Framework for a bitcoin-based global monetary system

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The Global Currency Report is developing a comprehensive framework for building a new global monetary system based on bitcoin or other decentralized software currency. Provided here is a list of the core principles as well as our initial thoughts on the system design and transition. 

For background on the motivation of this new system, see our previous posts, especially:  Bitcoin banking - everything will change, no deposits neededThe market will create a decentralized currency and Bitcoin notes will deliver bitcoin to the world. 

Core Principles

Design of the new monetary system should be driven by the following core principles:  

Competition: Foster competition between currency issuers and between banks and alternative custodial methods. 

Stability:  Include mechanisms to stabilize the value of currencies and manage operational risks.       

Property Rights:  Promote every individual's ability to control his or her digital money directly.   

Growth:  Reduce transaction costs and promote global economic integration.  

Individual Protection: Protect individuals from economic harm caused by profligate governments and predatory financial institutions. 

Flexibility:  Facilitate the issuance of currencies that reflect the unique needs of issuer and users.   

Security: Include mechanisms to address local and systemic security threats.  

System Design

The new system is comprised of three components: a Base Currency, Note Issuers and Collaboration. 

Base Currency

The market selects a decentralized software currency to serve as the Base Currency for the new system. There are three critical features of this Base Currency:

1) Decentralized:  It must not be feasible for any small group or organization to control the Base Currency. Software changes should be adopted based on super-majority, voluntary consensus. 

2) Good user experience:  The Base Currency must have a user friendly interface such that individuals are able to easily control their money directly without any form of third party intermediation. It is not necessary that the Base Currency have all of the features of a centralized currency, but it must be a viable payment option. 

3) Global:  The Base Currency must be accepted by merchants throughout the world. 

Note Issuers

It is expected that most transactions will be conducted in Notes that are exchangeable into the Base Currency, rather than in the Base Currency itself. 

Any creditworthy entity, public or private, can issue a Note in this system. The features of the Notes are driven by market demand and the objectives of the issuers. 

Governmental bodies issue Notes to replace existing fiat currency. The primary objective of these Notes is to promote a healthy economy within the governmental region. These issuers will maintain a stable price for the currency by adjusting the supply of the Notes. Highly creditworthy countries will be able to hold less than 100% reserves of the Base Currency. These Notes could include features to serve other governmental purposes, such as identity, taxation or voting.   

Private entities issue Notes as a marketing, fundraising or arbitrage tool. These Notes could include any feature that is in demand by the market, such as an attractive user experience, merchant deals or financial returns.  

The market will drive the success of each Note issuance. The exchangeability into Base Currency will provide liquidity and support to new issues.  The Notes may be centralized or decentralized depending on market demand.   

Coordination

The success of this system depends on the ability to achieve the Core Principles.  A commitment to decentralization itself will drive many of these principles, including Competition, Property Rights, Individual Protection, Flexibility, and Growth. 

Coordination will be required to achieve other goals, including Stability and Security.  Risks such as attacks on the Base Currency, system failures due to infrastructure problems and use of the Base Currency for illegal activity will need to be managed through cooperative efforts while maintaining maximum decentralization.  

Governmental monitoring of transactions in the Base Currency for valid security reasons should occur directly, rather than through the banking system.  

Transition

Transition to the new system will require a large amount of transactional activity in two areas - deleveraging of the banking system and conversion of old currencies to new.  It is critical that all interested parties, public and private, start to plan for this transition now to ensure an orderly process that is stable, efficient and fair. See We are all short bitcoin. Cover needed.

The markets will continue to push towards this system regardless of coordinated design. If governments wait too long to participate in this design, they risk putting themselves at a competitive disadvantage in the future market for Notes. They also risk causing significant economic harm to their citizens by delaying currency conversion.

The first steps in this process are inquiry and debate to build consensus support for a coordinated plan and the creation of a level regulatory playing field for software currency.    

Inquiry:  The initial focus should be on research to assess the potential societal and economic benefits of a decentralized software currency based monetary system.  We should be measuring the potential benefits of competition, property rights and individual protection and critically questioning the continued use of the current system. 

Level playing field:  Governments should not restrict use of software currency by giving monopoly protection to banks or their own currency. For example, banks should be allowed to issue accounts denominated in software currency, and software currency should be treated as currency for tax purposes if the taxpayer in fact uses it as currency.    

Project

The Global Currency Report is developing this new framework for purposes of assisting in the transition to a better global monetary system. We would like to collaborate with and assist all interested parties in this process. 

Contributing:  If you are passionate about building a better monetary system with software currency, please ask us about contributing to the project. 

Collaboration:  If you are working on a similar project and would like to compare notes or partner, please let us know. 

Consulting:  If you are an organization trying to plan for the future of money, we'd love to help. 

For more information contact Shane Hadden at shane@globalcurrencyreport.com.  

 

Photo Credit: Alex Wong on Unsplash