Interest-Free Economy

Money is just information, nothing of value in itself. Nothing prevents us from making money ourselves, to work as a complement to conventional money.

Challenge

- What societal challenge does it combat?

Poverty. Climate change. Wars. Famine.

The present money system, based on the payment of interest, is unsustainable. Compound interest leads to exponential growth, which can be seen as a cancer on our social and economic system, a pathological growth pattern leading towards either economic or ecological collapse of unprecedented proportions [1].

Inflation is generally seen as a given and interest as a natural antidote to counteract it, while in fact interest is the major cause of inflation. Economic growth is needed at any cost, by continually increasing public and private debts.

The interest system leads to an uneven growth of different sectors of the economy, indicating a severe sickness in the economic system. While the Net Income in Wages and Salaries rose 18 times between 1950 and 1995 in Germany, for instance, the Monetary Assets increased 461 times and the Gross National Product 141 times.

The global volume of speculative monetary transactions, arbitrating on the variability of currency values, amounts 97 % of all transactions, with a mere 3 % being in real goods and services. The daily volume of trading exceeds $ 2,000 billion; all the currency and gold reserves in the world would only amount to the volume of seven to eight hours of trading!

The interest system has devastating effects on the culture, ecology and society. It sucks up resources from regions with lower returns and redistributes them to the regions with high returns.

Money comes and money goes. It is scarce and hard to get. It is created by central banks in limited supply. It is this nature of conventional money that creates conditions of competition and scarcity, within and between communities.

However, money is just information, nothing of value in itself. Nothing prevents us from making money ourselves, to work as a complement to conventional money.

- Who will buy, what, why and how much they are going to pay for it?

The remedy to the plaguing money system is an alternative system based on interest free principles and the notion of Open Money. The main characteristics of open money are [2]:
- Decentralized: no need for a centralized issuer like a bank, which means no threats from a centralized power.
- Free: no interest is practiced because there is no issuer that makes a business of it. The only cost is the one of the infrastructure, which is a flat marginal cost, not an exponential one like in the interest.
- Peer-to-peer: the total quantity of money in the community is determined in real time by peer-to-peer exchange. There is no centralized authority that determines how much, where and when the quantity of money should be allocated.
- Controlled by the communities that use it: the rules of circulation, credit limits, taxes, decision making processes, etc, are controlled by the community itself. Most of these settings can be configured via the software.
- Sufficient: because based on mutual credit, i.e. there's never a lack of money since it is created upon the needs/wants streaming.
- Holoptical: which means transparency between participants and access to global information about the system.
- Adapted to all needs and all communities: whether communities are based on a local territory or a virtual one, each community exists because it has a circulating offer/demand within it. It can be time exchange, objects, services, knowledge... in a competitive or gift economy. Scarce mainstream currencies only serve competitive markets. Open money serves whatever market since it is sufficient and can be applied in any context.
- Connected to any "real" or "virtual" value: any community currency can be based on a "real" value (time, gold, kilowatt, kilo of potatoes, oil, distance...) or a "virtual" value (i.e. no relation to anything in the real world, it is just a unit accepted in the community).

The problems that come from conventional money can be resolved with open money systems [3]:
- where conventional money is scarce and expensive, the new money is sufficient and free.
- where conventional money is created by central banks, new money is issued by us, as promises to redeem – our money is our word.
- and where conventional money flows erratically in and out of our communities, creating dependencies that are harmful to the economy, society and nature, the new complementary money re-circulates, enabling business and trade.

Just imagine [3]...
- imagine having enough money, sufficient to meet all our needs.
- imagine a society and economy operating without any of the familiar monetary problems of poverty, exploitation, homelessness, unemployment, fear and stress.
- imagine a world where everyone can have work and pay, work and play.
- imagine clean air, water, and food - enough for all.
- imagine human society living in balance with the environment.

The solution is an open software platform that allows creating Open Money communities. The business model would be to provide the core technology framework for free as open source and dual license it to community developers; develop an own community infrastructure upon the framework and provide the software as a service for syndicators. It would essentially leverage some key Web 2.0 business principles: service model, economy of small, architecture of participation, win-win, network externalities, the long tail.

Unlike in the traditional economy, the users of Open Money are able to issue money themselves. Money is essentially a promise by some members of the community to give service to others. All accounts begin at zero and thereafter may hold a positive or a negative balance. Negative balance means that one has received more goods and services than she has given out. It is, thereby, perfectly acceptable to buy something as the first trade, as long as the initial commitments are modest -- if everybody had to wait to earn before they could spend, nobody would get started!

Consumers are increasingly aware of the global issues threatening the very future of mankind on Earth and more an more people are making responsible choices in their individual lives to make a positive impact: eating no meat, driving by bike instead of a car, recycling waste, supporting 'fair trade'.

Assumably, increasingly many of these responsible global citizens would be willing to consider subscribing to an alternative and more sustainable economic system that would maintain their personal wealth while bringing about more social justice, better opportunities for a healthy environment and higher stability of currencies.

Notably, the community currency could be tied to various customer loyalty programs: instead of bonus points, the companies would give out units of this open money. The units could then be used either in exchange of the issuer's products and services or elsewhere in the alternative economic system. Getting the kind of large customer loyalty programs onboard would significantly drive up the size of the marketplace.

The system would also enable micropayments of the tiniest scale as there are no transaction costs in real currency. The platform would enable Internet "prosumers" to perform cent-scale transactions, e.g. buy and sell digital music/movies. As the virtual currency cannot be changed back to the real one and as the money is paid no interest, this instigates more trading in the open money communities.

Profit prospects

- What investments are needed? What operating costs are there? How much revenue is expected during the whole life-cycle of the business from the birth to market growth to stagnation to perishing of the product/service?

Initial development costs need to be carried, before the source code can be opened to the larger development community. Some marketing costs in the early phase will also be accrued, yet mainly the Internet dynamics will take care of viral marketing the project, if it is viable enough. Most of the sales and marketing affort goes into selling the idea to big companies that might want to be involved in the project. Operating costs pertain to running the infrastructure, i.e. renting a virtual server.

All in all, the business builds on the economy of small and does not require substantial up-front investments. The revenue scales with each license sold to other community developers and each contract made with the syndicators. There is virtually no upper limit for the revenues, as each company, organization and community on the Internet is a potential customer.

Competition

- What competing products or services there are? What are their market share, pricing, strengths and weaknesses?

Most notably, LETS: http://www.gmlets.u-net.com/home.html

Competitor Analysis not yet conducted.

Differentiation

- How does this idea differentiate you from others in the markets?

Community Currencies (CC) have been used in isolated, relatively small and spatially local communities. Only recently have these monetary systems been supported by computer software. My idea is to create an ubiquitous utility software/service that can easily be adopted by any community wishing to establish its own currency and economic system. Based on the same functional architecture and technical infrastructure, these communities can also open their trade with other communities, essentially contributing to the emergence of a new economic system encompassing the entire global village. No such attempts have been made so far.

Current micropayment systems such as PayPal are based on real currencies and bear relatively heavy transaction costs due to the payment settlement. The proposed solution renders the transaction costs obsolete and readily enables easy-to-use micropayments in the community currency.

Verified need

- How many people you have found that are ready to buy your products or services?

None.

Impact

- What positive impact does your idea have on society and environment?

Global markets are huge. There is a vast upside potential for growing the business. Each dollar or euro that is exchanged to the virtual currency is away from the current interest-based monetary system that has devastating effects on the culture, ecology and society.

In the long run we are all dead. But in the long run, the idea may actually have a positive, measurable, meaningful impact on the society: instigate exchange and generate wealth, obliterate poverty, remove famine, diminish wars, save the environment...

- What negative impact does it have?

It is disruptive to the status quo of today's society.

- How can the negative impact be eliminated or made remarkably smaller than the positive one?

The current economic system cannot simply be obliterated. The alternative system should start small, co-exist peacefully with the hegemonic one and follow the natural course of things. If the change is requisite and the new system is viable, the positive impact will take place without undue disruptions. We are talking about profound changes that will take decades to materialize.

- How can the positive impact grow bigger?

It will happen in its own course. Faster is slower.

[1] http://www.margritkennedy.de/pdf/BUE_ENG_Interest.pdf
[2] http://thetransitioner.org/
[3] http://www.openmoney.org/