energy as money

Creating money out of tangible assets is nothing new. The idea to use energy as the basis of capital is novel, and this is the first project i've seen that tries to show how this might work.

If you already have Kilowatt Cards to Authenticate:

Kilowatt Cards are gift cards that pay for 10 kilowatt-hours of electricity in any home utility account (including all taxes and fees) when REDEEMED here. The cards can be redeemed by anyone to pay for household electricity worldwide. Since they can be used to pay for anyone's electricity, they can also be used to barter for other things - resulting in an international store-of-value (assets) and a stateless medium-of-exchange (electricity).

To prove that a Kilowatt Card is real and active, enter the last six digits of its serial number in this form. If the number is active, two new digits will be returned that should be written on the card by hand, forming the end of a new six-digit number, while the first two digits are cancelled. The method creates a new serial number every time, while the old number is cancelled. So nobody holding a Kilowatt Card can use copies of it, since all copies will have a cancelled serial number after any one of them has been AUTHENTICATED

This way plain paper cards can be traded widely, yet proven real by anyone with access to the internet, before they accept it.

He talks about this as a gift card, but has language of "store of value" and "medium of exchange". yes, we're talking about money here.

Despite the roughness of this project (his authentication process probably doesnt inspire trust), it's a great idea and one that could be expanded upon. he's trying to implement it in a way that gets the project off the ground quickly, and is a worthy experiment to illustrate how a money supply, oops, i mean gift card supply can be created.

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added 5/26
"The system has been operational since July 2007, when we gave away about 10,000 kWh (1,000 cards) at a Rainbow Gathering in Arkansas. Only 60 kWh of those have been redeemed so far.. The total amount in circulation today is about 30,000 kWh." - bob (founder of kiowatt cards)

Medium of Exchange's Economic Effects

Nicaragua just released a new note, with a curious high rate of velocity:

For Nicaraguans, New Currency Is a Hot Potato:

In a country accustomed to surprises from its government, Nicaraguans received another curiosity on May 15 when they awoke to find that the Central Bank, moving in the night as stealthily as the Tooth Fairy, had snuck a new legal tender into their economy while the markets were sound asleep.

The new bills, printed on a peculiar plastic-like material in an unfamiliar size and adorned with never-before-seen designs, are meant to replace the old, ratty paper bills that cause germaphobes to collapse in conniptions every time they are handed change. The problem is the new bills were slipped into the economy without any public awareness campaign and minimal forewarning. A week after the plastic money was let loose on the economy, the Central Bank still hadn't updated its website to indicate that the new bills even existed.

As a result, most people didn't know what to think when they were suddenly handed a new plastic 10 or 20 cordoba bill, the lowest denominations of Nicaraguan tender and therefore the most commonly used. "This looks like European money," says one taxi driver, in a voice hinting pride, as he twisted and creased the bill in cruel defiance of its seemingly indestructible space-age properties. Others have described it as "play money" or complain that its gloss makes it "slip through my hands."

Most of the criticism, however, seems to indicate an underlying lack of confidence and trust in the government. There are many who remember the first Sandinista government's inventive monetary policies and the resulting mega-inflation of the 1980s. As a result, some people are now treating the new plastic dinero as if it were a hot potato. "Many people don't want these bills because they think they are valueless and they're going to get stuck with them, so they're spending them as fast as they can," says clothing vendor Fabiola Espinoza. It has unintentionally created a bizarre stimulus effect on Nicaragua's beleaguered economy. "As soon as I get one of the plastic bills, I try to pass it on right away to someone else," says shopkeeper Gloria Romero.

The most immediate trouble with this new medium of exchange is that people are not recognizable. as per wikipedia for Medium of Exchange:

To be widely marketable, a medium of exchange should possess the following characteristics:

1. transportability
2. divisibility
3. high market value in relation to volume and weight
4. recognizability
5. resistance to counterfeiting

Because people dont recognize it, and are not sure that it is a good store of value, they pass it along. Stimulating the economy in the short term, the decrease in trust can cause both political and economic trouble down the road.

I dont have access to the now 2 year old economist article, but among the "cash is dead" hubris, the study proclaiming how people spend 20% more when they use a credit card, rather than cash, even when there is no liquidity constraint. The Economist wants consumers to spend more and get more into debt, so this is viewed as positive by the editors of the Economist.

back to the article:

The public's suspicion of the new bills has been validated by serious legal concerns by economists and opposition lawmakers. Several legislators have pointed out that the new bills were printed without the signature of the Minister of Finance, as required by the country's Monetary Law, effectively making them fake bills. "These bills are illegal and worthless and should only be used to play Monopoly," says opposition legislative leader Wilfredo Navarro. "President Daniel Ortega is a counterfeiter. That's the level things have gotten to in Nicaragua these days." The lawmaker, a member of the legislature's Economic Commission, says "any serious government" would immediately recognize the error and recall the money. But so far the Sandinistas aren't budging.

Instead, government officials have responded in what has become the Sandinistas' standard reaction to criticism: triumphalism mixed with personal attacks. Sandinista lawmakers have accused Navarro of "economic terrorism" for questioning the bills' legality, and Central Bank president Antenor Rosales dismissed the criticism as the complaints of rich people "who are more accustomed to using debit cards and checks and don't care about the people." Said Rosales, "The Central Bank is profoundly satisfied with the excellent reception that the bills have had with the Nicaraguan population. Everywhere in Nicaragua the bills are being used."

Rosales defended the legality of the bills, insisting that legislation passed in 1995 gives the Central Bank "exclusive authority" to mint and print money. The number of signatures that appear or don't appear on the money is not important, he said. Critics, however, argue that the Central Bank's exclusive authority doesn't give it creative license to invent new styles of currency that stray from the technical specifications laid out in the Monetary Law. "The government couldn't just start circulating cacao beans and say it's currency like the indigenous did," says economist Nestor Avendano. "They have to respect the law."

Ah, the medium is the message. Of course recognizability is important. people forget how trust is built up in these mediums. I find it telling how the treasurer's guaranteeing signature is important.

With loss of expression in the treasury control, no wonder people are less likely to trust it. Creating money overnight without proper controls can cause a devalue a currency as a store of value (inflation). Pity the people in these coffee shops dont understand that the devaluation will probably be in all of their national money supply. But at least they're smart enough to understand there's possibly a scam going on.

Community Currency Magazine

CC Magazine is the most readable, comprehensive, and professional magazine i've seen documenting the current wave of community currency development. their online blog MainStreetCash.org is worth a full browse if you're an information seeker on the subject, including case studies and white papers.

The International Journal of Community Currency Research is where you want to go for your more academic research. it's another excellent resource.

Rounding out my personal list of top sites is the Community Currency Resource Center.

Please comment on other sources to share this wealth.

time banks

There's been several Hour Currency's the past few decades, perhaps most referenced in america, is Ithaca HOURS. Ithaca HOURs popped up during the early 90s recession (ie, during economically stressed times), and was implemented as a closed and anonymous paper currency.

Time Banks are not all implemented this way. A more modern medium is to do this via the web. Time Banks offers online software to help communities keep track of the hours they share together. As with all other currency efforts i've seen, it's richly steeped in a value system that believes in social equality (note the social justice jargon all over the place on their website).

Interestingly, because their is no monetary value placed on these exchanges, the IRS does not tax transactions. It's placed more in the category of gift economy. perhaps it's a bit of a grey area, as it's a tightly reciprocal gift economy (different than the pay-forward true giving value system of currencies like the giving coins i've blogged about).

I quite like these value systems these groups put forth, though i question their effacy in getting larger economic circles involved in trade with these mediums. Most business and economic spheres are steeped in a division of labor culture that values hours unequally, based on perceived value to the buyer, and what the market price is (ie, the value to the buyer is always higher than the price in the market place, which does sound a bit unfair, doesn’t it?). also, it's a bit hard to measure other forms of capital (like goods) as "labor capital". while it intellectually makes sense, it even makes my own brain hurt a little bit to overload labor with capital. I can see why these social justice people believe there's a conspiracy against labor when power (ie capital) is defined as something that it's not.

anyhow, this floating exchange rate between people's exchangeable hours makes me think about the exchange rates between multiple community currencies and possible private business scripts. I struggle a bit with the loose lexicon of this subject. Changes in community exchange rates (with dollars or other currencies) would basically result in community pay raises or pay cuts (when they are selling their labor/goods), and community buying power increases or decreases (whey they are buying from outside their community system.

This power sharing story already plays out geopolitically between nation-states. I can hear the time hour community railing against the economic injustice of whole groups of people trapped in a currency that relegates their whole nation to sweatshop activity. I cant really blame them for going to the opposite extreme of equality for all. A noble effort, though would need some innovation to bring it out of the fringe.

Derivatives as Money

Throughout this financial crisis , intellectuals have struggled to re-define our understanding of money. To understand currencies, one must investigate how money is used as reserves (to deal with the redux bank run issues), debt based money mechanics systems, and the new financial securitization innovations over the past 20 years, including securitized debt (for example CDOs), and their financial grease: derivatives (credit default, interest rate, and currency swaps).

The Liquidity Pyramid
Much speculation lately focuses not so much on what the stock market will do (the answer to that should be self-evident, especially once shorting stocks again becomes a practical reality), but what the impact of recent economic policies will be not just on inflation (regional or global), but also on that most sacrosanct piece of paper, the U.S. dollar.

In order to approach this question from a different angle than the conventional theoretical wisdom of Quantitative Easing being the end all be all explanation for the mid- and long-term fate of the U.S. currency, an approach that has much more practical credence is that presented by David Roche of Independent Strategy, which demonstrates overall liquidity, defined as claims on goods, services and assets, as an inverted pyramid.



At the bottom of this pyramid is the power money of reserve cash - liquidity created on the balance sheet of central banks. As noted, it accounts for a mere 1% of global liquidity, and thus the impact that the Fed and other world central banks will have with existing policies that address merely this aspect of liquidity will be, at best, massively muted. Above this is the liquidity bank loans liquidity, created through the conventional credit multiplier mechanism of commercial banks. Above that still is the liquidity created by securitization of debt. This experiment, gone horribly wrong, allowed claims on illiquid assets to grow further relative to the reserve money in the system. This is precisely the layer that the Fed and Treasury are trying to revive with the various TALF iterations, so far unsuccessfully. And at the very top of the pyramid is the layer of interest rate and credit derivatives: a means whereby institutions were able to maximize claims on physical and financial assets, by insuring against losses, without increasing precautionary reserves either of capital or reserve money.

In order to fully understand currency and price movements, one has to realize that the securitization of debt, and creation of derivatives amounted to a huge virtual printing press, primarily fueled by a massive increase in risk appetite which allowed for a huge expansion in the value of claims on financial assets and goods and services. It is worth pointing out, that the Fed has little to no control over this "printing press" at this point, which at last count was responsible for over 90% of the liquidity in the system.

Show me the money

In a fiat currency system, as previously pointed out, money is nothing more than a claim on assets, goods and services, and, most dangerously, money created at the top of the pyramid, in electronic form or otherwise, is just as real as the coins and physical dollars held at the basement of the Federal Reserve. The propagation of money higher in the liquidity pyramid explains why all traditional measures of money supply are not only inadequate but likely flawed: orthodox measure of money supply only include the first two pyramid tiers and completely ignore the major ones at the top. This is a major problem as analysts and economists who rely on these traditional "money metrics" only get a glimpse of 7% of the global liquidity in circulation. As for the the balance? The effect of creating an overabundant supply of money (that was not figuring into any monetarist policies) was that the price of money fell relative to assets, commodities and goods, services and labor. Therefore not only did generalized price inflation accelerate, but so did the increase in asset prices as well as the 6 year commodity bull run over the past 6 years.

The comments on this subject are a lively discussion on how to define money supplies. Considering that derivative securities are often treated as equivalent to money (for example, the notional value of derivatives are recorded on balance sheets), I tend to think this author is on the right track for understanding the mega topics of inflation and deflation.

Modern finance is largely about translating value from one medium to another, and if you want to touch all the parts of the world financial elephant, including how people treat securitized assets is crucial.

Open Money Foundation

Guillaume from San Francisco is developing a non-profit to push forward a set of standards for interoperability of complimentary currencies.

Considering Guillaume’s been developing APIs (application protocol interfaces) for the banking industry, and the fact he’s been collaborating with the founders from the LETS initiatives (mutual community credit systems) I believe that he’s got a great chance of making forward progress. Bring forward these complementary currency political philosophies with rigorous technical experience is going to bring this non-profit effort quite far.

Consider what he's been talking about this month on his blog:

Open Money Foundation update and logo

The Open Money Foundation is gathering interest.

I’ve discussed the idea to a variety of people in the last few weeks, ranging from virtual world developers to Web developers, community currency activists and gold currency advocates, and there is a strong agreement towards a very focused and simple goal of currency services interoperability.

This simple goal has to be viewed as a first and necessary step to realize the larger vision of Open Money or free currencies. In particular for community currencies, another cornerstone are economically-driven adoption models such as Community Way.

Open Money Foundation mission

In a nutshell, Open Money Foundation should define the OpenID of currency services:

Open Money = a set of open interface specifications designed for adoption that governs the interoperability between independent currency services and client applications.

Note that this is not restricted to community currencies currencies. We think World of Warcraft virtual gold coins, phone airtime minutes, digital gold currencies, Linden dollars or any virtual currency can benefit from this interoperability. Conversely, we think that community currencies will benefit from the participation of virtual/game/alternate currency providers.

A currency service that complies with Open Money Foundation specifications will enable the following benefits for end-users:

• automatic discovery of currency services on the Internet.
• one click currency registration request: users will be able to very easily request to join a currency service from their favorite currency application (”wallet”?).
• single view of all currency balances: users will be able to view all their balances at various currency service from their favorite Open Money-compliant currency app.
• transacting on any currency service from any Open Money compliant app.
• starting a new currency on an existing currency service will be as easy as starting a group on Facebook (this is specific to credit currencies such as community currencies)
• and more.

The goal of these specifications isn’t to re-invent the wheel. There are many open specifications to leverage to address some of the problems above (OpenID, OpenSocial, OAuth, OFX) and some currency systems already leverage these.

An important aspect of the suggested focus is to not focus on implementation but only on interfaces. In the case of a currency service, implementation is for instance how creditworthiness and credit limits are determined, or whether interest or fees are charged. An interface is simply: how do I request to the currency service a demand for credit. There are many advantages to focus on interfaces not implementation:

• We don’t get into the philosophical discussions of what is a currency, what are its characteristics, etc.
• We can each focus on our area of expertise: some on client applications that make it easy for users to use the currency, some on server scalability, some on currency design, etc.
• We leave an opportunity for implementers to differentiate themselves and address various community requirements, either as a generic platform with a currency definition language or as an ad-hoc currency service for a specific community, either as a not-for-profit, or for profit.

Besides offering a forum for the development of these specifications, the Open Money Foundation will channel funding for the development of an open source reference implementation that everyone can at least use to test their own implementation, or build upon.

I’m looking forward for feedback on this topic. If you like these goals and are interested to participate in a way or another, please comment.

micro-payment community currency blend

Seems that intellectuals and community innovation leaders are considering the new micropayment startup called tipjoy to implement community currencies for affinity and geographic groups:

Tipjoy.com, a possible home for CraigBucks

Douglas Rushkoff is a guest blogger. I spent a bit of time trying to convince Craig Newmark to develop an alternative currency with me for use, initially, on Craigslist called CraigBucks. Although he (perhaps wisely) has decided that it might be better for such a thing to arise independently of Craigslist proper, that hasn't stopped me from looking at how to take everything that works so well about transparent, local currencies (specifically, those of the LETS variety), and apply them to non-local communities with shared values.

The main trick is to have a currency that - unlike dollars, which are lent into existence by a bank - is instead worked into existence through an exchange. One person in the system is willing to be debited for what he gets from another. And everything stays completely transparent. Eventually (like in a file-sharing system) a person taking but not giving ends up in too much virtual debt to acquire more goods and services without finding something to do or trade with someone.

Coincidentally, then, I came across TipJoy, a pretty robust little system through which people can pay each other "tips" via the net, or even Twitter. Tie the TipJoy system to an alternative currency database instead of dollars, and the system should be able to work. The more transparent it is, the more people will be able to determine just what the unit of currency is worth to everyone else.

And as "Winston" suggested we call them over in a discussion at Rushkoff.com, why not call them NewMarks?

Tipjoy just recently announced a competition to get people to write to their new API. I'm quite interested in what comes of this!