Monetary system joins the dead pool?

The current monetary system is based on fiat currencies that have no real value beyond the productivity they represent.  In fact, the central bank’s money system is not much different than big media in that those who control it produce nothing. Rather they simply facilitate the transfer of payments and control the available supply of the exchange medium, and manipulate the system for their own gain. Just like big media, the overseers of the world’s money systems have used this control to take advantage of those who produce the material work that currencies represent.

From deficit spending and lack of oversight by regulators to the over inflated fees to process payments, the overseers are accelerating the demise of the old money system. It has only continues to exist because it has been an a means to more easily facilitate trade than barter. With the internet as the great equalizer, the beginning of the end for bankers could be growing near. Considering the lack of good stewardship, the financial system may have become too much of a liability to compete with the open exchange the internet can provide.

A good example of how the monetary system interferes with commerce is in the unreasonably high transaction charges associated with payments. While doing business and trading online has vastly extended the reach of businesses and consumers, the cost of processing payments may be the single most limiting  factor. Online purchases include a hidden banker’s “tax” of 2.5 to3.5% just to process the payment. If you’ve ever wondered why micro payments have never taken off, consider this: In addition to the hidden tax, every transaction carries a fee, typically around 35 cents.

So if Joe the musician wants to sell you his song for 50 cents instead of a buck, he’ll only be making money for the payment processor. For this reason, the micropayment by barter exchange may be the beginning of the end for the old monetary system.

One possible answer to central mint vulnerability is bit gold — a currency the value of which does not depend on any particular trusted third party. Another alternative is an object barter economy.

The key ideas of this nanobarter scheme are

(1) the stuff to be traded (in Tahoe, disk space for backup) is represented by digital barter certificates (same protocol as digital cash, but every node is a “mint” that issues its own barter notes), and

(2) default barter order and an agent (”market translator“) that translates user behavior into barter orders. In the disk space economy, the default barter order might be to simply do a periodic barter that backs up N gigabytes of other peoples’ disks in exchange for N gigabytes of their own. Many more sophisticated barter orders are also possible.

If the reader is familiar with Menger’s account of the origin of money from barter, this scheme is quite in the spirit of his scenario — except that we reduce the transaction costs of barter by brute force automation instead of by making everybody choose a single currency.

The transaction log and accounts are presented to the user in terms of a “pet currency”; the market translator automatically converts all different kinds of barter note prices into their pet currency values whenever prices need to be presented to the user.

Every computer on the network (called a “node”) runs a “mint” that issues “currency” (barter notes) backed by its commodity (e.g. disk space). In a simple system all disk space barter notes are treated as equivalent. Or there might be L different currencies corresponding the the L different kinds of leases in Tahoe. (In Tahoe a certain amount of disk space on a foreign disk is “leased” for a certain period of time). Indeed, a barter note is simply a lease in bearer form — it can mean “I promise to bearer to provide G gigabytes of disk space for D days”, or whatever the terms of the lease is. (Unenumerated)

Just like big media using the internet as  boogeyman claiming it is destroying artists’ incomes, look for big government and big bankers to respond similarly to online barter.  The current global recession is a direct result of governments spending and borrowing too much and overseeing those who would game the system too little. With a fix of creating even more money to prop up the fortunes of those who created the problem, the solution is making things worse through a rapid decline in the value of the currency with all avaible currency covering losses rather than funding growth. Peer to peer systems of exchange will have problems, but will certainly do better without all of the central control and “oversight”.