From: rah@shipwright.com (Robert Hettinga)
Date: Thu, 4 Apr 1996 21:12:27 +0800
To: cypherpunks@toad.com
Subject: e$ Signorage
Message-ID: <v02120d0aad88ab66941d@[199.0.65.105]>
MIME-Version: 1.0
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At 3:50 PM 4/3/96, Hal wrote:


> Or do you mean that people who receive
> ecash will not want to deposit in their bank accounts, but just turn
> around and spend it?

Yes. Or maybe even invest it there. I was just finished a little 800 word
blurb for Wired's Idees Fortes section on, (guess what?) "Geodesic
Capital", which talked about just such a scenario.

I believe money which is never redeemed back at the bank is called
signorage in the currency biz.  Whatever signorage *actually* is, Kawika
Daquio of the ABA (B for "Banking"), the Fed makes $20 billion a year on
it. Not much against a trillion dollar federal budget, but, hey, every
little bit helps...

Stuff that doesn't get returned also useful for other stuff, like the
reputation of the currency. When was the last time someone went in and
cashed in their dollars for gold, or silver, at the Fed? It's legally
impossible now, but the French did it until Nixon stopped it by floating
the dollar, in the early seventies, if you remember, and it used to be done
by normal people all the time. Pierpont Morgan had to bail out  Presedent
Garfield?, Cleveland? with a European treasury bond flotation because there
was a run on the treasury at the turn of the century.

> I will point out that with regular currency, most merchants who receive
> it just deposit it at the bank, save for a bit passed out as change.

Unless, of course, they're in Russia (remember the money plane?), and other
places. That's where that $20MMM comes from, I think, but I'm not sure.

> Supermarkets don't actually take the cash their customers give them and
> hand it to their suppliers.  They deposit it and pay with checks.  So
> the "life cycle" of a $20 bill is pretty much from the bank, to the
> customer, to the merchant, and back to the bank, only to repeat the
> cycle.

Maybe I'm talking about net balances on the net. e$ in circulation overall.
I'm really starting to stretch here, you can tell. My guess is in the old
days before book-entry stuff like credit cards, and even pervasive checking
accounts, cash had to be more physically robust, because it probably stayed
out longer. Remember those old double-eagles? Gold is certainly durable.
More probably people just exchanged worn-out bills for cleaner ones, but
that meant that the money stayed in cash.

> Ecash, it seems to me, is already able to circulate to this
> extent, although of course it is not yet widely used.

Indeed. On both counts. :-).

If my WAG about digital cash certificates eventually replacing demand
deposits comes about (my claim is that they'll eventually be cheaper, and
maybe more secure someday), then money would tend to stay on the net.
That's when I figure we'll have actual e$-currency. On the other hand, one
of the best deterrents against someone cracking or stealing the bank's key
is to "expire" your currency issues, so there might be some "rolling over"
of the the money on the net, expecially if it's anonymous. Just like they
traded in worn-out bills in the old days.

Hmmm. As usual, I seem to be loosing my wiggle room here. Welcome to
quibble-punks. ;-). (Me! Not you, Hal!)

Cheers,
Bob Hettinga

-----------------
Robert Hettinga (rah@shipwright.com)
e$, 44 Farquhar Street, Boston, MA 02131 USA
"Reality is not optional." --Thomas Sowell
The e$ Home Page: http://thumper.vmeng.com/pub/rah/