[118387] in Cypherpunks
Re: b-money economics (fwd)
daemon@ATHENA.MIT.EDU (Jim Choate)
Sun Sep 26 16:23:52 1999
From: Jim Choate <ravage@einstein.ssz.com>
Message-Id: <199909262011.PAA31018@einstein.ssz.com>
To: cypherpunks@einstein.ssz.com
Date: Sun, 26 Sep 1999 15:11:35 -0500 (CDT)
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Reply-To: Jim Choate <ravage@einstein.ssz.com>
> Date: Sun, 26 Sep 1999 12:06:50 -0700
> From: Steve Schear <schear@lvcm.com>
> Subject: CDR: Re: b-money economics (fwd)
> At 05:00 PM 9/25/99 -0500, you wrote:
> >> Mints or third party foreign exchange services will probably do
> >> most of the buying and selling. (Private foreign exchange is
> >> inconvenient and high risk).
> >
> >Mints don't make profit, they're not a business.
> Actually they do. Its called seigniorage. In 1997 the U.S. Mint made $40
> billion: the difference between the face value and the cost of manufacture.
Actualy they don't. Seigniorage is the difference between the face value of
a coin and the value of the metal backing it. It works like this, at the
beginning of my year I have so many g's of gold and I print the appropriate
amount of money to cover it at so many grams/$. As the year progresses the
total value of the commodities (including my gold) changes. This causes the
value of that g of gold to change. It's a form of inflation and is one of
the reasons the US money isn't backed by metal anymore, it can destabalize
an entire economy if somebody starts playing the metal market (remember a
few years ago what happened to the silver market when a couple of brothers
got too big for their britches?). The reality is that the difference isn't
real money but rather the result of not being able (or not wanting) to have
to reprint the money itself each time it goes through a bank or other
exchange institution with its current value in g's of gold (in other words
yesterday your $1 was worth $1.01 and tomorrow it's worth $.99, the cost of
keeping the actual value printed on the money is exhorbitant). So, what used
to happen is that each day you had to say how many g's a dollar was worth,
the problem with this approach is if you have a faster hook into that
exchange rate you can inflate the value of the gold intentionaly and devalue
the market. Since US money isn't backed by metal (even the coins themselves,
examine the silver content in a quarter) strictly speaking seigniorage doesn't
apply. What is actualy happening here (and what is meant by the term now) is
the difference in what the money represented when it was printed and as its
been used over that period to make the market grow. This represents the growth
of the market (total value of the exchanges, not what was exchanged) over that
period the money is in use. Further, the mints don't get the money the US
Treasury does, very important distinction. It represents a return on investment
of the original money spent by the government obtained from the previous years
for managing the market, they do a good job the total amount of exchanges
goes up. Besides, if this was truly important we wouldn't need taxation since
we could fund the government directly off the increase in value of the total
market (as time progresses the total value of commodities in a market gets
larger, or the market goes bust). The problem with this approach is that if it
is a significant portion of the market it injects inflation which devalues the
money making the perceived profit less than its face value however large the
market grows.
> >Foreign exchanges don't MAKE money, they EXCHANGE it.
> Actually they do. The bid-ask spread is different depending upon who you
> are and how much you are exchanging in a single transaction. For those
> exchanging values greater than about $1 million they get the narrow
> inter-bank rate. Those exchanging progressively less get progressively
> wider spreads, not infrequently paying spreads and fees totaling in excess
> of 5% of the amount converted, when compared against the moer favorable
> interbank rate. In the banking business these smaller transactions are
> actually called nuissance transactions and treated appropriately. Money
> center banks in the U.S. routinely make over 40% of their profits from the
> foreign exchange desks.
Actualy they don't. That's intereset and tax, not profit and it's not new money
but rather a cut of the profit caused by the difference in value across the
markets. Let's say I have three markets; US $'s, German DM's, and Japanese
Yen. By watching the market I find that if I change my US $'s to DM's and
then change the DM's to Yen I can actualy get more US money back when I
exchange the Yen to $'s again. Is that money that I or the exchange made? No.
It's the loss of value from the other two markets. The money I make in the US
market is because I've taken value from the other two markets. The same thing
happens if I trade only two specie, say $'s and DM's. I buy so many $'s of DM's
at the beginning of the month. At the end of the month I trade the DM's back
and because of a difference in exchange rate I get more US $'s then I put in.
Did I make money? No, I actualy took value out of the DM market. It's
possible to crash a market by this mechanism if the trade in specie is
unregulated. It's one of the reasons Communist China and Iran prints $B's of
counterfeit each year. If they can devalue the US market it makes the
perveived value of their market increase and they can benefit by it in
obtaining other resources that they are currently priced out of.
In neither of your examples is money actualy made, it's value moved from
one market to another (in the first case it's the difference with respect to
time (a d$/dt) and the other is with respect to distance (d$/ds)). Oh, and if
I could go down to the local 7-ll and use the DM's directly then this wouldn't
work. A primary characteristic of this income mechanisms is isolated markets.
When/if we ever get a one world economy this will go away and these entities
will have to find someplace else to make their money. b-money seems to need a
one world market to work because if the value of that basket of commodities
(And who owns the basket by the way and how do they get paid? What happens if
the commodities are perishable, say a truck of tomatos or pigs? And how does
one audit the b-money market?) is different in different markets then my
b-money has problems if I want to spend money based on a commodity here over
there (where the equivalent basket would have a different b-money token value).
We're right back to the $1 equals $1.01 with respect to two tokens with the
same value printed on them.
____________________________________________________________________
Error of opinion may be tolerated where reason is left
free to combat it.
Thomas Jefferson
The Armadillo Group ,::////;::-. James Choate
Austin, Tx /:'///// ``::>/|/ ravage@ssz.com
www.ssz.com .', |||| `/( e\ 512-451-7087
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