbs of
>> concrete ready mix.  I might just as well ask to borrow 1000 BAB in exchange
>> for paying 20 US dollars every week for one year based on a standard
>> contract noted in the ask, or offer a coupon for 100 hamburgers of a given
>> type at my hamburger stand.  The list of asks would look very similar to a
>> micro credit site (e.g. Kiva or MyC4) or Ebay sales items, etc.
>>
>> 16.  The BABs would only be unlocked if (and only if) another member
>> accepted by confirmation online that the BABs I wanted for the good or
>> service were contractually agreed.
>>
>> 17.  The member offerer might offer fewer BABs (e.g. 640) for the
>> services or goods to the asker--in other words, there can be auctions.
>>
>> 18.  The asker then either choose to accept or decline an offer.
>>
>> 19.  Upon agreement, a contract is set (matched).
>>
>> 20.  The network administrator automatically issues network currency to
>> the account of the asking member.
>>
>> 21.  The asking member who now has a credit to an account can go to a
>> central facility to trade e-currency for scrip (essentially an ATM).
>>
>> 22.  The grand market allows movement of liquid commodities and
>> currencies between local exchanges at daily set rates.  E.g. BABs to US$,
>> ounces of silver, BABs to other LETSI currencies, etc.  The simplest model
>> would be US$ but a range of grand market trades would likely quickly arise.
>> A central foundation would manage the grand market.
>>
>> 23.  It would be straightforward to add charity or microcredit systems to
>> this framework where a special rate of scrip could be moved to a charitable
>> account, for example, in exchange for a credit card debit.
>>
>> 24.  The key supporting systems would include the catalogue of asks, the
>> bank accounting system of e-accounts, the scrip tracking system, the grand
>> market system, and ancillary tools like charity systems, microfinance
>> systems, etc.  However, most things could be handled as a variation on
>> the central catalogue system.
>>
>>
>> Ryan Lanham
>>
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