When the people of the world have a common monetary language,
completely freed from every government,
it will so facilitate and stabilize exchange
that peace and prosperity will ensue even without world government.
A union of peoples rather than a union of political governments is what this world needs.

~ E. C. Riegel, monetary theorist, The New Approach to Freedom 1949

The Role of the PC (Perpetual Coin)

The sole purpose of Perpetual Coin is to become a new "value unit" for the Credit Coin system.

It is NOT to create a "single uniform commodity in limited supply", the value of which is dependent on its scarcity.

My original proposal was to create this new unit by selling tradable "Perpetual Coins" for national currencies. Community currencies do this now. They sell community dollars for national legal tender dollars which are held in trust for redemption. The community currency does this so that "dollars" have a circulation restricted to the community.

My purpose was simply to give the tradable token redemption value in national currency, and, within the system, a different trading value applied in Perpetual Coin. This value would be established by pricing new Perpetual Coin according to a formula derived from national currencies, designed to be both a smooth curve and not follow the general devaluation of fiat currencies.

The design of the formula is a matter of choice as to what we wish to achieve. Those who use the Perpetual Coin unit do so by agreement, because they understand that this is a viable mathematical, logical and equitable exit from the current system and its failing currencies.

The important point to avoid getting confused about, is that Perpetual Coin is NOT like gold, a "single uniform commodity in limited supply". Nor is it a "reserve" of any sort. It is just an attempt to create a new unit for "value", when the ONLY value units people currently comprehend are their own national currencies.

Ultimately it need not exist as a tradable item at all, just a formula.

So what sort of formula? The original proposal was to use currencies alone in the formula and allow the new unit to devalue, but much less and much more smoothly than most national currencies. Lately I have been persuaded to explore defining the Perpetual Coin by a commodity index such as Rogers International, (RICI). This idea of pegging the value unit to a broad basket of necessary commodities is very simply done. Below is an email discussion I had regarding the issue. I believe it will be useful in clarifying the difficult idea of value itself, something I consider to be always subjective and variable, and the practical need for a common value unit to use in trade.

The idea of selling Perpetual Coins is dependent on starting a new system to do so. The adoption of a common value unit by mutual agreement could be done now by existing systems. It is simply a mathematical, logical and equitable route out of national currency units.

A. Perpetual Coin as a Value Unit ONLY

In this scenario, there is no "thing" called a Perpetual Coin. PC's are NOT sold for national currencies. PC is an IDEA of value, a UNIT of value, to be derived by means of a formula from our only existing units of value... national currencies.

PC is only a measurement unit for the substance of the money, which is a time-limited contract for delivery of goods or services from a specific supplier (Credit Coin).

M: The concept of value is a very useful way to think about exchanges and transactions. But it is nevertheless merely some modeling we subjectively do inside our heads.

Paul: I agree. As I said in MAD 3, value is always subjective and variable. A value unit is an abstract concept derived from our experience of the prices of real things valued in that unit. Ultimately, unless PC is a credit actually redeemable in something like 24 grams of silver, PC will have to be the same. Even if defined and redeemable as 24 grams of silver, the value of a PC relative to everything else would still be dependent on the exchange rate between silver and everything else. The supposed benefit of pegging money to metal is the supposed stability of the ratio between the value of the metal and the value of everything else. I am sure we have all heard the story about how an ounce of gold bought a really great suit of clothes in Roman Times and still buys one now.

M: The only tangible thing in the real world, that can be observed and objectively understood, is the concept of exchange rate. This is the problem. The IDEA of Value on its own is not a real world thing. The only real world thing that can create this IDEA of Value in our minds, is the exchange rate between real traded things.

Paul: I agree, which is why the idea of a new value unit cannot be created from the basket of commodities itself, it has to be created in reference to national currency value units currently traded for the basket of commodities.

M: In the example with the orange and the dollar, the orange can be exchanged with 1 dollar. Both orange and dollar are real world things traded back and forth in the market. The ratio 1 produces the IDEA of the Value of the orange in units of dollars in our minds.

Paul: If oranges double in price due to frost in Florida, that does not necessarily change the dollar's "value" in relation to anything else. Our perception of the dollar's "value" is determined by its exchange rate with EVERYTHING that can be bought with a dollar. The RICI fixed basket of commodities is a meaningful "quantified approximation of everything". Therefore, isn't it logical to define the PC unit in terms of this "quantified approximation of everything"?

We are only creating a measurement unit that others may voluntarily use.

The PC is NOT a "thing" of value.

[If we can come up with a better "quantified approximation of everything" than the RICI, that is another topic.]

PC could be defined as USD per Q, where Q is 1/1000 of the RICI INDEX , the fixed "quantity", (at time of writing RICI index is 3600). PC is, therefore, the exchange rate of the US dollar with our best attempt at a "quantified approximation of everything"

M: How will this work with an IDEA of value linked directly to a fixed basket of necessary commodities?
If we say 1 orange costs 1 PC what does it mean? Does it mean that 1 orange can be exchanged with 1/1000 RICI baskets?

Paul: YES, always, by definition. PC is only a value unit for Credit Coin which is a promise of real goods and services. There has to be fair exchange of real things because the PC is only a measurement unit for real things not a thing in itself. If the RICI Index is 3600 at this moment and Q is 1/1000 of the RICI, then USD per Q = $3.60 USD at this moment. PC is defined as $3.60 USD at this moment.

Therefore, the 1 PC orange (much more expensive variety!!!) priced in USD, is 1 x $3.613 USD = $3.613 USD which, at this moment, according to the RICI index, will buy 1/1000 of the RICI basket on the world market. If all of the commodities in the RICI basket were also priced in PC according to the formula, PC = USD per Q, 1 PC of product credits (Credit Coin) would indeed buy 1/1000 of the RICI basket every time, no matter what the USD price and regardless of the relative changes of value of the commodities in the basket.

Value of orange = $3.60 USD = value of 1/1000 RICI =1 PC value of product credits (Credit Coin) = 1 PC redemption in a potentially unlimited variety of real goods and/or services.

Free Will Exchange
For the exchange to be completed, the parties involved still have to decide that the owner of the orange would prefer to have the 1 PC Credit Coin, and the owner of the 1 PC Credit Coin, the orange. This will be done on the basis of each party's subjective and variable perception of the general buying power of the PC in the real prices of everything else, versus the subjective and variable desirability of the orange.

Suppose in the full system, Credit Coin is infinitely exchangeable for an unlimited variety of goods and services, the values of which are expressed in PC. Therefore it is a legally enforceable credit (by contract law) towards the purchase of a definable quantity of whatever you want from the total supply of "everything".

This credit for "everything" is valued in a unit that equals the current national currency value of a meaningfully-chosen "quantified approximation of everything", making it redeemable for a definable quantity in the real world, just as a promise redeemable for a specified amount of silver would be.

But I think being redeemable for what you actually want from the total supply of everything is better. It eliminates the problems with money being an intermediate monetary commodity in itself, a "single uniform commodity in limited supply".

Thousands of years ago people could value their promises in standard measures of grain, healthy cattle and standard size blocks of salt. A promise of blacksmithing could be expressed in grain or salt, or for a big job, a cow. I might trade a cow's worth of whatever I do, for a cow's worth of blacksmithing, simply using the cow as a common value reference like we use a dollar value now.

Of course grain, salt and cattle could vary in value relative to each other. With PC as a value unit, a promise of anything is essentially expressed in "RICI baskets", currently 38 world commodities all of which can also vary in value relative to each other. Eventually, PC will become its own IDEA of value established by trade in real things priced in PC.

Viable mathematical, logical and equitable exit

If Q is an "approximation of everything else", then the actual exchange rate we are using is between an orange and Q, that is to say ORANGES per Q which we can calculate to be, if an orange is $3.60 USD and Q costs $3.60 USD or ONE PC, then that $3.60 USD orange, priced in PC would be 1 PC.

If, in future, due to national currency inflation, the RICI index rises to 5500, then one PC is defined as $5.50 USD. If the price of oranges in USD has risen in proportion to everything else, then the formerly $3.60 USD orange must now be priced at ($5500 / $3600) x $3.60 = $5.50 US. Because one PC is defined as $5.50 USD, $5.50 USD = 1 PC.

The identical PC price reflects the fact that the relation between the value of this expensive orange and Q has not changed, which is true. All prices went up proportionately due to monetary inflation.

If the index, due to national currency deflation, goes down to 2500, but the expensive orange increases in value relative to Q such that one orange now costs $5 USD, then that orange, priced in PC is $5 USD / ($2.50 USD/PC) = 2 PC.

The national currency deflation of the RICI index, (2500 / 3600) = 0.694. Proportionately, by national currency deflation, the price of the $3.60 orange should be reduced to (0.694 x $3.60) = $2.50 The actual price of $5 is $5 / $2.50 = 2 times the proportionate price. The new price in PC is 2 PC. The old price was 1PC.

2 PC / 1 PC = 2 The real change in value of the orange relative to "everything else" (ORANGE per Q) has been accurately expressed in the PC price of the orange. ______________________________________________________________________

As I have proposed from the outset, the PC must be initially defined by the national currency prices of things until its use in actual exchange establishes its value in peoples' minds. If PC is simply a new unit for expressing value, not an item actually sold or exchanged, then the adoption process would be to issue product credits, Credit Coins, valued simultaneously in both national currencies and PC according to USD per Q.

Prices of real goods and services will change constantly (and probably escalate overall) in national currencies. Prices will remain almost perfectly stable in PC. Users of the Credit Coin system may actually begin to think that they prefer to do business in the stable non-inflationary unit rather than the volatile inflationary national currencies. Conversion to the new unit would be entirely voluntary, and could start right now if existing self-issued credit currencies adopted it.

B. Perpetual Coin as a Tradable Item

In this scenario, there has to be a new self-issued credit system. New Perpetual Coins are SOLD for national currencies according to the same formula as above. The national currency is held in trust in perpetuity as bank credit. The Perpetual Coins are redeemable for the exact same amount of the exact same national currency that was spent to buy them. At the same time, by agreement of the users again, the value in trade within the Perpetual Coin System is automatically dictated by the formula.

The trade value of the PC within the system, is expected to be higher and eventually much higher in terms of real purchasing power than the contractual redemption value of the PC in national currency. Thus there would be a great incentive to stay in the new system.

This is just an intermediate step to issuing Credit Coin, as contracts for delivery denominated in Perpetual Coin. Perpetual Coin, being permanent, would probably be used almost entirely for savings. Within the automated system, one PC is always worth ONE PC. It is never eligible for an Issuer's discount price.

Presumably the Perpetual Coin was initially bought with national currency that was earned. Therefore it is "money" that represents value delivered. Every time it is exchanged, presumably value is delivered. If the new Perpetual Coin unit is defined by formula to be counter-inflationary, then each time value is delivered, it is approximately EQUAL value to when it was bought initially. The new unit preserves the purchasing power over time while the national currency devalues.

The "loss" incurred by redeeming PC for its purchase price in national currency is a measure of monetary inflation, that is to say, stealth taxation by the federal government. It would be exactly the same as stuffing cash under the mattress.