“The future of Money” Whitepaper

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“The future of Money” Whitepaper

By: BitSpan

It is inevitable that the global monetary system will change in the near future. Global credit imbalances which led to unnaturally low interest rates in developed countries are the root cause of the 2008 financial crisis. These have not abated and have increased in intensity since then. The present international monetary system is unsustainable and must adapt to the information age in order to ensure prosperity and growth for all humankind.

Introduction

We now have the technology to create a new information era monetary system that can lead to a more prosperous world, increase personal freedoms, increase the importance of democratic government institutions and decrease opportunity inequality. We can also eliminate or greatly reduce the impact of fiscal evasion and financial cheating in societies.

Debt is the first concept that must be overhauled. No one expects a nation state to repay its debt, but only to pay the interest on it - the cost of debt. In fact, if the United States were to repay its debt, the implications on interest rates and global money flow would be tremendous. It is radically different from debt a person would contract to buy an asset. In that sense, debt, for the individual and the bank, is what we call money. Contracting such debt is the root of money creation. Government debt, on the other hand, accumulates in an exponential fashion with interest rates regulating the acceleration rate. The rate of depreciation, or inflation rate, makes debt repayment possible for individuals and institutions.

The current monetary system is complicated, obscure and is not well understood by the great majority of the population. Control over money creation is indirect and inadequate, as the great recession has proved. The cost of money cannot always be regulated in such a way that would promote economic growth, restrain asset bubble creation and limit inflation to a low but positive figure. There is a way to do achieve the same goals more efficiently while at the same time having positive externalities for all society – such as radical cost savings and friction-less transactions.

Debt

I propose a major fundamental change in monetary operations and origination, while at the same time keeping the existing institutions and ensuring continuity. This change does not redistribute wealth, it only permits adequate monetary adaption to the new era of massive global growth and of global cooperation, the information age.

We now have the technology. A blockchain based national cryptocurrency, directly created, controlled and operated by the central bank, which keeps its independence from elected officials will permit friction-less trading by all participants with transparent transactions. This centralized ledger will also permit real time monitoring of the economy as a whole through data mining and analysis.

Money creation is done directly by the central bank. It now directly control the price of money, the interest rate. Banks now place reserves/assets directly at the central bank in exchange for funds and can still leverage themselves in order to create loans. The leverage ratio, or potential rate of growth in the economy is also directly controlled by the independent central bank.

The banks no longer create money through debt by the process of extending loans to institutions, individuals and governments. They extend the same loans but acquire the loaning capital by depositing reserves at the central bank, which then creates money through cryptocurrency operations. The implications and consequences of this system are immediate.

Not only does the central bank regain the ability to properly control the price and flow of money creation, society as a whole gains from enormous positive externalities. There is no longer a need for complicated fiscal laws and reforms. There is no longer a need for specialized lawyers and accountants. Much of the “red tape” is eliminated, fraud and abuse are critically restrained and there is a major reduction in systemic risk to the system from large institutions. Although banks are free to seek profit, they no longer have absolute control over the creation of debt.

Individuals and Business

Although all major transactions between banks, governments and the central bank are recorded on the central Blockchain, individual transactions are not. Personal and business operations are routed through the existing bank network and there is no major direct change in everyday life. Since all money is now cryptocurrency (“on chain”), all secondary transactions not directly related to the central bank and bank operations are conducted “off chain”. These “off chain” ledgers are operated by the banking sector much as operations are conducted today, and the individual or business sees no difference in day to day operations.

Cash-less society

One of the major implications of this change is the transition to a cash-less economy. There is no more need to hold traditional paper money or coins, since it is now possible to secure money through cryptography. All transactions and holdings can now be completely digital. It is virtually impossible for such money to be copied or altered in any way, shape or form. As the whole world becomes connected to a decentralized network, the internet, it is now possible to implement this digital solution to modern economies. Cash economies are relics of a bygone era. Welcome to the future. The future of money.

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