From: eric@remailer.net (Eric Hughes)
Date: Fri, 18 Nov 94 22:26:01 PST
To: cypherpunks@toad.com
Subject: Re: Islands in the Net
In-Reply-To: <9411182243.AA59456@elfbook.intercon.com>
Message-ID: <199411190624.WAA01721@largo.admate.com>
MIME-Version: 1.0
Content-Type: text/plain


   From: "Amanda Walker" <amanda@intercon.com>

   Hmm.  I had thought about using "valuable," but that seemed too ambiguous.  
   "Negotiable" maybe?

The standard word for something that is worth something is "value".
If I sell you a promissory note, I exchange value for a note.  That
value can be in the form of cash, money on deposit, or even other
notes.

Negotiable means something else entirely.  A negotiable instrument is
an instrument that can be transferred with certain protections over
and above the transfer of a normal contractual obligations.  The
requisites for negotiability are, basically, those that make the
instrument suitable for sale in a secondary market.  The instrument
must be in writing (not oral).  It must be signed.  It must contain an
unconditional promise or an order for a particular sum of money and
must contain to other promises, orders, etc.  It must be payable to
order or to bearer.  The exact details may be found in your standard
commercial paper review guide.

   > Sometimes currency represents a fiat value, as with today's greenbacks. 

   It's not entirely a fiat value; in effect, it's backed by the
   strength of the economy.  

Backing specifically refers to the relationship between the currency
and the issuer of the currency.  A fiat currency means that the
government created the currency by fiat, i.e. out of the blue.  A
dollar may derive value from the underlying economy, but it is not
backed by the economy, since the economy is not an entity.

   The difference between a ruble and a
   dollar was not the fiat value (they were the same, as I remember),
   but in the fact that it was a lot easier to exchange dollars for
   real assets.

Both rubles and dollars are fiat currencies, yes.  The dollar is a
relatively well managed currency and the ruble was not.  Therefore the
dollar was in greater demand than the ruble, and hence easier to use.
The difference is entirely in degree.

   For the record, I think that going off the gold standard was a bad
   idea, but growing up in the days of double-digit inflation probably
   gave me a biased opinion of floating currency.

Well, when you finance a war with an inflating fiat currency, that
leads to price increases.  Inflation is a tax which the government
does not need the IRS to collect.  Thankfully the foreign exchange
markets now quickly penalize any country that mismanages its currency
supply.

   While it has been somewhat eroded since the start of the Drug War,
   dollars are still exchangable for real assets, even though the
   government is no longer backing them directly.

The USA gov't, howeve, is backing the dollar still; it's just not
backing the dollar with specie (gold and silver metal).  The reason
that Confederate dollars are no longer valuable as money is that the
Confederate government no longer exists.  A fiat currency is backed by
several properties of active governments: legal tender laws, income
taxes paid in the national currency, procurements, etc.

   > What currency do Visa or Master Card issue, perchance? 

   Little plastic tokens that are accepted more places than the government's 
   paper and metal ones.  If it quacks like a duck...

A credit card is not a currency.  It is a means of payment.  Not all
means of payment are accomplished through currency.  One does not say,
for example, that checks are a currency merely because I can pay for
things with them.

Eric