How Currency Systems Work (a Money Map)

Transaction Net: How Currency Systems Work (a Money Map)


What is Money?

Money is an agreement

The agreement may be voluntary or coerced, conscious or unconscious, and may fluctuate with time or remain fixed.

within a community

All kinds of communities–large and small; local, national, international, or virtual; cooperative or competitive–may create such an agreement.

to use something as a
medium of exchange.

The money itself can be issued en masse by a central authority or created ad hoc by two consenting parties in a mutual credit system; it may store value or merely mark transactions; it may be backed or valued with something tangible or merely by the issuing authority; and it may take any shape–coins and bills, some chalk marks on a blackboard, or bits of data inside a computer.


Design Characteristics of Representative Currency Systems

A growing number of currency and payment systems, each oriented toward different social and material incentives, are available for use today.
The most appropriate one for any given transaction will depend on the needs and objectives of those taking part in the exchange.

We present here an overview of the design characteristics of some representative currency systems, all of which are explained in further detail in our glossary of important terms and concepts and under discussion in The Money Conference.


Social Implications of Currency System Features

graph: columns=  scarce vs. sufficient x  rows= backed vs. fiat currencies

  • Fiat money requires by definition an Authority (a Central Bank, in the case of national currencies) to be issued and to keep its value.
  • Backed currencies can be issued by whoever owns the commodity or service which backs the currency.
  • Scarce currencies will tend to induce competition among participants.
    All our national currencies are created by interest-bearing bank debts. They are scarce because:

    1. “Debt money derives its value from its scarcity relative to its
      usefulness.” –Jackson and McConnell, Economics. (Sydney: McGraw-Hill, 1988.).
    2. currencies created by interest-bearing debt generate a negative sum game
      among participants (see “The Eleventh Round”).
  • Sufficient currencies (not to be confused with overabundant inflated
    currencies) are exemplified by mutual credit systems such as LETS and
    Time Dollars, which are created
    as a debit and credit by the participants themselves at the moment of a
    transaction and thus always in sufficient supply. They are therefore more compatible with gift economy- like social bonds.
  • Currencies that store value (such as any commodity-backed currency, including electronic forms of it such as E-gold) encourage hoarding, and therefore competition.
  • Currencies with demurrage charges discourage hoarding and thus encourage transactions and cooperation among participants.

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