If you are going to go down the route of controlling the amount of units in circulation you could go nutz with it ....
Hayek talked about an ideal automated regulator that kept the currency value stable with a basket of goods (gold, oil, wheat, milk, meat, what-have-you, etc) just the usual stuff but the mechanisms he proposed could only be done with something like modern digital currencies that we now are experimenting with ...
... the automated algorithm would have as it's goals the currency's stable value but in order to achieve these targets it would automatically buy currency on the market if the value was dropping below target but here's the kicker, imho, if the currency was becoming over-valued then the system would automatically credit all existing accounts on a pro-rata basis to put more currency supply into circulation, i.e., like stock-holder dividends.
Of course, it would need to be something quite sophisticated in the way of a control algorithm to achieve price stability, figuring out necessary time-constants for the system and etc, but not impossible with a modern multi-variate adaptive controllers I don't think (fuzzy logic or neural net may also be options).
The key here is that to encourage/speed adoption there is an incentive to hold larger account holdings so that as demand for the currency were to increase as it's use spread, then currency holders would be rewarded with more numbers in their accounts. It is, in effect, the same thing that bitcoin causes when demand rises and it's value increases (in the local unit of account) but it is monetised in a different way such that the current holders see a constant value of the unit but they get more units ... same net effect, different mechanism. The currency inflates at the necessary rate to keep the value constant against the chosen basket of market goods/services but the inflation is spread out EQUALLY to ALL present currency holders.
NB: I'm pretty sure that Open Transactions can do all this with it's current functionality. And a few added 'lock 'n leave' controller algos that can be unleashed and keys destroyed so that the tamper-proof machine has control.
Hayek talked about an ideal automated regulator that kept the currency value stable with a basket of goods (gold, oil, wheat, milk, meat, what-have-you, etc) just the usual stuff but the mechanisms he proposed could only be done with something like modern digital currencies that we now are experimenting with ...
... the automated algorithm would have as it's goals the currency's stable value but in order to achieve these targets it would automatically buy currency on the market if the value was dropping below target but here's the kicker, imho, if the currency was becoming over-valued then the system would automatically credit all existing accounts on a pro-rata basis to put more currency supply into circulation, i.e., like stock-holder dividends.
Of course, it would need to be something quite sophisticated in the way of a control algorithm to achieve price stability, figuring out necessary time-constants for the system and etc, but not impossible with a modern multi-variate adaptive controllers I don't think (fuzzy logic or neural net may also be options).
The key here is that to encourage/speed adoption there is an incentive to hold larger account holdings so that as demand for the currency were to increase as it's use spread, then currency holders would be rewarded with more numbers in their accounts. It is, in effect, the same thing that bitcoin causes when demand rises and it's value increases (in the local unit of account) but it is monetised in a different way such that the current holders see a constant value of the unit but they get more units ... same net effect, different mechanism. The currency inflates at the necessary rate to keep the value constant against the chosen basket of market goods/services but the inflation is spread out EQUALLY to ALL present currency holders.
NB: I'm pretty sure that Open Transactions can do all this with it's current functionality. And a few added 'lock 'n leave' controller algos that can be unleashed and keys destroyed so that the tamper-proof machine has control.
baked in inflation is what btc is trying to get away from.. that automatic buyback would be totally gamed as well on the other side of it.
money is very hard for people to get their head around. it took me a few years to really understand the subtle and psuedo nature of it.
currently, the USD is totally worthless on bookvalue. Anything automatic to correct it would shoot off the charts. But, when you understand velocity, you can see that when only the small amounts get moved around it can't really create inflation. When the big piles flow fast, as when TARP et all happened, then you saw some very rocky moves in the value of anything per the dollar. That is the real linchpin, currency crisis.
Losing faith from the top side of the money piles is where money beings to die. Not from the ground up since there is never enough velocity to push prices up relative to the whole amount of outstanding units. Regualr people are just too cash poor to move prices in an ocean of trilllions of outstanding units. But when you have that funny money derivatives, et all.. it can happen in an instant
PS- back to the value of a currency. That used to be things like gold or oil, which are never worthless and would allow you to exchange the currency easily for the backed commondity. Of course now the dollar is backed by bombs which is mob style. But you have the BRICS doing about 20% of world trade now outside of the dollar and growing. If oil breaks free from the dollar (USA runs out of bombs) then you get massive defaults and death to the currency. BTC is interesting since it is digital gold. So it is like the gold dinar that Gaddafi died trying to introduce; the currency is backed by itself. Let the free market decide how much people value btc. That is the only way it can and should survive anyway. Remember, even if the dollar strengthens, and rates go up and people want that return, the banks can bail-in, corzine, vaporize your cash like cypress (it happened in the 80's with the S&L crisis too.. bait with 12% returns and then poof!)
