Alex and I have been building on the work, started within Critical Thinking, on tokenisation and have published three papers this year.
2020 COVID19: Plunder and Population Reduction Internet Archive
2020 The End Of The Age Of Plunder Internet Archive
2020 Structures and Money In Transition Internet Archive
Our discussions and exploration have extended into the realms of global banking, digital technology and telecommunications and we’ve been engaged in the Digital Currency Global Initiative (DCGI), a collaborative effort involving the International Telecommunications Union (ITU) and Stanford University.
We have just submitted the following document on the Taxonomy of Money for discussion among the DCGI working groups on Policy, Architecture and Security – it is a rather technical document and needs to be expanded into a more comprehensive paper that explains some of the technical aspects to a lay audience. Nonetheless, much of it is expressed in plain language.
Digital Currency Global Initiative DCGI-PG-I-064 – Taxonomy of Money
Taxonomy – Definition
A scheme that partitions a body of knowledge and defines the relationships among the pieces. It is used for classifying and understanding the body of knowledge.
Why is taxonomy so important?
The methodology of the taxonomy of money is analogous to that which underpins the creation of the periodic table of chemical elements. Prior to the creation of the periodic table, Fire, Water, Air and Earth were the four classes used to describe substances or phenomena. These four classes were based on visible, general properties leading to a classification that was too broad and too general to be of value when describing reality in relation to particular compounds or chemical reactions; hence the need for the granular classification of basic elements in the periodic table.
Common, current perceptions of money fail to accurately describe what money is, being too general to describe money in its creation and exchange. Hence the need for a taxonomy of money.
From this taxonomy, we’ve created a spreadsheet (very much work-in-progress) which is used to classify the attributes of different currencies past and present and what planned central bank digital currencies (CBDCs) may look like and how they may behave. Two significant realities emerge from our work on this taxonomy of money
- Nothing like this already exists – in the document we explain why current “taxonomies” of money such as those from the Bank of International Settlements (BIS) and the International Monetary Fund (IMF) don’t fulfil the ISO definition of taxonomy.
- CBDCs are far less developed than we may have been led to believe and, currently, essential technical specifications and interfaces with the global financial infrastructure have yet to be fully defined or agreed, let alone implemented.
Furthermore, the taxonomy we’ve created shows the relative immaturity of existing cryptocurrencies in terms of their potential sophistication and development.
The analysis provided by the Taxonomy of Money opens up the possibility of dialogue within the global financial establishment on the merits of endogenous money described in the paper. Endogenous money is money that is created as part of human activity, such as Bitcoin mining. It is endogenous to those mining Bitcoin but exogenous (ie. external, provided by a third party) to those using Bitcoin. Similarly, bank created money is endogenous to the business of banking but exogenous to all users of the banking system, ie. customers – governments, businesses and people.
*Crucial understanding: The lack of the ability to create endogenous money has skewed the balance of production and services because exogenous money (money created externally, by a third party) incentivises the maximisation of exchange value at the expense of satisfying human needs. The short-side principle tends to limit creation in order to maximise the exchange value.
Exogenous money, i.e. money that must be obtained from an external source, is only available for human activities that can demonstrate a clear, future exchange value. All investment, into projects and enterprises, is subject to evaluation by criteria such as return on investment (RoI) and discounted cash flow (DCF). The projected returns need to exceed the cost of capital, in addition to providing sufficient profit to remunerate those involved in the activity(ies).
The time value ascribed to exogenous money exacerbates the plight of those wanting to create and exchange because the cost of capital is increased by the rate of interest charged in proportion to the time for which the capital is needed. There is often criticism of “short term thinking” which is an inevitable consequence of interest on money.
Empirical evidence shows the distortions that arise from interest on money, creating inequality while discounting our future.
The following are the conclusions we’ve arrived at.
The Digital Currency Global Initiative (DCGI) arises from the need to respond to structural changes, currently underway, driven by clear indicators that existing global money systems are straining to achieve economic stability and fairness, while technological innovation is creating new forms of money which offer the potential to both address stability issues and aspirations expressed in the Millennium Development Goals (MDGs).
“The seventeen Sustainable Development Goals are our shared vision of humanity and a social contract between the world’s leaders and the people,” said UN Secretary-General Ban Ki-moon. “They are a to – do list for people and planet, and a blueprint for success.”
Despite these aspirations, current money systems have given rise to the Human Paradox – “Humanity versus the Few”, i.e. current money systems are effective in satisfying the ambitions of the MDGs only for the few. Today’s political economy is a game of relatively few winners and many losers. For example, Oxfam reported in January 2019 that just 26 individuals own as much wealth as half the world’s population, i.e. 3.6 billion individuals.
The Sun doesn’t orbit the Earth…
Section 5 (Why we need money) refers to the obfuscation of the complexity of value creation, capture, storage and particularly exchange that led to humans focusing on the value of money itself, rather than on real value of human activity. Money is supposed to serve us, we shouldn’t be the servants of money. Other means to create, capture, store and transfer value, that avoid the negative incentives created by the obfuscation of “the real value exchange issue” paradigm, should be considered.
To date, inadequate, expensive capture/transfer value mechanisms have evolved, resulting in the primacy of exchange value maximisation which marginalises the use value of human activity. This is of significance to the concept of stablecoins. Rather than relating these to currencies or other commodities, their relationship to human activities should be considered.
The Policy, Security and Architecture working groups need a shared understanding of the fundamental nature of money in order to be able to deliver on the aspirations and promises of monetary development, within a framework of robust architecture and governance. Effective governance relies on having sufficient visibility of all the elements and their interactions to be able to achieve its goals. Taxonomy illustrates the importance of all the elements and the role of governance. Open architecture is solving complex problems in addressing the dynamic evolution of requirements; a similar approach will be invaluable for effective governance.
The visibility provided by taxonomy will facilitate greater user control and confidence in their ability to detect deception.
Most of all, taxonomy suggests that endogenous money has a role to play in the delivery of a durable monetary environment that serves the needs of everyone, not just the few.
At the start of the conclusion, we refer to existing global money systems are straining to achieve economic stability which is something of an understatement. Critical Thinking and others have been anticipating economic collapse for some years and we alerted people in the summer of 2019 to the probability of what is now unfolding. This conversation between James Corbett and John Titus explains the gravity of the situation in clear terms.
John Titus on Central Bank Digital Currencies
A tectonic shift is taking place in the monetary paradigm right now as central banks around the world gear up to shift us into a system of central bank digital currencies. Joining us to break down the history, context and ramifications of this idea is John Titus of Best Evidence.
While central banks have plans, as revealed by the Taxonomy of Money, they aren’t anywhere near ready to be implemented and events are likely to overwhelm and negate them.
However, what the taxonomy reveals is a way out of our predicament – by creating money that serves us all, rather than the few, we can both avoid or at least mitigate the effects of depression and open up economic participation to everyone on the planet.
Money, like Pixie Dust, relies on faith and trust. While confidence in centralised money will soon evaporate, the possibility of Pixie Dust for all, i.e. endogenous money is a realistic possibility that can deliver us from the jaws of disaster.