Re: Currency based on Energy

Date: Fri Feb 22 2002 - 17:04:35 MST

There are several problems with basing a currency on "energy". First,
energy is not all the same. Some forms of energy are more valuable
than others. Although different forms of energy can be interconverted,
because of conversion efficiencies they can have different values.

But more importantly, any currency based on a commodity like energy or
matter is subject to devaluation due to technological change. One of
the primary purposes of money is to act as a store of value. If you base
money on energy, and then we discover a new and cheap source of energy,
your money will suddenly have lost value compared to other things you
might want to buy. The same thing could happen if you base it on gold
or any other rare form of matter. In a nanotech era, carbon atoms may
become more valuable than gold atoms. Tying your money to one commodity
is going to make it a highly uncertain store of value.

Personally I think there is something to be said for fiat currencies in a
competitive environment, which is exactly what we have now. I hope that
eventually it will become practical for people to use other currencies
than their native one in commerce. I would like a choice of American
dollars, Swiss francs, Japanese yen, etc. This form of competition will
encourage each monetary authority to act responsibly, otherwise their
currency will be devalued and their operations will become more costly.

Competitive note issue has been analyzed in Bruce Benson's "The Theory
of Free Banking". Benson shows that allowing banks to issue their own
competing currencies produces a system which is very stable against the
threat of inflation while automatically adjusting the money supply.
While it seems unlikely that private note issue will be permitted
in today's regulatory environment, I believe that many of the same
conclusions apply in the international realm, where the various national
currencies compete with each other. Increasing the range of transactions
where there is a choice of currency to be used should further increase
the financial discipline and stability predicted by Benson's theories.

An interesting alternative form of money is Wei Dai's b-money system, It's almost too simple to
describe; in principle it is just a matter of everyone keeping track of
how much money everyone else has. Whenever there is a transfer of money,
this fact gets broadcast and everyone updates their databases.

B-money doesn't rely on scarcity of any commodity, or discipline on the
part of a money issuer. Rather, the collective behavior of the entire
society produces a consensus definition of how much each person has.
This gives the system a great deal of stability, resilience and fault

The b-money concept demonstrates how simple money can be. It obviously
has practical problems in terms of global access to databases but there
might be environments in which the necessary conditions could be met.

The important point in these conceptions of money is that it is
fundamentally a form of information. B-money shows that most clearly.
Money is not about atoms, it is about bits. Extropians should shun
old-fashioned views of money as based on material goods.


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