Re: Why emoney? Why not a web of debt?

[davidm@iconz.co.nz (David Murray)]

>> Date: Sat, 21 Jan 1995 15:18:48 +1300
>> From: davidm@iconz.co.nz (David Murray)

>> The best way to underpin the value of ecash is for the issuer to (credibly)
>> undertake to convert it into real money.
>
>  And since I would only make the promise to the few people that I am
>connected to in the debt-trust web, this is doable.  I doubt I could
>convince all of you that I was good for $10, but I bet there are a few
>readers on this list that I *could* convince.  They would be able to
>convince a few others that _they_ are worth $10, etc.

But this, I suggest, is thinking too small, as well as (or, as a consequence)
compromising anonymity somewhat. Which is not to say a central ebank is
necessary -- just that (legally enforceable, audited) IOUs from a corporation
that I knew could pay (because it makes it's living from being able to pay)
would be preferred by me, even if I (my computer) knew that Alice's IOU is
backed by Bob's which is backed by ... Zane's, who I would trust with my
life (since he saved me in a boating accident 7 years ago...).

Of course, the two systems can/should coexist. In fact, they're probably the
same thing at different granularities. An ordinary bank takes deposits
(issues IOU's to depositors) and lends the money out (collects IOU's from
debtors). [The flow of credit is just the flow of debt backwards -- like
current and electrons :-)] People trust bank IOUs because of the portfolio
of IOUs it has collected (a certain mandated number from the Government, 
a certain proportion backed by property etc), and, probably, because it
has received more IOUs than it has issued (so that the IOUs from Donald
Trump and Orange County don't bring the system down...).

On this analysis, the web of debt-trust is just an ultimately distributed
bank. Instead of the bank collecting the ten dollars everyone is good for
(in return for IOUs) and then lending it back out to the system (in return
for IOUs), everyone's individual IOU underpins the system. This seems to
leave the portfolio problem to the distributedness and interlinkicity of 
the e-economy (everyone essentially holds the market portfolio), or up to
the individual to balance. Personally, I would be unhappy to hold my
e-wealth in such a way that it was ultimately underpinned by the IOUs of a
group of people living in California...

>  This system might even dodge the laws governing banking in various
>jurisdictions ... though I doubt it.  It quacks, waddles, and water
>runs off its back...

I don't think the banking laws are such a big problem. [Feel free to 
enlighten me.] The ordinary business of banking involves borrowing money
from people in a special way (deposits) and lending to people, again in
a characteristic way. But it is not simply borrowing and lending -- every
business does that (borrows from banks, and, increasingly, in markets;
lends (extends credit to) customers).

Imagine a corporation that issued bearer bonds, and invested the proceeds
in t-bills (or term deposits, or call accounts). Imagine that the bonds 
(IOUs) were issued at face value, carried no interest, and could be cashed
in by the holder at any time. Imagine further that the bonds were repres-
ented by bytes, and transferable anonymously. That is, the bonds are 
ecash, and the corporation is an ebank.

But it is not a bank-bank. It is not borrowing money in a characteris-
tically bankish way, and it is not lending the money in a characteris-
tically bankish way. It doesn't raise the regulatory/consumer protection/
handholding or multiplier effect/credit expansion problems that
(supposedly) underlie banking supervision regulations. In short, ladies
and gentlemen, it is my submission that it is not, in fact, in the final
analysis, when looked at from all angles in the correct way, at all, a
duck.

Cheers.

D

[Although this doesn't entirely answer your point. I don't think the 
distributed/web of debt-trust system would be a bank, either, although
it might be a credit union. And you would have to pay tax on all those 
IOUs you collected ;-) ]