Electronic copy available at: http://ssrn.com/abstract=1802166
THOUGHTFUL CAPITAL GROUP
The goal of a currency system should be economic stability and growth as a means of improving citizens’ lives. A currency acting as a stable store of value contributes toeconomic stability.
All currencies are belief systems. The inherent belief for users of a currency is that thecurrency issuer does not over-issue or debase the currency relative to the asset portfolioheld against the currency by the issuer. The first and primary role of a currency forusers is as a store of value. After that role is established, a currencies economic utilityfunction is as a means of exchange.Historically, currencies have been government debt or commodity backed.
The DeKothesis is that energy, more properly electrical work in the unit form of delivered kilowatt hours (a DeKo), may be a more stable asset form forbacking a currency.
A DeKo backed currency may offer the advantages of stable value and economic utility over time that neither debt nor goldbacked currencies offer alone.
The utilitarian value of a currency as a unit of exchange is driven by people’s faith in thecurrency as a representation of value. Currency faith is driven by faith in the issuer andthe perceived value of the issuer’s underlying asset portfolio. If the assets in thecurrency issuer’s portfolio are perceived weak or not present, the currency may become volatile, potentially contributing to economic contractions.Most currencies represent claims on portfolios of government debt and other perceivedlow risk securities. Debt backed currencies often hold assets denominated in thecurrency itself. This leads to a complex reflexive relationship between assets held andthe metric used to determine their future value. Often the bulk of these debt assets aredomestic government debt, meaning that a government’s fiscal policy (taxation andspending) and monetary policy (currency issuance and inflation targeting) managementattempts become tightly interrelated.
Hard vs. Soft Currency
Currencies require perceived value stability in order to perform their primary economicrole acting as stores of value to facilitate trade and their secondary role as a unit of account. Historically, currencies represented claims on physical assets such as gold orother hard assets such as grain. These commodity backed currencies were mostlyseparate from government political fiscal policy. Many early civilizations were defined