Why Public Service Credits are a Pure Digital Currency
It minimises the impact on resources and provides the public with checks on the government and the banks.
Currency may take a myriad of forms, but today it is generally found as a mix of three forms. The first is coins, which is a remnant of days gone by when commodities were used as currency. Coins gave us a standardised weight of the particular metal of which it was made, such as silver. Today, coins in wide circulation no longer reflect the value of the metal used to make them and there is no real difference between using coins as currency and using paper as currency since coins are no longer backed by the metal they contain. There are bullion coins, of course, but these are not in wide circulation. There really is no point today in making any currency out of metal since the value of the metal used is irrelevant. But we persist with coins because that is what we have done in times past. The second form that currency currently takes is paper notes. Paper currency is more convenient to carry and store than coins since it has less weight. As with coins, the value of the paper used is not relevant, and the important thing is what is written on the paper. The final form of currency is just a record stored in the bank. This is the form that bank credit usually takes. This form of currency is just a number that the bank enters into its customers’ accounts. All three forms of currency are legal tender and are interchangeable.
Currency should have minimal impact on resources in the economy.
I believe that in a true free market, resources are utilised in the most efficient manner possible and allocated to processes where they are really needed. I have previously defined money as a means of accounting and I have shown that exchange-based currencies such as Public Service Credits (credits) are just records used to keep track of who owes what. Thus it does not make sense, in a true free market, to use resources that could be better utilised elsewhere to do this accounting. Currency should have minimal impact on resources in the economy. Thus, Public Service Credits should be a purely digital currency. Credits just provide a decentralised record-keeping system, tracking what each person has contributed to other members of society versus what they have taken from them. There is no point in using coins or paper. In fact coins and paper would take away from the efficiency you would gain by using credits.
Public Service Credits Database
Recall that when using UOIs, the party from whom the UOIs are to be redeemed keeps a record of his transactions with the issuer of the UOIs, so that he can determine that the UOIs are valid. The relationship between the government and the public is the same. The public needs a record of the public services for which the credits were issued. The public appoints an agent to manage these records for them. This agent takes the form of an independent branch of government, since the government itself is a subset of the public. This branch of government would manage a credits database, which stores records for each credit the government issues. The records will simply state which credits were issued for any particular public service. The public service would have to have been requested by the public. If the public did not request a public service for which a credit has been issued, then that credit is invalid and the public has the right to reject it. This provides a check on the government.
Having a credits database where individual credits can be verified means that the credits themselves should be verifiable. As previously discussed, unlike bank credit issued by modern banks which is just a number, credits are tuples which have a unique identifier, a description of the goods or services for which the particular credit was issued, and the value of the credit. For a practical implementation, it may make sense to have all credits issued to have the same value so that credits can be just the unique identifier and the description of goods. This means that you can’t have one unit worth a hundred credits. If you have a hundred credits, then that means you have a hundred individual units each with its own unique identifier. This obviously means that you can’t do fractional reserve banking with credits. Fractional reserve banking would require banks to generate new unique identifiers, which obviously won’t be in the credits database because they were not created for any public goods, and therefore would be invalid. Banks would only be able to lend credits that they actually have. Thus, you have a check on the banks also. It is conceivable that banks would try to make a deal with the government as they have now, allowing them to do fractional reserve banking on credits. This should not be allowed under any circumstances. If necessary, it should be made explicitly illegal.
Payment System
Credits will be issued by governments to their workers and contractors. These credits will have to be paid into bank accounts, or at least paid into some kind of digital currency service most likely implemented by the banks. Thus in this new paradigm, the banks are no longer in partnership with the government to issue money. Instead, they are the first line of defence to make sure that any credits entering the economy are valid. Credits are valid if they were issued for public goods or services requested by the public directly or through their agents. Once the banks have done the first stage of verification, credits should still be verified by the payment system anytime they are used. You would have a payment system in place that checks the credits database using the unique identifiers of the credits during every transaction to verify that the credits being transferred are valid. This second check not only re-verifies the validity of the credits but also ensures that counterfeit credits, which may bypass the banks’ verification are not created and injected into the system. Notice that if you had interchangeable coin and paper credits, as we have with currency now, it would be difficult to have unique identifiers for all the coins and paper currency, and tedious to crosscheck these identifiers during every transaction.
You might wonder if we are at a point where a purely digital national currency is feasible. I think we are, especially given that credits won’t be the only currency in circulation, as we will see in the next article. For those that still prefer physical cash, there will be other options available to them.
