Review of content of workshop sessions entitled, "Towards Real Exchange", by SEEL-Systems Engineering Economics Lab, sponsored by Agence Presse Européenne (APE) 5th December, 2020.
Below we report on the afternoon session: 14:30-18:00.
Summarized by Nevit Turk, APE Economics correspondent.
In the morning session the concern of the central bank and banking community with "digital currencies" was reviewed including the indecision as to whether these represent an advantage or threat to their modes of operation. The one-sized fits all financialized monetary policy is failing because there is an obvious bias towards supporting the interests of a small faction of asset holders while the majority of the constituency faces increasing challenges to their wellbeing. Indeed, Mervyn King, the former governor of the Bank of England stated that QE had favoured the financial services industry.
Exchange quantities and purchasing power
Between 1971, effectively, and 2020, central banks have not concerned themselves with the trade-off between the quantities of money and its purchasing power for those employed in the supply side productive sector. This is made possible by the admission that monetary policy is not fundamentally concerned with circulating funds but is more concerned with the rise in non-circulating funds tied up in assets. So when monetary policy decisions are announced the language is exceptionally carefully crafted to give the impression that money volumes relate to the money in people wages and pockets, or even company investments. But, in reality an Orwellian double-think needs to be applied to decode the utterences to confirm, based on the evidence of policy outomes, that they are in reality talking about funds that will not be circulating because they are destined to be locked up in speculative assets. The risks for asset holders remain low as long as the central banks keep pumping money into the system. This is worse that the old Soviet system where government doled out funds to industries that had produced output. Under QE government are doling our cheap money to a rich clique for not producing anything. On the other hand, the majority of the constituency faces the instability referred to by Nakomoto in 2009.
The Bitcoin solution combines an independence from central banks and stepping off the ever increasing money issuance machine to a system where the number of units of the medium of exchange has an eventual fixed upper limit. In the case of Bitcoin this is fixed at 21,000,0000 Bitcoins (rounding up from a slightly lower number).
The exploding value of Bitcoin as an asset means the "price" of each bitcoin is rising to multiples of its original quote. However, the exchange items like pennies are "sats" (short for satoshis) which are one hundred millionth of a Bitcoin. So 0.0005 of a Bitcoin is 50,000 sats which at today's Bitcoin price in dollars is equivalent to $10 (approximately).
The Bitcoin's distributed and non-centralised system is secured through the secure blockchain protocol of immutable real time adjusted record keeping which is able to confirm existence of Bitcoins used in transactions which can be executed within split seconds and incurring very low transactional costs.
Of course, Bitcoin is not the only way to arrest growth in the number of currency units. The Real Income Approach or, RIO-Real Incomes Objective, is a non-digital basis for achieving similar results see, "RIO and Bitcoin". Here the focus turns to productivity that results in lower unit costs and unit prices so results in an enhancement in the value of the currency which might start out as a fiat currency. By limiting money injection the same scarcity effect can result in a rise in the purchasing power of the currency. However, here the driver is not assets but rises in productivity arising from learning and innovation. RIO policies combine policy instruments that provide incentive based on compensation bonuses linked to the contribution of companies to real incomes.
The productivity gap
Monetary policy drives funds into assets and depresses investment in processes in the onshore (national) economy, that could introduce gains in the form of higher productivity. Indeed, the weakening of fiat currencies and resulting depression has been intensified by QE-induced falling real wages and increasing income disparity. As a result, under Covid-19, the majority of the national constituency is unable to purchase bare sessentials without additional help. Since most people are in the same situation it is therefore necessary for government to provide necessary assistance. QE's destruction of savings and the ideological agenda, aiming to reduce the role of the state, imposing "austerity" using the excuse of paying down debt, has undermined the wellbeing of the whole national constituency except for a very small faction. This emerging economic paraticism, intensified by monetary policy, has hollowed out the supply side economy and population's resilience.
This problem is not addressed by Bitcoin because, as can be observed, what was originally considered to be an ideal transaction medium for buying and selling goods and services has become an asset resulting in a withdrawal of Bitcoin from circulation just as in the case of QE funds. This is why Bitcoin has become just another speculative asset amongst many. The performance of gold against Bitcoin indicates Bitcoin has become a preferred asset but this rising asset portfolio investment only reflects the decline in the value of fiat currencies or rather a falling confidence in monetary policy.
The significant problem for policy makers and monetarists, and even Bitcoin buffs, is that they do not really know where funds have ended up or who owns them or the assets that have withdrawn money and bitcoin from circulation. The government and financial regulatory authorities also have no reliable data.
Moving out of depression with tag and traced money
REX or Real Exchange is a form of a Bitcoin but where the ledger traces location of funds in the sense of tracing ownership and use of funds. Rather than use a block chain, REX uses an Accumulog first identified in 1985 within an internal development initiative on advanced IT applications within the European Commission's innovative Information Technology Telecommunications Task Force (ITTTF). The oversight logic is based on Locational-State Theory developed under the same initiative.
The additional and exciting aspect of REX is that it is intended to drive a productivity wave making use of a range of short term incremental fast pay-back innovations identified through applied decision analysis (See, "A constitutional economic policy - Part 7, Designing a sustainable future - Step 1"). This is quite the reverse of Keynesian "public works" and "infrastructural investments" designed to generate employment but in reality providing no effective payback in terms in innate rises in productivity and sustainable real incomes. Such investments, like QE, simply kick the structural problems of the economy down the road.
REX will be supported by a range of policy instruments from the Real Incomes School that provide positive incentives for companies to take up free REX funds (no banks are involved) on the basis of an obligation to use them to raise productivity, lower unit costs and unit prices and to raise employee wages so as to deliver a package that raises the real incomes of wage earners and the coporate owners and shareholders.
It is well worth noting that this system is a results-based reward system linked to productivity which moves the economy away from the Soviet style centralization under QE which represents a cash cow scheme for political parties and their benefactors, financial service industry executives. Under this emerging approach developed by RIO, resources assignment rests fully in the hands of corporate managment, but, policy contains policy instruments that provide a strong incentive for them to implement genuine changes that deliver better productivity and price setting in a way that benefits all.
One of the most exciting impacts is that funds are unlikely to end up in speculative assets because the value of the currency is either stable or rising even without any savings. Interest rates where applicable within the REX segments of the economy would be determined by savers and their preferences in supporting causes or hard investments according to the degree to which they wish to facilitate the activities concerned.
The more interesting dimension to this revolutionary approach to the economy is that there exists a real time oversight in extreme detail of the REX segment of the economy the issues of corporate privacy are not an issue because the incentive policy instruments are stacked to ensure compensation for innovation is high and the applicable business rules make REX-operated companies progressively more competitive than those chosing to remain in the increasingly financialized but failing economy.