The following is an intro to how a digital, demurrage-based monetary system would be structured in an arcology.

See Also: How Finance works in an Arcology

See Also: Digital Currency Overview in Youtube

Because our current debt-based banking and currency system incentivizes short-term investments and disincentives the long term and leads to an economic system that demands endless growth, regular money is not compatible with the needs of an arcology.

Instead, we envision a more advanced, fully digital monetary system that’s fine-tuned to the needs of a steady-state economy that values quality over growth. The currency would not be a cryptocurrency. Instead, it would be run on a cluster of 3 to 5 different computer stacks, each coded and tended by a different democratic corporation. The stacks would each be fed identical inputs in the form of commands such as: ‘move 5 credits from purse A to purse B’ and would be expected to produce identical outcomes. If a stack produces a different outcome from its peers, then it is removed from the cluster, repaired and restarted. This makes it easy to spot problems and makes the system very hard to hack. Yet unlike a cryptocurrency, it remains centralized, and under the authority of the arcology’s government, which will have the controls needed to manage the economy. The same software stack can be used to run other systems, like the proxy-based voting system and a system of automated contracts that would underpin financial transactions.

The digital currency would have several properties that are starkly different from conventional money. I summarize them here and then go into more detail in the notes below.

The first difference is that the systems described below would be used to ensure the value of the money remains stable. An apple that costs one credit today would still cost one credit 50 years in the future. This makes it easier for people to plan and invest, by eliminating the variable of inflation.

The second difference is the concept of real-time cashflows. A cashflow is a formal financial instrument, represented digitally, and connects two purses like links in a network. In near real-time (on the order of seconds), a trickle of money flows through the cashflow between the purses. For example, if you take a job, a little bit of your pay would flow into your purse roughly every second. Cashflows are incredibly powerful. They can be insured, traded as fungible instruments, and they eliminate the need for interest bearing principal for financing, and thus the need for banks entirely. This makes borrowing money far more affordable.

The third difference is demurrage, and the ways in which money is created and destroyed. With demurrage, a small trickle of money, equivalent to a few percentage points of the balance annualized, is constantly removed from every purse, like with a cashflow. The money goes into a pot, controlled by the arcologies ‘monetary authority’, an organization tasked with regulating the currency, which is then redistributes the pot evenly to every purse held by a private individual. Before the money leaves the pot, the total size of the pot can be adjusted slightly (money can be created or destroyed) in order to maintain the money’s constant value. It can also be thought of as a form of progressive wealth redistribution that is built directly into the monetary system itself. The rate of demurrage can be adjusted, much like a central bank’s interest rate, in order to regulate the economy. Another way that the monetary authority can opt to create money, and one that will be important early on during the startup of the new economy, is by creating money through the foreign exchange system when people buy credits for hard currency. Demurrage disincentives hoarding and incentives lending and economic activity, since money that sits still incurs a penalty. It also flips the script on net-present value, making longer-term investments appear more desirable and discouraging short-term profit seeking.

Notes

Purse

  • Every individual and corporation has only one digital purse
    • sometimes also referred to as a wallet (though I prefer purse for brevity and history)
  • A purse can be considered a node in a network, with incoming and outgoing near real-time cashflows connecting it with other purses.
  • A purse has some automatic cashflows in and out
    • out:
      • Demurrage, proportional to the amount in the wallet.
      • Taxation
    • in: redistribution of demurrage, spread evenly across the wallets of all citizens.
  • Types of wallets
    • Resident: only type of wallet that receives proceeds from demurrage
    • Corporation: the executive can assign certain people or systems to have access.
    • Visitor: for someone physically visiting an arcology
    • Supporter: restricted in trading activity to donations to aspects of the arcology and its institutions. See Funding Through Donations

Value

  • Value is expressed in the form of Credits or Cashflows

Credit

  • Fungible unit of digital currency
  • design to hold its value indefinitely
  • Discrete: the atomic value is 0.0001
  • Kept in digital purses, owned by individuals, updated every few seconds.
  • you can xfer blocks of credits from one purse to another at any time
  • There’s a redistribution stream in, and a demurrage stream out of every purse.
    1. these streams are separate from any taxation streams, and are controlled by this central-bank type org.
    2. natural redistribution of wealth, like the hydrological cycle: demurrage is removed, from personal and corporate wallets as a percentage of the balance, redistribution is even across all personal purses, but zero into corporate purses.
    3. by default the total demurrage = the total redistribution, but this balance can be manipulated, slowly reducing or increasing the money supply.
    4. market stagnation can be fought by increasing the demurrage rate, thus lowering the ‘durability’ of money, and encouraging people to spend and invest.
    5. A market growing too hot can be pulled back by decreasing demurrage , thus lowing the incentive to invest, and making credit harder to come by.
    6. The stated goal will be to roughly maintain overall price stability.
      1. perhaps a constant ratio of people to credits, say 100,000 per person, but then adjust the money supply to account for true increases in productivity, or restrict it to account for increasing prices of raw inputs, to avoid both inflation and deflation.
      2. IE: the price of a pair of pants should be roughly the same now and 100 years from now.

Cashflow

  • A steady flow of credits out of one purse and into another, backed by a contract with set terms.
  • Being part of the same system as purses purses, cashflows update in near real-time. With small quantities being transferred every few seconds.
  • A unique instrument (guid)
  • Core Attributes
    • parties: payer & payee (owner)
    • amount in credits
    • rate in credits / day, but expressible in months or weeks in the UI
    • Start Time (day)
    • duration in days, but expressible in months, weeks or years in the UI
      • Use days as the core duration in the database, because there’s fixed # of days in a year, while there are a variable number of days or weeks in months, making the meaning less clear.
    • guarantee (nullable) (reference to a contract)
  • Payer and Payee re-assignable at any time, given the proper signed contract.
  • Changes to core attributes requires mutual consent of both parties

Derivative Cashflows

  • An owner can subdivide a cashflow and offer them to others, as the payer. Thus you can spend a cashflow in the form of other cashflows.
  • Cashflows can be subdivided into sub-cashflows of the same (remaining duration) by the payee, without the consent of the payer. (Payer doesn’t get to know about sub-cashflows)
  • If a parent cashflow is guaranteed, derived cashflows inherit that guarantee.

Cashflow Guarantee

  • Is a contract that can be attached to a cashflow, signifying that a 3rd party guarantees the cashflow.
  • Identity of a guarantee is a contract, linked to the cashflow.
  • Guarantees are automatically enforced and are associated with the guarantor’s wallet, so the instant a credit-event occurs, the entire of the cashflow beings streaming out of the guarantor’s wallet, and the guarantor receives a notification.
  • Any individual or corporation may attach a guarantee, but the reputation of the guarantor would be a critical consideration to the payee being offered a cashflow.

Cashflow Swaps (basically Bonds)

Simple Swap

  • Is a standardized type of contract.
  • is essentially a time-delayed cashflow swap
  • Issuer asks for a cashflow now, an in exchange for a different, repayment cashflow that begins on a future date.
  • The consideration for the swap holder is the difference in value between the cashflows.
  • Repayment is automatically triggered at the completion date of the swap, unless the issuer declares a bankruptcy.
  • Note the repayment cashflows can be stamped with guarantees, thus making the swap guaranteed and thus fungible, since buyers would only need to consider the terms of the swap, and would not need to be concerned about the reliability of the seller (ie the party who has to pay it back).

Complex Swap

  • the conditions of triggering the repayment cashflow depends on specific terms agreed upon by the issuer and the holder.
    • for example repayment is dependent on other parameters, such as the issuer meeting certain financial milestones. This would be useful for supporting startup companies, but the swap would not be fungible.

Swaps Trading

  • Since they’re standardized, there would be an online marketplace for trading simple swaps. This would be very similar to the swaps marketplace you see on forex platforms today.

Cashflow Swaps Marketplace

  • A cashflow swap is a standardized contract that can be offered and accepted in a swaps marketplace.
  • Cashflows of different terms can be traded, thus allowing people to exchange amount for duration etc…
  • a swap is an offer to sell or buy a cashflow for value.
  • For example: I’ll request to sell a cashflow: $50K/yr for 10 years, and in exchange I want a cashflow that completes in only 5 years.
    • A market maker may look at the request and offer 95K/yr for 5 years. Thus pocketing 5K/yr for themselves.
    • The requester would review the offers and select the most favorable one, and the swap would then automatically be transacted. The market maker would then become the owner of the original cashflow, and would then create a new cashflow where the market-maker is the payee and the requester is the owner.
  • Alternatively, a requester can place an offer instead of a request: 50K/yr for 10 years in exchange for 100K/yr for 5 years. This is less likely to get filled, but if someone happens to like the offer, they can simply accept it.
    • This would allow actors in the market to deal directly and bypass market-making middlemen.

Misc Notes

  • All these instruments are managed from a smartphone or website or api, and update at 1 minute intervals.
  • All financial activity is tracked and logged, but subject to strict privacy restrictions, need for search orders etc…
  • Algos to flag suspicious behavior get access to the whole economy, but the results/reporting are highly restricted/classified.
  • Purchases and sales of Credits to external currencies are particularly watched, in order to spot money laundering.
  • To run it all, see Software Server Stack

How is the Money-Supply Controlled?

  1. the Arcology will have a department, acting as a sort of central bank, that will be responsible for the stability of the money supply and regulate the speed of the economy.

How is money created and destroyed?

  1. created (if needed) when people buy credits with hard currency
  2. created (if needed) when paying out demurrage redistribution
  3. created (if needed) and put into the arcologies government budget.
  4. destroyed (if needed) when collecting demurrage.
  5. destroyed (if needed) from collected taxes.

What gives the money value?

  1. the arcology pays out in credits to all of its employees and for all of its contracts.
  2. the arcology demands credits for taxes, fees, mortgages and apartment rents.
  3. companies and individuals borrowing in credits, are motivated to repay them, so it would partially be a debt-based currency.
  4. Demcos may only pay their employees who are residents of the arcology, in credits, not in any other currency.
    1. Demcos must pay taxes in credits
  5. In the forex market, the arcology will buy credits for hard currency.