4. Demurrage

4. Demurrage

Detailed Description of the 1CoinH Technology

Money Without inflation
When we create a system where everyone receives 1 coin per hour, the money supply would keep increasing and the value of money would subsequently keep dropping. To get a stable supply of money we simply use a depreciation factor. With a depreciation percentage, the money supply will over time become constant per person. This is what you want, because in a constant state of the money supply (money without inflation) the sense of what the value of an object is, becomes stable in the end. Depreciation of money is also called “Demurrage”.

20 or 30 Years?
When we use 30% as depreciation of the one coin per hour everyone receives, the global money supply gets constant after about 30 years. Because there was no moment in history where wealth is properly distributed, it is difficult to predict if people have a big enough incentive to be productive. It is highly probable that we need to increase the financial incentive for people to be creative and productive. To keep the circulation of money high, the depreciation factor is set to 40% per year. With 40% depreciation, the money supply is constant after 20 years, which seems to be a better stimulus for people to get active.

Convert yearly depreciation to hourly

d[hour] = 1 – ((1-d[year])^(1/8766)), where 8766 is the number of hours per year and d is the depreciation factor.

Estimated Value
When you enter d[year]=0.4 (40%), then you get to a value of:

d[hour]=0.999941728183863/hour (d stands for depreciation).

This means that each coin will lose 0.00005827182 (=0.005827182%) of its value per hour that it is in your possession. To calculate what the permanent money supply should be we used the following approach:

The money that is in circulation equals the global debt, since all money is created as debt. The global debt is currently $250,000,000,000,000 / global population 7.8B = $32,050 per living person. This means that to create a coin that is similar to the current value of the dollar, you need to create a money supply with a constant of 32,050 coins per living person.

When a person creates 1 coin per hour that is being deperciated with 30% per year, this results in a situation that after 30 years, this person constantly ‘owns’ 24,577.27 coins (1 coins per year divided by 0.0040688% equals 24,577.27 coins). With 40% depreciation this calculation results in a situation that after 20 years, this person constantly ‘owns’ 17,160.90 coins (1 coins per hour divided by 0.0058272% equals 17,160.90 coins). We calculated that a money supply of 32,050 coins per living person is the situation where 1 coin represents one dollar. This means that when we use 1 coin per hour and a 40% depreciation, the money supply will eventually be 17,160.90 coins per person in the global supply (and it would be the only money in circulation). In that case the value of that 1CoinH coin would be equal to about $1.87 (32,050/17,160.90) using the dollar value of today. We prefer the faster 40% depreciation (that results in a $1.87) over the slower 30% depreciation (that results in a $1.30 (32,050/24,577.27) value in 30 years) because it seems sensible to increase the incentive to be productive in a world where all people create their own money. One thing is very clear: When we redistribute wealth this way, nobody needs to work to be able to provide in their basic human needs (potable water, proper food, shelter clothing, electricity and information). Tests with unconditional basic income show that most people will be even more productive and are better entrepreneurs when they don’t need to worry about their basic necessities. But to be sure, we use the faster depreciation of 40%.

No Voting
It could be an idea to create a voting system where the users could decide to change the depreciation factor. It is however to be expected that the system of free capitalism makes sure that productivity will be sufficient and all basic necessities will be provided in any case. Changes to the depreciation value is likely not needed at all and will not be programmed in the initial 1CoinH open source software.

Still Have Questions?

The 1CoinH / Ethical Money system is nothing like we have ever seen before. We can imagine you have plenty of questions left.

Please don’t hesitate to ask us. It also helps us to understand what we haven’t explained well enough.