Debt money vs Bitcoin vs Positive money #openfest2015

1. New Money
Debt money vs Bitcoin vs Positive Money
Vladimir Dzhuvinov • @dzhuvinov • #OpenFest2015

2. Where Does Money Come From?
73% of people have no idea about how money is created
Survey: http://c2id.co/3

3. Game of Money
€$¥
Financial crisis is coming

4. The Rules of the Game
● People trade with one
another using Money
● Money == Medium of
Exchange
● People must borrow
every unit of exchange

5. The Central Bank Commercial Banks Economy
Creates initial money and
lends it to the commercial
banks
Offer credit and deposits
to the economy, facilitate
payments
Alice
Bob
Claire
Offer credit and deposits
to the economy, facilitate
payments

6. Role 1: Choose Central Banker
Ben Mario Ivan
Job: Set interest on seed money, try to keep
inflation at 2%

7. Role 2: Boss of Private Bank
Dick Bernie Ceco
Job: Multiply debt, cash huge profits, get bailed out
if your bank becomes insolvent

8. Role 3: The Economy
Job: Take on debt, then pay it back with interest
Alice Bob Claire

9. Let's Start the Game!

10. The Central Bank Commercial Banks Economy
The Central Bank
creates $100 and lends
them with 5% interest to
the Commercial Banks
$100Initial moneyTotals: $0Bank deposits $0Debt to banks

11. The Central Bank Commercial Banks Economy
The Commercial Banks
now have $100
available for lending
owes: $105, has: $100owed: $105
$100Initial moneyTotals: $0Bank deposits $0Debt to banks

12. The Central Bank Commercial Banks Economy
Alice borrows $100 with
10% interest to buy a
house from Bob
owes: $105, owed: $110 owes: $110, has $100owed: $105
$100Initial moneyTotals: $0Bank deposits $110Debt to banks

13. The Central Bank Commercial Banks Economy
Bob deposits his earned
$100 with the bank
owed: $105 owes: $105, owed: $110,
has: $100
owes: $110, owed: $100
$100Initial moneyTotals: $100Bank deposits $110Debt to banks

14. The Central Bank Commercial Banks Economy
The Commercial Banks
now again have $100
available for lending
→
Claire borrows $100
with 10% interest to buy
another house from Bob
owed: $105 owes: $205, owed: $220 owes: $220, owed: $100,
has $100
$100Initial moneyTotals: $100Bank deposits $220Debt to banks

15. The Central Bank Commercial Banks Economy
Again Bob deposits his
earned $100 with the
bank
owed: $105 owes: $205, owed: $220,
has $100
owes: $220, owed: $200
$100Initial moneyTotals: $200Bank deposits $220Debt to banks

16. Let's Pause the Game and Analyse
What has Happened!

17. $100Initial moneyTotals: $200Bank deposits $220Debt to banks
Deposits (Bob) $200
Debt (Alice+Claire) $220
Balance $ -20
● The $20 owed to the
Banks don't exist in the
Economy
● No matter how Alice, Bob
and Claire trade among
themselves, they can
never repay the $20
● Unless they borrow
again new units of
exchange from the Bank
(sinking deeper into
debt), or somebody goes
bankrupt
Economy

18. Fast Forward to 2015
● $120 trillion gap
between debt and
available money /
deposits
● To repay existing debt
the world Economy
must borrow another
$120 trillion
● Is this sustainable?
$79
trillion
$199
trillion
money / deposits debt
Source: McKinsey http://c2id.co/5
?
(2014)

19. $120 trillion =
$120 000 000 000 000 000

20. And You Think
Game of Thrones is Cruel? :-)

21. This is the system effect when
we need to borrow the
units of exchange
(at an interest)

22. Just How Ridiculous is Having To
Borrow Units of Exchange

23. The Two Loop Economy
Daily turnover: Financial economy vs Real economy, source: http://c2id.co/c
Real economy
Financial Markets:
● Stock trading
● Foreign exchange
● Derivatives
● High-speed algorithmic
trading
● Insurance
● Etc.

24. Enter Bitcoin
● The units of
exchange are “mined”
by searching for SHA
collisions
● Miners seek profit
from the discovery of
a new Bitcoin

25. Estimated electricity spent on Bitcoin mining:
2000 to 40000 Giga Watts / hour
source: http://c2id.co/9

26. Bitcoin Has a System Limitation
● The supply of Bitcoin
is finite (limited by its
algorithm)
● No mechanism to
adjust the supply of
Bitcoin according to
the volume of traded
goods and services
● Why is this important?

27. Price Stability
The total amount of money in circulation should track the
total value of traded goods and services in the economy (GDP)
Too much money → Rising prices → Inflation
Not enough money → Falling prices → Deflation

28. Enter Positive Money
Money as Debt
Units of exchange:
Borrowed
at an interest
Bitcoin
Units of exchange:
Finite
commodity
Positive Money
Units of exchange:
Granted
(to match GDP)

29. Positive Money
● Not a new concept
● New money is granted,
not borrowed at an
interest!
● Create only as much as
needed to reflect GDP
growth. This prevents
bubbles in the economy.
● Simple, transparent and
democratic process
The “Bible” on Positive Money
See http://c2id.co/a

30. Expert Committee Government Economy
Tracks GDP and
recommends how much
new money the economy
needs
Determines how the newly
created money is
allocated (spent)
The Central Bank
provides the newly
created to the government
Central Bank
Commercial Banks
Administer current
and investment
accounts

31. Creation & Allocation of
Positive Money
Step 1: Create New money
● Measure GDP growth
● Central bank creates amount to
match projected GDP increase
● Example:
– 82 billion BGN GDP in 2015
– 2% growth
– new 1.64 billion BGN
required
Step 2: Allocate Created Money
● People / parliament / gov decide
on how to distribute the newly
created money
● Possible uses:
1. Reduce taxes
2. Increase gov spending
3. Reduce gov debt
4. Citizen bonus :-)

32. … or give the new money to BB so
we can have more motorways

33. Commercial Banks Still Exist Under
Positive Money
● There are transactional and investment
accounts, but they are strictly separate
● Commercial banks cannot create new money
by issuing debt / credit

34. Benefits of Positive Money
Money creation
tracks GDP to
minimise bubbles
in the economy
Benefit of newly
created money
accrues to the
state, not banks
Newly created
money can be
spent directly, e.g.
to reduce taxes
Newly created
money no longer
owed to banks
Simplified banking
regulations
Failed banks can
be safely wound
down
Gradual reduction
of government and
private debt
Greater financial
stability through
reduced leverage
State deposit
insurance no
longer required

35. Good News

36. Good News

37. Good News

38. Lessons
1.Money is a medium of exchange
2.The units of exchange must be provided
for free to the economy, in amounts that
reflect its growth
3.Whoever controls the creation and
allocation of new units of exchange has
real power
4.That power better benefit the people, not
the 1%

39. Thank You!
Q+A?
Download this presentation:
http://c2id.co/b