The Age of Separation, the Age of Reunion, and the convergence of crises that is birthing the transition

The Money of the Future

And how to implement it right now!

The purpose of this currency is to be, initially, complementary to standard national currencies and eventually, in the event of economic meltdown, a replacement for them. Its design emphasizes the following features:
1. It can be implemented right now as an electronic currency, with modest programming resources. We don't need to sit around hoping for change. We can do this right now; and in fact, this currency will promote change.
2. It reverses the destructive characteristics of ordinary currency that foster polarization of wealth, greed, scarcity, and short-term thinking.
3. Its mechanics of issuance promotes positive trends in the larger economy (toward sustainability, fair trade, etc.)
4. It is a fully-backed, non-inflationary currency, and the money supply is self-regulating.
5. It has an organic built-in imperative to spread. Users have a strong incentive to bring in other users and businesses.

Let's call the currency the "terra" as per Bernard Lietaer's suggestion. It will incorporate some of the features he proposes, plus several that are to my knowledge completely new. I don't know if he has trademarked name "terra". I have been unable to contact Lietaer despite persistent efforts; perhaps he is no longer active. I hope he gives this use of the name his blessing; otherwise we can think of another name.

If you want to issue the terra, here is how to do it. First, you need to understand some background principles, which I have elucidated in my Reality Sandwich essay "Money: A New Beginning."
http://www.realitysandwich.com/money_a_new_beginning
http://www.realitysandwich.com/money_a_new_beginning_part_2

Ideally, a qualified terra issuer will have a base of several thousand people in a social networking site, an e-commerce site, a social/political activist site, or any other site where people register as users, and interact with each other. There needs to be some kind of community within which the money can circulate initially. Alternatively, the following program can be used for a (geographically) local currency, which requires a lot of local contacts and footwork on the part of the organizers.

Concrete steps for currency issue:

1. The involved parties create a non-profit corporation (whether legal or informal) to issue the currency and hold the backing assets.

2. People who want to participate buy terras, one on the dollar (or other national currency). The issuer itself can also buy terras from itself using any (dollar) capital it possesses initially.

3. So at the beginning, it looks like the terra is backed by dollars. But that won't create real change, and it ties the terra to an inflationary currency. So the dollars are immediately reinvested in a commodity backing, which is actually a basket of commodities.

4. The commodity backing consists of assets that are consistent with our vision of a healed planet. It can include both liquid and illiquid commodities. Here are some suggestions:
- Land threatened by development
- Shares in solar power companies, fair trade companies, organic food producers, and so on.
- Wind farms
- Eco resorts
- Joint ventures with visionary entrepreneurs
- Publishing, music, and film ventures
- Carbon credits
- A smaller proportion of "old economy" commodities (oil, grain, minerals, coconuts, gold, etc) at a level consistent with sustainability.
- A very small fraction in currencies (dollars, euros, yen) for liquidity needs. No money is to be invested in interest-bearing instruments like bonds.

The corporation will NOT make interest-bearing loans as investments, but follow the strictest interpretation of Islamic banking in being the equity partner of the businesses listed above.

5. As more and more users buy into the terra system (by exchanging dollars for terras), the total dollar-denominated assets of the corporation grow, allowing it to increase the scope of its investments.

6. The dollar-terra exchange rate is not fixed. Rather, after the system has been in place for a period of time, say a year, the total value of the assets denominated in dollars is divided by the total number of terras in circulation to determine the new dollar value of a terra. This can be recalculated every quarter or every month or possibly even daily. In this way, the value of the terra is protected against dollar inflation. If, as is likely, the dollar value of the commodities rise, then the dollar value of the terra rises too, and it becomes more expensive in terms of dollars to buy into the system. This rewards the people who join early.
It may be necessary and desireable to recalculate the floating exchange rate based only on the more liquid and "old economy" portion of the backing portfolio.

7. The terra is subject to demurrage, for the reasons I elucidated in my essays. This is absolutely essential to prevent the terra from being merely the equivalent of an eco-conscious money market fund. I cannot overemphasize the importance of this point. Otherwise, you will end up facilitating the sell-out and co-optation of everything you hold dear. Eco-business will become just business, subject to the same pressures as everything else, and bearing the same fruits.

8. When people buy terras, they do so with the understanding that they are buying shares in a basket of commodities that is only partly liquid. Thus if they decide to "cash out" and buy dollars back from the issuer, they must pay a liquidity penalty equal to the annual demurrage rate. This will encourage users to remain within the terra system. It will also give them a huge incentive to persuade other people to join. Demurrage adds a further incentive to persuade other people to join as soon as possible. The system becomes self-perpetuating; it has automatic growth built into its design.

Before I move on, I will give you an example, using a demurrage rate of 10% for simplicity (think about 7% -- 0.02% per day -- would be ideal though). Say at the beginning, I buy 500 terras for $500. I conduct various transactions over the course of a year. Demurrage is deducted daily from my account. By the end of the year, after numerous transactions, I have, say 800 terras (I would have had 880 maybe, but for demurrage). By this time, the buy-in price of a terra is say $1.15 due to (US$) inflation. I love the system and buy another 1000 terras for $1150. Another six months go by, but I haven't made any transactions because I've decided to go into plastics. My 1800 terras are now only 1710. I decide to cash out of the system. I sell my terras back to the issuer. By now a terra is worth $1.20, so after subtracting the liquidity penalty I get $1.08 per terra. (see 10, however)
I have researched many complementary currencies, and one problem is that if people lose interest and stop participating, their money just sits in a drawer somewhere and the complementary economy stagnates. With demurrage, in this case the money slowly returns to the issuer, raising the value of all the other terras in use.

9. The issuer maintains the total money supply by reissuing the extra terras that have disappeared due to demurrage or liquidity penalties. In essence, these are income for the issuer, which it can use to pay its own expenses. For example, part of employee salaries could be in terras.

10. The money supply is self-regulating. If there are excess terras, then users will divest themselves of a certain proportion of their holdings by cashing out. They will want to sell their terras for more than the liquidity penalty price if they can. This gives new or existing users the opportunity to buy terras at less than the official value. An equilibrium point will be established that will fluctuate toward the liquidity penalty price if there is too much currency, and toward the official price if demand for terras is higher than supply. Thus, new terras will be issued only if there is truly a demand for them -- otherwise, people will just buy existing terras from people cashing out. Similarly, it is impossible for people cashing out to drive down money supply below actual demand, because if the demand is there they will sell the terras to other users rather than making the issuer redeem them.

11. Completing the circle: for terras to be useful and valuable, there must be a wide range of goods and services to buy with them. If all you can get is a massage or yoga class, then it won't fly, because there won't be anything for the providers of massages and yoga classes to buy with them, and they won't want to accept it. The fact that terras are fully backed alleviates this problem somewhat. The more different and varied service providers join in, the more useful the currency becomes. At some point it reaches a critical mass, when a person could live almost completely in the terra economy. Prior to launch, then, it is essential to get as many businesses on board as possible. "On board" simply means accepting full or partial payment in terras. Your selling points are quite simple:
- The terra is fully backed, so the worst that can happen is you cash them in for 90% of face value
- By accepting terras, tens of thousands of new customers who use terras will prefer you over non-terra accepting competitors. Moreover, because of demurrage, these customers will be eager to spend.
- You get public exposure and positive publicity, including a listing in the terra buyers' guide.
- Your competitors are going to accept them -- don't get left out!
- Terras can be used to pay certain business expenses. Some employees and contractors will accept part of their pay in terras. Participating web-based businesses will accept terras for advertising or other services.

The selling points for ordinary users include many of these benefits, plus it is just really cool! Also, you can point out that by buying terras, you are essentially providing investment funds for causes you believe in -- and keeping the money at the same time. The dollars go toward something beautiful, and you get terras in return which are nearly as useful as dollars.

12. To widen participation further, the dollar investments the issuer makes (using buy-in money) in entrepreneurial ventures could stipulate that the recipient accept terras for partial payment. Eventually, businesses could use terras to pay part of their electricity bill if they buy from a renewable energy company.

13. The terra is a dual electronic/paper currency. The electronic version is simpler, and can be implemented on its own, without paper currency at the beginning. Here is how it works. Anyone can register to be a terra user, either on the issuer's website, or on the website of any other organization that has affiliated with the terra. To join, you simply buy terra at the current exchange rate (initially one per dollar). Your terra account balance could be an item on a social networking site. Each day at 4:00 am., the account balance drops by the daily demurrage rate, something like 0.02%. Exchanges can be enacted on line similarly to paypal, simply by sending money to the unique user name of the recipient. That's the electronic version. But unlike PayPal, transaction costs will be zero.
Any online entity with a base of registered users can add terra accounts and terra transactions to their website functions. The issuer will have standard software protocols to make this straightforward. Initial candidates for participation would include progressive social networking sites, Craigslist and other alternatives to ebay, and sites for musicians and artists. Who knows, maybe even Google.

14. Terras can also circulate as paper currency. There are two kinds of terra paper currency, private and public. In principle, anyone can issue either type of paper currency. The difference is that private currency notes are backed by the reputation and credibility of the entity issuing them, and can be redeemed for real terras only by that entity. Public terra notes are redeemable by anyone holding them.

15. Private terra notes are essentially IOUs, issued by any terra user, and redeemable for electronic terras only by that user. At its simplest, you write your terra user name and "ten terras" on a slip of paper and give it to, say, the person who mowed your lawn. Later that day, he redeems it by sending a payment request to you via your user account. You click "accept". Your account is debited by 10 terras, his is credited by 10 terras, and he destroys the IOU. This simplest version of paper currency works on trust. Your friend could use the IOU to pay someone else for a local service, but if it circulates too far and someone eventually tries to redeem it, you might say, "Who is this guy and how did he get my IOU?" If you circulate too many IOUs, and they pass into the hands of strangers, then you don't know who is trying to redeem what. Someone could try to redeem the same one twice, or request money even if they no longer have, or never did have, the IOU.
If you want to circulate private terras beyond a small group you trust and know personally, there must be a way to ensure that each note is redeemed only once, and to prevent counterfeiting. One way to do this that would work for a local government is to require that the notes be redeemed in person as we do when we deposit cash in a bank. In this case, if you wanted to convert local terras into real terras, you would go in person to the local issuer, hand in your paper terras, and they would log in to the system and transfer the amount from their account to yours. This would not necessarily need to happen very often. The private terras could circulate indefinitely without being redeemed.
Another way to look at it is that the "real money" is the electronic account data, while the paper terras are merely representations of money. This reverses our usual thinking, which says that cash is more real than electronic representations of it. The electronic terras are more "real" because they are one step closer to the true "real" money, which is essentially a share in the portfolio of backing commodities.
How can you be sure that the private terra issuer will redeem the notes? You can't be sure! You may therefore be much more willing to accept them at face value from an upstanding local bank, the local government, or a good friend, than you would be from the town drunk.

16. Unlike private terra notes, public terra notes are issued with the validation of the Issuing Authority. The issuing partner "buys" the notes by debiting its account by the total value of the notes, which are dated and each bear a unique serial number. They are essentially electronic terras made paper, and like electronic terras are subject to demurrage. (Private terras need not be subject to demurrage -- that is up to the private issuer). Anyone can redeem a public terra note at any time. The demurrage charge is subtracted at the time of redemption.
To redeem a public terra note, you simply log on to your account and input the unique serial number from the note. Your account is credited, and then you void the note. Now, what is to stop you from redeeming it and then going out to spend it? Similarly, how do you know that a note you have received hasn't already been redeemed, perhaps many transactions before? Here is how it works. When you redeem a note, the system matches its serial number against its database of already-redeemed numbers. If there is a match, then a dispute is recorded. Only one redemption can be valid, and it goes to the user who is in physical possession of the note. So if you redeem a note and then go spend it, you will eventually get caught and penalized or expelled from the system. It is important therefore to void or destroy redeemed notes.
Note that private terra issues can implement a system like this as well for their own notes.
Obviously, when the terra becomes standard currency, paper money could be replaced by debit cards and so forth. But I think in an age of unenlightened governments, it is important to have cash to allow anonymous, undocumented transactions.
A public terra note, subject to demurrage, becomes less valuable at the rate of 0.02% per day. In order to simplify things for the user, a series of dates and values can be printed along the bottom of the note. A hundred-terra bill is worth 99 terras on day 51, 98 terras on day 102, etc.

17. Multiple Issuers. This is an innovative, perhaps revolutionary, aspect of the terra system. Any organization can join the terra network and issue its own terras as long as it conforms to certain basic requirements. These include:
(1) The Issuer must fully back its terras with a standard portfolio. The fungible commodities are to be identical with all other Issuers; the discretionary portion need only conform to agreed-upon guidelines, and be approved by the Issuers' Board.
(2) The Issuer must adhere to the data protocols to allow transactions across different user bases. It must also participate in the serial number system if paper terras are in use.
(3) The Issuer must agree to redeem terras up to the total amount it has issued.
(4) The Issuer accrues demurrage revenue according to the volume of terras it has issued (not the volume held by its user base), but may not hold an amount in excess of the previous 12 months' demurrage.
Participation in the terra system will be extremely attractive to all kinds of non-profit organizations. They will be able to use the discretionary portion of their backing portfolio to support their causes, yet it will not actually cost them any money to do so.

18. Democratic governance. What qualifies as ecologically sound investment? What is the right demurrage rate? These and many other policy issues and technical issues can be decided by a Board of Directors representing all Issuers, which have voting rights proportional to the amount of currency each has issued. In the event that a given Issuer breaks the rules, the Board will have the power to buy out that Issuer in whole or in part, taking over some or all of its portfolio in exchange for the corresponding number of terras. In the extreme case, the misbehaving Issuer is in essence demoted to the status of a user.
New Issuers must be approved by the Board or its appointed representative, thus ensuring the preservation of the founding ideals.

18. Another way to organize the system is to have only one Issuer. Governance and portfolio distribution is then determined by the users. When a new user buys into the system (exchanging dollars for terras), he or she gets to choose what the discretionary portion of the backing portfolio will be for those dollars. That way the backing portfolio will reflect the values of the user base. The board of directors is then elected by the users as well, whose votes are weighted in proportion to their average daily balance. This gives weight to those who invested a lot at the outset, or who are active participants.

19. Taxation issues. In the United States, all transactions using complementary currencies are taxable as income if they involve payment for professional services. So if someone pays for a yoga class in terras, that is taxable income for the yoga studio, and of course the tax must be paid in US dollars. Ordinary transactions, for example Craigslist type sales, are not subject to income tax. The situation is similar to transactions in a foreign currency. In a way, the terra is a foreign currency, or more precisely, a transnational currency.
If someone cashes out and makes a profit due to inflation of the US dollar, they would also have to pay capital gains.

20. Long-term view. If we are right and the "end of money" is nigh, then the terra provides a refuge from the coming hyperinflation and collapse of the US dollar. Because it is fully backed by real commodities and real productive assets, the terra is fundamentally non-inflationary. When national currencies disappear due to deflation or become worthless due to hyperinflation, the terra will be waiting, available to facilitate the exchanges people need to survive.
Because of the intentional investment principles for the currency backing, the effect will be to invest millions of people in the technologies of a sustainable, healed world. This translates into a transnational political force whose economic interests are no longer at odds with their ideals.
Eventually, and maybe in the not-too-distant future, there will be a phase shift in which what is today "alternative" or "complementary" will become standard and ordinary. This will happen with the terra when it becomes legal tender for taxes. At that moment a transition to an economy of reunion will be irreversible.
When all remaining dollar assets have been converted into terras, what will have happened is that all the backing assets -- wetlands, shares in companies, etc. -- will be held in common. Money will represent shares in the earth's natural and cultural wealth. The conversion of that wealth into money that I described in the two essays will be ended.