From: Bill Stewart <stewarts@ix.netcom.com>
Date: Sun, 24 Mar 1996 05:44:45 +0800
To: Gary Lee Jeffers <gjeffers@ns.htc.net>
Subject: Re: (X:x)e$ 's other use
Message-ID: <199603232131.NAA10965@ix9.ix.netcom.com>
MIME-Version: 1.0
Content-Type: text/plain


Hi, Gary - actually this comes up every 3-6 months.  There are
some fundamental problems with the using e$ as a new currency.

At 02:33 AM 3/22/96 -0600, you wrote:
>e$ would be a sound money replacement for the corrupt currency that
>every large state in the world currently pushes. Especially if e$
>can be redeemed in something of real value on demand.

E$ is a fine medium for exchanging certificates of whatever it is you're
trying to certify, just as paper with pictures of dead politicians is.
Printing paper is easy, and it's easy to add lots of zeros when you do.
Printing 1s and 0s is also easy, and there are plenty of zeros out there.
Digging shiny malleable ductile yellow metal out of the ground is harder.

The tough part, with all these media, is getting somebody to give you
real stuff in return for a certificate that claims to be worth 1000.
The three basic ways certificate-issuers have done this are
1) Guarantee that they'll give you stuff or services in return
2) Convince a lot of people to exchange stuff or services for them,
        so you can usually redeem them without going to the bank
3) Threaten to beat people up if they don't accept them.

Method 1 works if people trust you and you've got stuff to sell.
Subway tokens and postage stamps have been used as money because
most people want to ride subways and mail letters, and the
subway and mail-carrying companies were big enough that you'd
expect to be able to redeem them before the companies went out of business
(or you moved out of town), so you can spend some money safely.
Note that this method works both for stuff you have on hand,
like shiny metal, or for services you're promising to do later
and will have to get resources for.

Banknotes work because well-behaved banks only issue enough
promises to deliver shiny metal to cover the amount of metal they have;
if they start making more promises than they can deliver on,
the market gets annoyed at them and people stop accepting their paper
in return for goods and services, and stop giving them shiny metal
in return for convenient paper, and Method 2 fails for them.
But if banks keep their promises, people trust them, and they make money.
This works both in free markets and in government-controlled markets.
As long as the banks are _honest_ about their policies for issuing notes,
it doesn't matter if they're doing fractional reserve or printing
the stuff outright; you can decide how much to trust them,
or whether to do all your transactions with shiny metal.

Method 3 you'll recognize.  There'd be nothing wrong with the Federal 
Reserve if they only used methods 1 and 2; individual consumers can
decide whether to trust them not to print a lot more zeros than they should.
And they don't have a monopoly on currency - there are some kinds of
taxes that apply to some private currencies, but you can go into the
average bank today, ask them to write a cashier's check to someone
(and probably still to "bearer"), pay them, and they'll be happy to do it
for only a small commission, and American Express will do it as well.
And people will take their paper, though in the case of traveller's checks
it's sometimes a hassle to accept on an occasional basis.

On line, of course, it's tough to use metal as a way to pay people,
so technologies like e$ are necessary.  




#--
#			Thanks;  Bill
# Bill Stewart, stewarts@ix.netcom.com, +1-415-442-2215 pager 408-787-1281
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