MyCHIPs Digital Money
Starting Simple
For our first example, we will imagine an economy where there is only one employer, a bunch of employees, and only one place to buy things. To make it even simpler, we will choose a company, Wal-Mart for example, that can serve as both the employer and the place to buy things. Since Wal-Mart sells lots of different things, we’ll imagine they have everything you need to survive.
So you are a Wal-Mart employee and you go to work each day and earn your pay. Under the old money system, you would receive dollars—either in the paper form, or more likely, just as bits and bytes stored in a bank’s computer somewhere. Then, when you buy something, you would spend those dollars, giving them back to Wal-Mart in exchange for the things you actually want and need.
At this level of simplicity, it is pretty easy to see, the bank is not really very necessary. Instead of accumulating some digital information in a bank’s computer, it would be just as easy to accumulate the same information right in Wal-Mart’s computer. In other words, your employer could just recognize your work and give you a printout showing the credits you have accumulated toward future purchases.
In essence, you are lending value, in the form of work, to Wal-Mart. Said another way, they are making a promise to deliver value to you in the future, equal to the hours you have worked for them in advance.
In this scenario, you are the creditor, or lender. And Wal-Mart is the debtor, or borrower. Because Wal-Mart is the one making the promise, it is the issuer of the money.
When you decide to buy something, they will debit your CHIP account for the proper amount—the amount of debt being redeemed. The total amount of outstanding credit will be reduced. The money supply will be reduced, just as if some bills had been sent through the shredder.
So one principle to remember is: money, like an IOU, is of no value while in the possession of its issuer. It only has value to others when they possess it.
The second thing to note is, no banks are needed so far—just two parties, voluntarily associating with each other in a mutually beneficial relationship. You just have to trust Wal-Mart to honor your credits and actually give you the stuff you want to buy with your available balance of credits.
Now let’s turn things around a little. Imagine you are a trusted, valued employee—so much so, that Wal-Mart is willing to let you buy a certain amount of things even before you do the work to deserve it. So even if you’ve used up all your credits for the month, they still let you come in and get more of what you want and need.
Suddenly, Wal-Mart becomes the lender and you become the borrower. Wal-Mart is lending you value in the form of goods and services.
You promise to repay them at some future time, so this will show up as an asset on Wal-Mart’s balance sheet, a promise, or note receivable. But you’re not going to give them regular money—you will just be trading them some more of your work time. And when that happens, the credit will diminish, until it has been extinguished completely.
Now it’s your money going through the shredder. And you shouldn’t be worried, because it just means your debt is being reduced.
This simple case demonstrates pretty clearly how credit can be both issued and redeemed. It also helps us understand why we could be satisfied receiving nothing but a computer printout of our accumulated time credits. As long as we trust the issuer of the money, it can be just as real as the dollars we carry around in our pockets, or whatever we think it is that exists inside our bank’s computer.
But the world is obviously much more complex than a single employer who also produces all the things we want to buy.