MyCHIPs Digital Money
A Private Credit Example
It can be mind-boggling to try to comprehend how money circulates within an economy. Understanding MyCHIPs can be just as confusing at first. So it can be helpful to start with some simple examples, gradually add on some more complexity, and then extrapolate to understand how the system would work on a larger scale.
As mentioned, money is created through the act of making a promise to deliver value in the future. Conversely, money is destroyed when that promise is fulfilled. We will call the first part the issuance of money. The second part we will refer to as its redemption.
This idea of money just coming into existence, and then vanishing again, can seem very strange at first. It is especially hard if you think of money as having intrinsic value like gold, or as being in finite supply like Bitcoin.
We have all cringed at seeing hundred dollar bills going through the shredder at the Federal Reserve.
How can they just destroy money?
Isn’t value being somehow lost?
This will be easier to understand using the following simple example of how privately issued money is created and redeemed.