Smart contracted money creation

How human readable Ricardian Contracts could help to create a sustainable monetary smart grid

Lucas Huber

This post lightens up the core of any monetary system. How the money comes in to existence and how it disappears or getting withdrawn.

At the current state moneygrid is more or less about connecting different types of community owned ledgers. We and others think the time has come now to increase such efforts, but keep in mind that this task needs a long breath to get done.

Note 1: (credit commons): recently Mathew Slater and Tim Jenkin did publish their Credit Commons white-paper, what actually describes nothing else then a moneygrid style clearing network.

Note 2 (Monetary Smart-Grid): In analogy to micro-grids that provide an infrastructure for exchanging locally produced power in a decentralized electricity production model, participants in the “monetary smart grid” exchange locally produced goods and services in terms of one or more local currencies that are backed by the net value of goods in the community. Given that these currencies are exchangeable according to their relative values as determined by the assets with which they are backed, these currencies from a network or “grid”.
Note 3 (Mutual Credit Money): Money in a mutual credit system is quite different from the normal FIAT money created by the banks. It is not a store of values it is mainly a measure of exchange for good and services. It is created according the policies, but after that the created money, following a certain part of supply chain, just disappears. But of course not in deleting that money, but in the fact that members in a healthy system are keeping their balance in a certain range not to far from zero.

But if we think a bit further there are is some key aspect that the credit commons need more research. One of them is the question, how the trust in the systems can be sustained over a longer period. Normally the health of a barter or credit system is not tracked to public and often not to the trading partner networks. So how to determine the exchange or conversation rate and the credit limits? If we anyway would use a smart-contract enabled crypto platform, this platform could also be used to track the process of money creation itself and thus allow to perform data analyses about each exchange systems health.

If we go back to the root of any money system, it is all about how the money is created and withdrawn form the system. Normally in a moneygrid conform currency system the principle of money creation is credit. And this credit is always based on a kind of contract. In a mutual credit system this contract or contracts are normally tight into the terms and conditions of the organisation. But in fact the (self) issuer of credit in a mutual credit network is issuing also a contract between him as individual and the rest of members or clients of the organisation.

In the daily use of such a system this is not at all visible, because in most case you have just a simple credit limit. But while spending money on an account, that is going to be have a negative balance, is actually issuing a self issued credit. In other use cases with Business Credit networks, as the WIR in Switzerland the WIR Bank does the risk management and explicit charges their customer with money according a credit contract. But in fact with the distributed ledger technology together with smart-contracts it is basically possible to implement a contracted process of any money creation in the network. This would help enormously to monitor the financial health of each connected exchange system in the moneygrid, but also of its customers. Of course one could argue that there is a great lack of privacy in such a recording of the money issuing process in one or more shared-ledgers. First in a permissoned shared-ledger it is possible to give permissions to the read access to the ledgers, but on the other hand, it is a public interest how the money comes in and goes out of the system too. At the end money is a social contrivance and the read permission rights have to be governed by the stakeholders and organisations.

Another aspect is when we take into account the possibility of issuing money (not credit) for social purposes. In a given community or city, that runs their own currency, the officials can agree to issue a certain amount of money, not as credit, but as a mean to cover some costs for the community or to drop a kind of helicopter money to increase the purchasing power of the inhabitants. Such creation process should be as transparent as possible to avoid to much discussions and speculations in relation of fraud and abuse of the created money. In this aspect, and many others, it would be helpful too to have a human readable form of the issued contracts too.

In theory such Ricardian Contracts*, invented by Ian Grigg, do exists for a while, but in practice the are not yet implemented. One of the first examples of a Ricardian Contract implementation where made by the R3CEV Corda team as a Proof of Concept.

Ian Grigg did made the following scheme to illustrate how this contracts could be used to distribute contract based assets into the economy or user base on a crypto platform.

Caption:

Ricardian Contract → Written contract + Message digest + hash

Issued (social) credit → Ricardian Contract + genesis transaction

Money in circulation → user txs

In the case of a moneygrid issuing contract, the scheme works quite similar, but instead of the term genesis transaction I would prefer ‘Credit Transaction’ or ‘Issuer Transaction’. And of course instead of some machine readable tag the contract could be build as smart-contract in such a way that, for instance any payment or fees of transactions related to repayment of credit are build into contract business logic. Such type of infrastructure could build the main pillars of a future monetary smart-grid in which different types of currencies could coexist, without harming each other, nor the society.

* For everyone that want to get more informations about Ricardian contracts, please read the excellent article of Alex Batlin on linkedin.

header image from: https://en.wikipedia.org/wiki/History_of_contract_law


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