Money Emission

for Everyone

A practical manual describing concepts,

technical infrastructure and processes

With an appeal to join in!

Translated from German by

Craig W. Meulen

Olga Foertsch
 Title: Money Emission for Everyone
Original title: Handbuch zur Geldemission fr jedermann
Author: Olga Foertsch
Language: English
Translation: Craig W. Meulen (www.fowingriver.de)
Edition: 1. Edition October 2013
Publisher: Tintenfa, Weimar, Germany
Copyright O. Foertsch 2011, 2013
Free copy for contributors (K)
Format: PDF
Filesize: 3.2 MB
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E-mail: post@kabatinte.net
Table of Contents

1. A brief history of this book.......................................................................8

Structure of the book and its target readership.................................................9

2. What does money emission mean?.......................................................10

3. A leap of consciousness............................................................................12

4. Money not as obvious as twe think?....................................................15

Bridging the gaps................................................................................................ 15
Te inseparable couple....................................................................................... 17
Constantly adapting............................................................................................ 19
A benefcial idea.................................................................................................. 21
Te revolution..................................................................................................... 24
A little sociology................................................................................................. 26
Te disturbance................................................................................................... 30
A perfdious game............................................................................................... 34
What was going wrong?..................................................................................... 42
Te magic triangle............................................................................................ 47
Obvious yet mistaken......................................................................................... 55
Te challenge....................................................................................................... 58

5. Te concept from the twhole to the parts..........................................61

Te basic idea....................................................................................................... 62
Seting up........................................................................................................................63
Value reference..............................................................................................................65
Value stability................................................................................................................65
Emission..........................................................................................................................66
Emission administrator...............................................................................................67
A personal dilemma............................................................................................ 70
Confdence........................................................................................................... 73

6. Credit money correctly emitted..........................................................75

What does credit money mean?...................................................................... 76
What does correctly emitted mean?...............................................................80

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 Bitcoins................................................................................................................. 86
So whats the diference?.................................................................................... 90

7. Free as in freedom.....................................................................................94
May the source be with you............................................................................... 94
Interests in common............................................................................................ 99

8. Like a phoenix from the ashes.............................................................104

A brief description of the standard transfer...................................................105
Emission and database administration............................................................107
System participants and their verifcation......................................................108
Wallet................................................................................................................. 113
Anonymity......................................................................................................... 115
Ill wire you the money... the standard transfer in detail.......................117
Payment of the TAdmin.................................................................................... 125
Of great importance.......................................................................................... 126
Trust not a trivial matter............................................................................... 127

9. Hotw about your otwn currency?...........................................................130

Te standard transfer as reference value for a currency..............................132
Designation........................................................................................................ 134
Other currencies................................................................................................ 135
Giving change.................................................................................................... 137
Assessment of value.......................................................................................... 138

10. Overvietw of the technical infrastructure.........................................141

Sofware packages............................................................................................. 141
Emission administrator..................................................................................... 142
Transaction administrator (TAdmin)..............................................................145
Knot exchanges and payment service providers............................................148

11. Intermezzo: Readers questions..........................................................150

12. Emission...................................................................................................166
Data format of an emission.............................................................................. 166
Static felds of the emission.............................................................................. 168
Emission ID..................................................................................................................168
Emiter ID.....................................................................................................................169

4
 Identifer of emission administrator......................................................................170
Time of emission.........................................................................................................170
Limiting the period of validity of emited monetary units..............................171
Value reference of the emission..............................................................................171
Dynamic felds of the emission........................................................................ 172
Status.............................................................................................................................173
Current exchange rate in KNOT.............................................................................173
Emission volume.........................................................................................................174
Returned units.............................................................................................................175
Wiki for the emission........................................................................................ 175
Language modules......................................................................................................175
Statistics........................................................................................................................176
Feedback and comments...........................................................................................176
Data format of a monetary unit.......................................................................177
Emission ID..................................................................................................................179
Identifer of emission administrator......................................................................179
Time of frst issue.......................................................................................................180
Serial number of the monetary unit.......................................................................180
Public key of the possessor......................................................................................181
Time of last transaction............................................................................................181
Transaction administrator identifer for the last transaction..........................182
Status.............................................................................................................................182
First issue........................................................................................................... 183
Redemption of monetary units........................................................................185

13. Te emitter..............................................................................................189
Emissions by individuals.................................................................................. 191
Creative professions...................................................................................................191
Standard contracts......................................................................................................192
Emissions by non-banks................................................................................... 194
Business participants.................................................................................................195
Public administrative bodies....................................................................................197
Bank emission.................................................................................................... 199
Changing money........................................................................................................200
Payment service providers.......................................................................................202

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 Negotiable instruments.............................................................................................202
Bundling small emissions.........................................................................................204
Clearing.........................................................................................................................205
Summary on emission by banks.............................................................................206

14. Emission management.........................................................................209

Emission strategies............................................................................................ 210
Defning aims..................................................................................................... 212
Money supply.................................................................................................... 213
Exchange rate monitoring................................................................................ 215
Return fow........................................................................................................ 220
Period of validity and its limitation................................................................223
Area of validity.................................................................................................. 225

15. Administering money stocks..............................................................226

Technical aids.................................................................................................... 226
Structuring money for the payment procedure.............................................229
Hoarding............................................................................................................ 231
Money media..................................................................................................... 232

16. Accumulating capital and credit........................................................235

Credit money and investment credit...............................................................238
Investment bonds.............................................................................................. 239
Financing diferent life stages.......................................................................... 241
Purchasing investment bonds.......................................................................... 244
Issuing private bonds........................................................................................ 247
Insurance............................................................................................................ 249

17. About potwer............................................................................................252

18. A little science fction...........................................................................259

19. Appendix.................................................................................................260
Te standard transfer: step by step.................................................................261
Step 1.............................................................................................................................262
Step 2.............................................................................................................................263
Step 3.............................................................................................................................263
Step 4.............................................................................................................................265

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 Step 5.............................................................................................................................267
Step 6.............................................................................................................................267
Step 7.............................................................................................................................269
Step 8.............................................................................................................................270
Step 9.............................................................................................................................272
Step 10...........................................................................................................................274
Step 11...........................................................................................................................274
Concluding remarks on the standard transfer....................................................276

20. Glossary...................................................................................................277

21. References...............................................................................................290
Bibliography...................................................................................................... 290
Unpublished sources......................................................................................... 291
Wikipedia articles............................................................................................. 291
Other sources..................................................................................................... 294

7
 A brief history of this book

Te ideas and concepts presented in this book were already quite a few years old
when I decided to put pen to paper a decision which took a long time to manifest
and was not without obstacles.
Originally I had thought the project could form a basis for a good business, en
abling me to gain infuence and wealth. But as many more experienced readers
might already suspect, I later realised a project like this cannot and should not
be realised alone. Ill go into this in more detail at another point.
Te efects of the fnancial crisis raging worldwide since 2007 are shaking up pub
lic awareness to the extent that a large number of people are now prepared to re
cognise that there are defciencies in the modern monetary system and shortcom
ings in the political system we generally refer to as parliamentary democracy.
However, the outraged revelations and disclosures in ofcial or alternative media
and indignant readers leters will all be of litle use unless there are tangible solu
tions also being proposed.
In this context, I began to ask myself whether my business idea could actually be
one of these tangible solutions in one form or another. Some very valuable per
sonal encounters then helped me come to the decision to publish my idea as a draf
of a project which might go on to fnd supporters who could join together to put it
into action.
Te idea of money emission for everyone raises many important questions re
garding organisation and design, for example but the most urgent one is defn
itely: How do we begin? I devoted the most time to answering this question. Te

8
world does not need yet another theoretical discourse on alternative monetary
systems. What it needs is a practical manual on how to install such a system. And
that is what this book is intended to be.

Structure of the book and its target

readership

Te book touches on technical, economical and sociological topics. In each of these

areas, I have been careful not to become too specifc, aiming to write understand
ably for a wide readership.
Readers with greater prior knowledge might fnd the presentations in some sec
tions too simple, whilst others might encounter very challenging sections. Rest as
sured, each part is writen with the whole in mind. And for this reason, I advise the
reader not to skip anything but to read through the book in the order it was writ
ten.
In the middle of the book there is a chapter I added to respond to feedback from
my test readers: it provides additional explanations and answers to frequent ques
tions.
Since the book is intended to be a practical guide and introduction to implement
ing the concepts involved, I would be very grateful to receive feedback from read
ers wanting to take a closer look at the issues.

9
 What does money emission mean?

When I told people the title of the book I was writing, most of them struggled with
the term emission and suggested I choose another word. Te question became
poignant once again with the translation of my book into English. So let us begin
directly with a defnition of the word as I have used it1.
Te emission of money is the process of creating money and bringing it into circu
lation for the frst time. Tis is most commonly referred to in English as issuing
money but I have chosen to retain the word emission in order to emphasise the
process involved, as opposed to a one-of action to issue money.
In the same way that oxygen is essential for most living beings, money plays an es
sential role in a developed economy based on the division of labour. Emission as an
ongoing process covers the saturation of the system with money, its gradual con
sumption and continual replenishment2. So we cannot talk about the (one) emis
sion but rather we need to understand it as many processes running in parallel
with the same goal: to supply money to the participants in the economic system.
During the course of human history, these processes took place in a variety of dif
ferent ways, depending on the respective societys level of development. Tey were
adapted to meet the needs of each economic system and the power relationships
prevailing at the time.

1 Te glossary at the end of this book contains further terms which may not be familiar to readers
or which I am using in a specifc sense of the word in this book. I encourage readers to use it ex
tensively!
2 Te fact that current practice is deviating from the process described here is actually one of the
reasons why a book such as this one had to be writen sooner or later.

10
We will soon be taking a closer look at the details of these processes but frst some
very diferent considerations are necessary: unless we adopt a particular frame of
mind, we are unlikely to succeed in truly re-examining our ideas about the topic at
hand.

11
 A leap of consciousness

Te ability to invent something new implies seeing a possibility for improving the
old. In other words, we need to recognise that what we already have is not perfect
or God-given. Equally, we can only have the willingness to learn something new
if we frst gain an important insight: we do not know everything. Tat may sound
obvious or trivial, but it is not.
How many people fell and drowned trying to cross a river before someone had the
idea of building a raf, boat or bridge? How many people had both paper and glue
in their hands without coming up with the idea for a Post-it note?
An invention always requires a particular atitude that allows the inventor to see a
crack or tear in the fabric which everyone else regards as perfectly normal and un
shakeable. Once this discrepancy has been seen, they can set of on a quest to over
come it by developing something new, taking us to a higher level where there is a
solution to this discrepancy.
For example: Everyone used to be quite happy having no label and no symbol for
something that does not exist. Afer all, if something does not exist it seems quite
obvious and logical not to label it. Tis was the state of afairs until someone saw a
discrepancy and came up with the concept of zero. Just how revolutionary this
idea was can be seen in the length of time (many centuries) it took for the zero to
develop from being a mere placeholder into a digit with its own symbol and fnally
into a full-blown number.
Te questions confronting an inventor at the beginning generally contain appar
ently irresoluble paradoxes. Tis is best illustrated by looking at a few inventions
that have already found acceptance; a successful solution always carries with it the
discrepancy that led to the solution. For example, a window provides us with a

12
hole in the wall without itself being a hole. A sieve has the property of holding
substances back, without really doing this. A rolling wheel constitutes a support
without actually being a support, strictly speaking, since the point of support is
constantly changing.
For each of these examples, the inventor was once faced with a problem they con
sidered important to solve. However, it was apparently impossible to solve the
problem because the demands posed were mutually exclusive (e.g. needing a gap in
the wall without having a hole). Tis is the task that every invention comes up
against: finding a synthesis to unite the contradictions that make the invention
necessary.
Tis is easier to understand if we look at a few more examples.
A pollutant flter has to be conveniently shaped and sized so it remains suitable for
a variety of applications: its active ingredient therefore has to have a large reaction
surface area but a small volume. Tese two requirements initially seem to be very
contradictory since it appears impossible to achieve a large surface area without
having a large volume as well. Te innovative solution here is the use of activated
carbon. Tanks to its highly open-pored structure3, it has an extremely high ratio
of inner surface area to outer surface area.
A similarly antithetic set of requirements is set by another example: the transport
of solar panels into orbit as part of the energy supply for a satellite. During trans
port, the solar power plant has to be as compact as possible. In its working state in
orbit, however, it needs panels with a large surface area. And furthermore: Tere is
nobody at the destination to assemble anything. Te solution to this confict can be
found in a sophisticated application of folding. Te individual elements of the
power plant are folded together in such a way as to enable an automatic unfold
ing at the destination similar to a leaf bursting from its bud.

3 Activated carbon consists mainly of carbon (mostly > 90%) with a highly porous structure. Te
pores are connected to each other like in a sponge (open-celled or open-pored). Te inner sur
face area is between 300 and 2000m/g carbon. Tis means that the inner surface area of 4 grams
of carbon is approximately equal to the area of a soccer pitch. [Art.] Activated carbon. In:
Wikipedia, htp://de.wikipedia.org/wiki/Aktivkohle, accessed 21.09.20111 18:21 CEST

13
Developments such as these are not exclusive to humans nature itself ofers us
an enormous variety of examples. Nature has achieved an impressive perfection
thanks to innumerable trial-and-error experiments taking place over long periods
of time, leading to optimal solutions.
Humans difer in one regard: their ability to accelerate the solution-seeking pro
cess by adopting a structured approach and taking advantage of existing solutions,
including those ofered by nature.
So let us summarise. For a successful invention, we need the ability:

to perceive a discrepancy or fault in something that appears quite normal;

to systematically express this discrepancy or fault; and

to resolve it by transferring or transforming it into a new quality the in

vention.
One of the most important factors here is the appropriate mental atitude which al
lows an inventor to make the necessary leap of consciousness involved in taking
something regarded as so unshakeable, stable and obvious as not to be worthy of
particular atention, and then actually paying particular atention to it and think
ing about it, without limitation or regard to any authorities that claim jurisdiction
over it (whether the state, physical forces such as gravity, or the law of conserva
tion of energy).
Disproving the law of conservation of energy is a task Ill leave to others who are
beter qualifed but I will now go on to test the ability to take this leap of con
sciousness with a diferent, much less fundamental test object: the monetary sys
tem.

14
 Money not as obvious as we think?

What is the worth of a gold coin compared

to the dexterity of the hand that holds it?

T. Pratchett, Making Moneyt, Chapter 11

If you ask people the question Where does money come from?, you will gener
ally hear the answer: From the bank. For many people this is as obvious as the
source of electricity (the plug socket) and fuel for their car (the gas/petrol station).
However, there are people who have thought a litle more deeply and would be
able to tell you that modern money arises in a credit creation cycle maintained by
banks and other commercial credit institutions. And they might even mention the
role of the central bank.
If we also bear in mind the fact that the modern monetary system is designed to be
as incomprehensible as possible, we can actually consider both of the above an
swers as correct. Nonetheless, what I now want to explore is not the truth of these
two statements, but rather an issue common to them both that is assumed to be ob
vious and therefore rarely looked at more closely.

Bridging the gaps

In a society based on the division of labour, everyone has to make use of the results
of other peoples labour. Availing oneself of the fruits of others work would be

15
called thef were it not for the universally accepted solution of providing some
form of compensation in return. Te value of this exchange does not always have
to be measured in terms of money, as is illustrated by examples such as: helping
out neighbours, performing charitable work or providing mutual support within a
family or circle of friends. Nonetheless, as the relationship between the parties in
volved becomes less direct or personal, it becomes easier (and more appropriate) to
provide this compensation in the form of money.
Indeed, money was once an invention designed to help overcome discrepancies in
the process of exchanging goods or services. A division of labour the diferenti
ation of the working process into individual activities which then become ever
more specialised is actually only sensible and benefcial if the opportunities for
cooperation are in place for very diferent skills and components to be used or put
together in useful ways. If these possibilities are missing, a manufacturer or mer
chant will not be able to generate sufcient turnover with their specialist services
or components. Tis will force them to broaden their palete again, resulting in re
duced division of labour and, in turn, a decrease in productivity.
Increasing division of labour not only means that we have to bring together produ
cers and consumers: they also have to be brought together at the right time and the
right place. If a direct barter or payment in kind is the only way to setle this ex
change, it very quickly reaches the limits of practicability. So to solve this problem,
an interim step is introduced into the process of exchange. Firstly, the participant
exchanges their goods for something that they do not actually need but which they
can retain without risk or loss of value for as long as it takes them to fnd the
goods or services they do need. Ten a second exchange can take place. Tis
something used in the interim step could be described as the puty which bridges
the gaps at all of the diferent points of intersection in a complex economy based
on a division of labour, holding the whole construction together. Te reader may
well have guessed that we are referring to money here, but money does not fulfl
this function alone: it has a partner which is no less important.

16
 The inseparable couple

Many treatises on money begin by referring to livestock, cowrie shells or coins as

examples of monetary units used during the history of mankind. Unfortunately
they forget another process that has existed for thousands of years under diferent
names: examples such as on the cuf, on the slate, chalk up and tally 4 all re
mind us of materials used to record obligations when a person had received some
thing but did not pay for it immediately. In China similar arrangements were
known as the winged wheel.
Te principle is simple. Firstly, one participant receives goods or services without
yet providing any compensation. Tis is recorded as an obligation and the record is
lef in place until the compensation is provided in the manner agreed (generally in
terest-free). Tis system for administering delayed payments allows transactions to
take place even if there are obstacles to providing immediate compensation.
For example, if the unit used to measure payments is a sheep but the owner of a
fock of sheep only wants to buy a dozen eggs today, it is hardly possible to organ
ise this in any other way than chalking up this comparatively minor obligation
together with subsequent purchases from the egg seller until the value of all the
eggs sold accumulates to the level of the minimum payment unit of one sheep. Te
seller can remain confdent that he will eventually receive this payment as long as
the purchaser remains in possession of his fock of sheep.

4 A tally stick (or tally, spec. split tally) was a counting device used from very early in human
history right through to the Middle Ages and beyond. One of its main uses was to document
debts between two parties in a way that could not be tampered with. A suitable long board or
stick was marked with notches in an appropriate way to record the numbers involved. Te
board or stick was then split along its length. One half was given to the debtor, the other to the
creditor. Since the notches reached from one half to the other, by puting the two halves to
gether it could clearly be seen if they were from the same stick. And if one half had been
tampered with, the notches would not match up. Te arrangement between the two parties was
usually such that they would agree a date upon which the split tallies would be reunited and the
debt setled. [Art.] Tally stick. In: Wikipedia, htp://de.wikipedia.org/wiki/Kerbholz, accessed
18.08.20111 17:03 CEST

17
When the use of a particular means of payment was linked with a tax, as in the
case of bracteates5, these taxes could be evaded by fnding a way not to use that
particular means of payment. For example, the debtor could promise to pay of
their obligations gradually by performing work themselves.
Up until this point I have deliberately avoided writing the word that is now most
commonly used in connection with practices such as these: credit. By describing it
instead of referring to it directly, I hoped to shed some clarity on how it came to be
and what its purpose is: namely, the fulflment of a process of exchange.
Tis approach of deferring6 a due payment until a suitable way of setling it has
been found was always intended to even out any inconveniences posed by the
monetary system prevailing at the time, such as unsuitable denominations, unse
cured money circulation or overwhelming tax pressure.
Every monetary system ever used therefore developed ways to record due but un
paid payments: credit. However, we should not forget that credit 7 is only granted
where the parties are confdent that the obligation can and will actually be setled
at some point.
Money and credit, this inseparable couple, thus both serve the same purpose. Te
aim is to bring together products or services from various participants in an eco
nomy, forming ever larger assemblies until there is a whole or an end product that
is acquired by an end consumer, thereby completing the economic cycle. Tis end

5 Bracteate (from Latin bractea, a thin piece of metal) is a term used for particular coins produced
in central Europe during the early Middle Ages. Bracteates were the main type of coin minted in
German-speaking areas from the middle of the 12th century through to the 14th century (with
the exception of the Rhineland, Westphalia and the Middle Rhine region. Te term bracteate,
however, is a later invention, frst being used for this type of coin in the 17th century. In some
regions the bracteates were called back regularly (in Magdeburg in the 12th century twice a
year) and had to be exchanged for new coins of lesser value. For example, 3 new coins were
given in exchange for four old ones. Te fourth coin was used instead of taxes to provide in
come for the mintmasters (renovatio monetae). [Art.] Bracteate. In:Wikipedia, htp://de.wikipe
dia.org/wiki/Brakteaten, accessed 18.08.20111 17:42 CEST
6 Defer: to decide to put something (e.g. a payment) of until a future time. In: dictionary.com (ac
cessed 14.04.20113)
7 Credit linguistically related to the Latin credere to trust, entrust, believe, the commercial
sense was the original one in English (creditor is mid-15c.) In short, credit encompasses any
form of deferred payment. [Art.] Credit (fnance). In: htp://www.etymonline.com/index.php?
term=credit accessed 30.01.20113.

18
product is always a consumer good. Money and credit interact with each other,
complementing each other to ensure that the society always has a suitable means
at its disposal to enable the appropriate levels of cooperation.

Constantly adapting

According to the history of its development and purpose, money is a special eco
nomic good which is particularly suitable to be used as a medium of exchange. Te
properties of money are therefore not directly related to the specifc economic
good itself. Instead, the signifcant properties are those that make it suitable as a
medium of exchange. Economists refer to this suitability as marketability 8. An
outstandingly marketable economic good has properties that make it particularly
useful, desirable and easily tradeable for a specifc market situation. For example, if
two such economic goods have otherwise identical properties, the one that is more
easily divisible will surely become more popular as a medium of exchange than the
one that is only available in larger units.
Inventions are always designed to serve a particular function and more specifcally,
to ofer a solution to the technical problems hindering this function. Money as an
invention serves to facilitate the highest possible number of economic transac
tions, so we need to consider money within its historical context to understand the
problems it was invented to solve, in turn understanding why it developed the way
it did.
At the time in history when sheep were used as a monetary unit, they would have
fulflled these conditions and been very popular because society was at a particular
level of economic development where there were hardly any streets. Someone who
wanted to make a large purchase in a remote place was hindered by the difculty

8 See: Rothbard, M. N.: What has government done to our money?, p. 17-19

19
of transporting enough goods to make the payment to the seller, so it was very
practical to use a means of payment which could walk there itself and did not need
to be carried!
Another advantageous means of payment was the labour performed by slaves: this
could very easily be divided into small denominations by forcing them to work
for days, weeks or months as required to pay of any obligations the owner had.
While markets were still small and communication poorly developed, it was also
very important for money to have the property of being able to store value. It was
difcult to know whether, when and where the next opportunity for exchange
would arise afer all, there might even be a war in the time between one transac
tion and another. So money had to carry its value through time and space. Tis was
known as commodity money9. It developed gradually and generally culminated
in the form of embossed metal coins. Its market value was determined by the value
of the metal it contained but also by the extent to which each type of coin was
known and accepted.
As time went on, with economic and communication channels developing further,
the storage of value in the form of metal actually began to present more and more
obstacles. Tere was a limit to how quickly commodity money could be moved
around and this transfer incurred high transport costs, not least because of the
risks involved. Additionally, while it was being transported from one place to an
other it could not actually be used for its intended purpose. So signifcant down
times were inevitable and the efects of these became more severe as the level of
cooperation within a society became higher. Transferring large sums of money was
also not without problems if this could only be done by means of coins.
Nonetheless the main difculty presented by the use of money made from precious
metal was the difculty in ensuring that this money remained in constant circula
tion. Its property of easily and reliably storing high levels of value meant that pre
cious metal money was also extremely suitable for hoarding. So instead of serving

9 S. H. Schwenke uses the term inherent-value money (Selbstwertgeld). See Parity theory,
p. 7

20
its real purpose of facilitating turnover 10, it frequently served as a permanent store
of value. As time went by, people became so accustomed to this property that they
began to consider it as an indispensable function of money.
However, this was a fallacy. It may have been an indispensable quality initially, but
the direct connection between value and medium (as embodied in a coin made of
metal) later turned into a faw. Te changing requirements of a developing eco
nomy could no longer be met satisfactorily by precious metal coins as the sole
means of payment available. So a further innovation was called for and this was
found in the uncoupling of the value of money from its material substance.

A beneficial idea

Fans of precious metal may well object at this point and cry out indignantly, Te
world was fne as long as we still paid with gold and silver! Indeed, this was true
for a while. But nothing lasts forever.
As it strived for ever greater efciency, the economy improved its means of com
munication constantly, reducing response times for every economic connection.
Some scientists justifably refer to money as one of the economys means of com
munication11, so it was inevitable that following the invention of precious metal
money, further innovation and efciency was necessary here, too.
Tis meant that payment processes also had to be accelerated. And this was ex
actly the difculty due to the nature and material of the means of payment in use:
precious metal coins being transferred in large quantities have to be organised and
guarded well to make sure they actually arrive. During the transport, it was im

10 Turnover (here) the total value (within a particular period of time) of goods sold and/or ser
vices performed. [Art.] Turnover, Def. 1. In: Duden online (own translation) htp://www.
duden.de/rechtschreibung/Umsatz#Bedeutung1, accessed 04.05.20112
11 e. g. Niklas Luhmann: Geld als Kommunikationsmedium (Money as a medium of communica
tion). In: Die Wirtschaf der Gesellschaf (Te Economy of Society), Suhrkamp 1994, ISBN
3-518-287752-4, p. 230271

21
possible to carry out further transactions using these coins, even if all other condi
tions had been fulflled. So another medium had to be found which could facilitate
transactions regardless of the condition of streets and waterways. Only then could
turnover be maximised.
At the beginning of the 17th century, the Bank of Amsterdam was one of the frst
to fnd a solution for this problem. Recognising that many diferent merchants all
held accounts with the bank (which essentially meant they all stored money in the
banks store rooms), it saw the possibility of directly setling the obligations of one
of its clients with another by simply entering changes to the account balances in
their books. It was no longer necessary for a client to remove his money from the
banks premises. From this point on, the banks clients were able to make pay
ments simply by issuing an order to the bank. Tese writen orders had many ad
vantages compared to the previous method of payment: they could be transported
much more simply, quickly and cheaply and if they were designed correctly there
was no longer any risk of loss on the way. Te business activity could also con
tinue even if no ship or other conveyance was available to be sent of carrying
coins.
Tese bankers orders complemented the already existing practice of using promis
sory notes, which could solve short-term liquidity problems in a similar way. Tese
promissory notes or bills of exchange were based on the same idea as the normal
credit we are familiar with today. However, since they are rarely used nowadays, it
is worth presenting the way they worked in a very simplifed way here.
A merchant with a large stock of goods but lacking in short-term liquidity could is
sue a promissory note to a business partner to whom he owed money. Tis was
simply a signed promise confrming his obligation to pay a particular amount of
money at a future point of time. Te business partner who chose to accept this
promissory note as payment could be confdent that he would receive the amount
due, even if the last resort was to accept payment in kind from the stock of goods
owned by the merchant; in other words, the merchant would take back his promis
sory note at any time and pay out goods to the value of his debt. For well-known
merchants with a good reputation, these promissory notes gained general accept
ance and could themselves circulate amongst diferent business partners up until

22
their due date (the promised date of payment) or until someone was found who did
indeed require the goods held in stock by the merchant who issued the note. In
these later cases, a promissory note served to facilitate many diferent transac
tions without the involvement of any other means of payment. We will return to
this procedure later.
So promissory notes or bills of exchange can be seen to be a modifed version of
credit, also serving to overcome shortages in the usual form of money. In other
words, they made turnover possible even during liquidity squeezes. Teir main dis
advantage consisted in their relatively limited sphere of action, since this was de
pendent upon a degree of familiarity with the issuer. Tis posed a particular
obstacle when it came to business conducted across borders, ofen seting very tan
gible limits on its acceptance.
A bank generally had a beter overview of the securities possessed by its clients
and could therefore more accurately estimate the reliability of their promissory
notes, so the bank had a signifcant advantage in this respect. Banks soon learnt to
exploit these advantages. For example, a banks knowledge of the solvency of their
clients enabled it to identify good promissory notes, which meant it could ofer
to pay out the amounts concerned less interest to bearers of those notes before
the actual due date. Tis was known as discounting the bill and was, of course,
done for a fee.
At this point we should not forget that these procedures would not have been ac
cepted if the parties concerned had not all benefted from them. Tese innovations
enabled a rapid increase in the number of possible transactions. And everybody in
volved earned at every stage.
As an institution known by many more people, a bank inevitably had a larger
sphere of action than any of its clients. Tis ofen enabled it to facilitate transac
tions across greater distances, such as cross-border transactions, which were previ
ously not possible.
Using entries on bank accounts to record payments in this way was an important
milestone on the way to uncoupling value from a physical medium of payment.
However, there was still another important hurdle to overcome before the decisive
breakthrough was made.

23
 The revolution

Bringing in the bank as an intermediary body proved to be very benefcial as it led

to quicker setlement of payments between merchants. Hand-in-hand with this de
velopment, the number of transactions carried out in any given period of time then
rose, increasing the level of cooperation within society.
Te cheque12 established itself alongside the promissory note as a comfortable
means of payment with (almost) all of the advantages of the old full-value money
but without its disadvantages. One risk remained when accepting a cheque: the re
cipient could not be absolutely sure that the bank account of the issuer adequately
covered the amount issued. In other words, the cheque might bounce. So the re
cipient of the payment was dependent upon having certain information about their
business partner. In cases where they did not know the business partner well
enough, they might even choose to refuse payment by cheque and turn down the
business.
Banks soon came up with an idea how to overcome this disadvantage with a new
monetary development: they began to issue money orders based on their own
stores of precious metal13. Tese money orders soon became known as bank
notes. Tis development was based on the fact that the acceptance of bankers or
ders depended on the extent to which the issuer was known as a reliable partner.
Banks were generally much beter known than any of their clients, so this ensured
higher acceptance for this type of money orders. Te recipient of a bank note
could be sure that this was much less likely to bounce since the issuer was a bank
itself and the order was much more likely to be adequately covered than an order
from an individual businessman, who they might not even know personally.
Since the bank did not issue these banknotes for a specifc transaction but rather in
the knowledge they could be used for any transaction, it seemed an obvious choice

12 Tis is merely another word for the bankers order described above.
13 Te atentive reader will remember that bankers orders until this point were orders related to a
particular clients store of precious metal money.

24
to issue them in units of diferent sizes to enable payments of any amounts to be
made. And it was this use of standardised denominations which proved to be the
true breakthrough.
From now on, payments could also be made by bankers order even if the business
partners were not clients of the same bank: they simply exchanged their banks
own money orders banknotes for goods. Te appropriate denominations also
enabled transactions of low value, integrating yet more, previously excluded, act
ors into this aspect of economic life14.
In this way, the invention of banknotes enabled society to increase its level and
density of cooperation once more, in turn leading to synergistic efects. Banknotes
also made it possible to make secure anonymous payments of any amount. And
they did not encourage hoarding in the same way as precious metal coins, which
was an additional factor increasing the rate of money circulation.
Te possibility of paying workers with these banknotes led the economy further
along the cooperation relay, in other words, to more division of labour and spe
cialisation which in turn increased the productivity of individual participants. Flex
ible payment fows facilitated efcient production of intermediary products and
the processes that brought them together to form more complex products.
Initial reservations concerning this new paper money were overcome by the
promise made by the bank upon issuance to exchange each banknote for gold from
its precious metal reserves upon demand. Assuming this promise could be upheld,
a banknote was just as securely linked to a particular value as a gold coin was. Pa
per money also had other advantages, including being easier to transport and be
ing available in units of much higher value. Tis led to an unstoppable expansion
in its use.
For our purposes, the most signifcant point to recognise is that a means of pay
ment had now been created which did not possess inherent value: the material it
was made of was just paper. Nonetheless, it was far from being valueless. Te bank

14 For instance, workers could also now be paid with banknotes. Tis had not been possible previ
ously since the bills of exchange circulating among merchants were generally issued for rather
high, irregular amounts because they were originally issued for specifc transactions. Tey were
therefore not suitable for paying workers wages.

25
in its role as an institution provided a particular beneft to society: the advantage
of being able to conduct far more transactions by using banknotes than were pos
sible without them.
Te overall beneft to society manifested as ever greater surpluses in the form of
capital, leisure time and consumption, which in turn led to greater distinctions of
needs and the fulflment of these needs. In fact, industrialisation would not have
been possible if money had not been adapted to meet the changing requirements
placed upon it15.
For the sake of all these advantages, society was even prepared to put up with
banks abusing their new prominent position16. Here we are entering an area that I
have deliberately not addressed yet, in order to be able to paint the picture of nor
mal, undisturbed development.
So now it is time to take a look at the other side of the picture at the disturb
ances. However, in order to understand the background beter we frst need some
knowledge of the theory involved.

A little sociology

Tis short theoretical interlude is primarily based on the ideas of the German soci
ologist Franz Oppenheimer, which I will present here only in a very compact and
mainstream way.

15 See: Die Banknote ist die Voraussetzung der Industrialisierung. (Te banknote is a prerequisite
for industrialisation.) S. H. Schwenke, Parity theory, p. xiii
16 For example, Stockholms Banco in Sweden is regarded as the frst note-issuing bank in Europe.
Also known as Palmstruch Bank, it was founded by Johan Palmstruch in 1656 and began circu
lating banknotes in 1661, promising to redeem them for precious metal upon demand. However,
just two years later in 1663 it was already obvious that the precious metal reserves of the bank
were in no way satisfactory to redeem all of the banknotes in circulation. In October 1664 it had
to cease operations and its liquidation was completed by 1667. Source: [Art.] Stockholms Banco.
In: Wikipedia, htp://en.wikipedia.org/wiki/Stockholms_Banco, accessed 25.03.20112

26
Te presentation so far in this book has been characterised by the assumption that
in an economy based on the division of labour, access to the results of the work of
other people is indispensable and is accompanied by compensation of correspond
ing value.
Now we need to present this more precisely. Te value of the compensation
provided can be agreed by both sides acting voluntarily but it could also be set by
one side threatening or applying violence. And this later case will now be the sub
ject of our considerations.
Franz Oppenheimer writes:

There are two fundamentally opposed means whereby man, requiring

sustenance, is impelled to obtain the necessary means for satisfying his de
sires. These are work and robbery, ones own labour and the forcible appro
priation of the labour of others. ... [O]n account of the need of having, in the
further development of this study, terse, clear, sharply opposing terms for
these very important contrasts, I propose in the following discussion to call
ones own labour and the equivalent exchange of ones own labour for the la
bour of others, the economic means for the satisfaction of needs, while the
unrequited appropriation of the labour of others will be called the political
means.17

As two tendencies, the economic means and the political means for the satisfaction
of needs have been present right from the beginning of the development of society.
Appropriating the surpluses of others without providing compensation the polit
ical means is generally accompanied by violence or force but does not appear as
a social institution until a) the production processes have developed sufciently to
actually produce surpluses and b) society as a whole is ready to tolerate this.
But why should a society tolerate this at all? Why should someone who has not
taken part in the process of production then be allowed to appropriate part of the

17 F. Oppenheimer: Te State, 1929, p. 9

27
results? Tis becomes possible when this someone is acting from a position of
overarching power whether this be due to superior weapons, technology, know
ledge or other factors.
Considered historically, this phenomenon generally appeared in the form of com
peting groups who were at diferent levels of development. Examples include raids
by nomadic peoples on agricultural setlements, or Europeans conquering the
American, African and Australian continents.
It is easy to understand why the conquered choose to give up their wealth when
the choice they are facing is: Your money or your life! However, it is more inter
esting to consider the motivation of the conquerors.
In prehistorical or early historical times, it was common practice for one group to
atack another group, plunder them, kill the strongest men and integrate the rest
into their tribe. Te conquered group generally had to forego their previous way of
life. In this context nobody could come up with the idea of plundering a particular
group more than once.
However, this was indeed the groundbreaking innovation which led to the next
stage of societal development. Te leap of consciousness involved here was the in
sight that it might be beter not to integrate the conquered tribe into ones own
ranks and not to take everything from them. Instead, the conquerors would leave
the defeated group just enough to survive and continue their economic activity,
ensuring the opportunity of plundering them again in the future!
Franz Oppenheimer considered this insight to be an economically and politically
monumental step in the development of humankind, which out of small hordes
has formed nations and unions of nations.

Nation and state, law and higher economics, with all the developments and
ramifications which they have and will put forth all of these arose in that
moment of incomparable, historical importance when first the victor spared
the vanquished in order permanently to farm them.18

18 F. Oppenheimer: Te State, p. 19

28
Exacting a regular tribute implied the continued coexistence of two diferent tribes.
Whether this coexistence was very close or not, the arrangement needed an appro
priate cultural superstructure to lend it the required legitimacy and enable it to
persist in a sustainable and trouble-free way. Heroic sagas and legends of divine
intervention to justify the choice of tribal leaders, kings and czars arose because
of this. Systems of traditional and writen law evolved for the same purpose usu
ally dictated by the conquerors at frst.
Related ideas were handed down and taught to subsequent generations, establish
ing the inequalities that now existed between social classes and leading to them
being considered as divine right and indisputable. In turn and in time, this made
it even easier to carry out the processes of economic exploitation, since religious
ideas especially in the form of a state religion also evolved in this direction.
Society as a whole did not tolerate the rule of a particular tribe only because they
would otherwise perish: in fact, they benefted from a very signifcant advantage
because the ruler protected them from atacks by other tribes even if he was only
doing this to protect his own interests. Te protection aforded by a state is ofen
regarded as one of the most important functions of this structure, but if we look
more closely we see that above all it serves to protect its subjects against exploita
tion from others and secure the income of the prevailing ruler.
Tere is also the internal protection aforded by a state: law and order and the pro
tection of property. Again, this can be seen as the conqueror protecting their own
interest in seeing a healthy economy develop and produce further surpluses. Te
continual development and adaptation of law served to ensure that the conqueror
would continue to be able to skim of these surpluses by the political means. Gen
erally this was achieved by granting the ruling classes special rights or privileges,
which ofen manifested themselves in economic life as monopolies.
Troughout all of its development stages, the state can be seen to act according to
the principle that characterised it from the beginning:

The State arose as nothing other than a social institution forced by a victori
ous group of men on a defeated group with the sole purpose of regulating the
dominion of the victorious group over the vanquished and securing this

29
 dominion against revolt from within and attacks from without. This dominion
had no other aim than the economic exploitation of the vanquished by the vic
tors. And this remained the almost complete essence of the State during the
first stages of its existence.19

Te afliation of diferent tribes to form a larger association also had economic ad

vantages, not least because a larger and more closely linked market enabled beter
cooperation between a wider variety of skills, improving the division of labour and
general productivity.
However, nobody and no society would ever tolerate blatant thef in the long run
because their production is built around an economic means which insists on hon
est and voluntary business transactions.
So in order to overcome this discrepancy, as societies continued to become more
closely knited, the political means also had to adapt. One way of adapting was to
choose the path of manipulation. And money as a societal institution did not re
main unafected by this. As time went on, it was forced to take on properties par
ticularly well suited to this purpose, which we will now take a closer look at.

The disturbance

Our short sociological interlude has shown us that there are two basic trends when
it comes to satisfying needs: the political means and the economic means. Te in
teractions between these two provide society with valuable and challenging im
pulses for its further development. Te tools and instruments used by the political
means are generally violence in the physical realm, the monopoly in the economic
realm, and manipulation in the intellectual realm.
Tese were all utilised as money was transformed from an instrument of the eco
nomic means into an instrument of the political means: the right to issue (or emit)

19 F. Oppenheimer: Te State, p. 7

30
money was gradually monopolised, the value of money was then diluted, and its
acceptance at a forced exchange rate was then ensured by threatening violence. Of
course, all of this did not happen overnight.
Money had always been counterfeited. Since it is used during the interactions of
almost all economic contacts, it is particularly suitable to be misused in order to
enrich oneself at the cost of others. Nonetheless, for the purposes of this book it is
useful to distinguish between individual acts of (private) counterfeiting and coun
terfeiting as a social institution.
Te former have always been regarded as a breach of morals but the later can only
occur and thrive under the protective wing of the state. We only have to think of
the double standards that have always been anchored in state law: morality, hon
esty and compliance with the law for the general population and privileges for the
elite or those deemed to rule with divine right20.
As soon as money established itself as the medium of communication for the eco
nomy, it began to unhinge the existing political structures. Te elite who had pre
viously based their power on land possession now quickly had to share infuence
with the representatives of the money economy. Accordingly there was a great in
centive to make use of this new money for purposes of political and not just eco
nomic power.
Taking over power happens according to a simple patern. A power-seeker has to
make use of their current strength in order to anchor their infuential position un
der the prevailing law and secure privileges for themselves compared to others. If
exploited consistently, the privileges built up in this way can then further
strengthen their hold on this infuential position in society. As time goes by, this
situation becomes anchored in societys collective consciousness by means of ap
propriate repetition and education. Eventually the whole society begins to treat it
as self-evident and beyond question.
We can illustrate how this was applied to the monetary system by looking at the
minting of coins.

20 As George Orwell put it in Animal Farm: All animals are equal, but some animals are more
equal than others.

31
Te difculties of payment with pieces of precious metal included the impossibility
of checking the exact weight or the purity of the metal with only the naked eye. Of
course, a set of scales could easily help to check the weight, but analysing purity
was a comparatively difcult and expensive afair 21. So the idea of minting special
coins was a very helpful one and warmly welcomed by all concerned. Te author
ity carrying out the minting the money emiter for a particular type of coin
ofered a guarantee concerning weight and consistency of the alloy used. Tis
guarantee was given in the form of their stamp embossed on the coin or the size
and shape of the coin itself22. Standardisation of the pieces of metal used for pay
ment made calculations easier and quicker; it can thus be considered a true im
provement in the nature of money as far as its purpose of facilitating turnover is
concerned.
As long as the business of minting coins was open to a number of participants in
the economy, there was no real danger that they would abuse this privilege since
they would simply be ruining their own source of income. Embossing a piece of
metal to make it into a coin added value to it which gave it more purchasing power
compared to a similar piece of metal that had not been embossed. Tis added value
covered the costs of the producer, particularly if their coins gained a good reputa
tion and were in high demand: producing large quantities then lowered the unit
production costs.
However, this all changed as soon as the political means entered the game.
Whether we consider the developments in southern or western Europe, China or
Russia, the approach taken was extremely similar.
Te local ruler secured for themselves the right to emboss or mint coins in their
territory and then declared that only the coins minted in their court would be re
cognised as legal tender. Currencies that were previously in circulation were
gradually suppressed. Having only one currency actually made calculations
quicker, so this development was actually well accepted in general. Particularly

21 In fact, according to legend, Archimedes famous Eureka moment came about as he was trying
to solve exactly this problem. King Hiero II had asked him to check whether a votive crown was
indeed made of solid gold without damaging it.
22 Te frst pieces of metal used as money were not shaped in a special way.

32
good acceptance was achieved when the new currency was designed to ft together
well with existing coins generally used in international payments, such as in the
case of the coin reform carried out by the Russian Tsar Peter the Great around
170023.
Increasing the size of the territories ruled also increased the area of validity for a
particular currency. Te craving for recognition that goes hand-in-hand with the
role of ruler and the continually increasing expenses connected with this ofen led
to the rights to mint coins and/or raise and collect taxes being sold to private per
sons. Nonetheless, these both remained subject to a monopoly.
In this way, practically every type of money eventually experienced a dilution of
its value24. Where full-value coins were in use, this occurred by reducing the pro
portion of precious metal used or by reducing the weight while retaining the same
nominal value25. For paper currency, over-emission led to a deterioration in the ex
change rate and eventually to people refusing to accept it, which in turn led to so
cial unrest if it remained unchecked. Usually this process was then sealed with a
currency reform, which generally only meant a new round of the same old game.
For the purposes of this book it is important to recognise that a state monopoly of
money always leads to the currency slowly losing its real value (purchasing power)
despite its face value remaining the same.
However, politically determined centralisation and a sustained increase in the size
of markets do ofen mean that the society is experiencing progress 26, so systems
such as this continue to be tolerated despite all of their disadvantages and ofen
because there are simply no alternatives.

23 See: [Art.] Rubel. In: Wikipedia, htp://de.wikipedia.org/wiki/Rubel#Petrinische_M.C3.BCnzre

form, accessed 03.10.20113, 20:57 CEST
24 A good illustration of this is ofered by the history of the coins known as Taler or Taler,
used in Europe over a period of several hundred years. Tey experienced a successive decrease
in the amount of fne silver they contained as the process of monopolisation progressed. See:
[Art.] Taler. In: Wikipedia, htp://en.wikipedia.org/wiki/Taler
25 Or face value: the value embossed on the coin, e.g. 1 Taler.

33
Te defcits in a system like this then become particularly clear if further progress
is no longer possible. Tis is not measurable in terms of the gross domestic product
so popular amongst modern politicians, but rather a real decrease in the purchas
ing power of the working population.
Nonetheless, even if we intuitively feel that something is not right with this mon
etary system, a precise diagnosis is difcult. Tis is not surprising because the sys
tem itself is designed to ensure that this does not happen.

A perfidious game

We have seen that the introduction of banknotes was a very important even re
volutionary step on the long path of development that money took. However, we
have not yet discovered the whole truth about this.
At the beginning, the banknote was simply a form of voucher, which was issued in
convenient, standardised units. Tese inherited the advantages of coin money
whilst overcoming some of its disadvantages, and they were very suited to setling
diferent forms of account. Banknote money represented an improvement upon an
existing important economic good and can truly be considered an ofspring of the
economic means.
Before long, the political means also wanted its share of the new benefts and the
new, prominent role of the banks provided the perfect opportunity for this.
In particular, the political means started to exploit this new development as the
banks began to issue more banknotes than were actually covered by the precious

26 When we speak of progress we always speak in a value-free way. In other words, without
applying the values of the social philosophers, we use a meaning of the term that completely ex
cludes any subjective prejudice since we are speaking as adherents of a sociology that is purely
rational and purely causal in its derivations: we speak only of progress in the case where the
quality ratio has been improved in an objectively measurable way. [...] where there is an in
crease in the ratio raw energy expended : useful energy obtained, we speak of progress, irre
spective of how this change manifests with regard to other notions and measures of value.
F. Oppenheimer: System der Soziologie, Vol. I/2, p. 537 (own translation)

34
metal at their disposal. Tis practice was based on the banks experience that there
was never a moment when all of their clients were demanding to exchange their
banknotes for gold or precious metal at the same time. Te chances of this happen
ing were indeed very low, so this game could go on for a very long time if the bank
remained careful.
In fact, this comparatively harmless deception would not have been too bad in it
self, had it not provided the basis for further, creative ideas. As the well-known
German saying goes: A jug can be taken to the well over and over again, until it
breaks.
Te emission of unbacked banknotes infated the amounts of money in circulation,
which naturally had the efect of reducing the purchasing power of each individual
monetary unit. For the bank and their clients who were frst in the chain of emis
sion, payment using unsecured banknotes actually brought an advantage: the other
economic participants did not yet know about the dilution of the value of the
money and set their prices according to the previous purchasing power of the
monetary units. So those in the know automatically made a litle extra proft out of
the extra information they had, making it very atractive for them to stay in the
game.
Te system did have a blemish, however. Te critical aspect of issuing unsecured
banknotes was that they were..., well, unsecured. So if the bank could only fnd a
way to close this gap to overcome the insufcient coverage with precious metals
then it would be siting on a source of truly remarkable profts.
And a solution for this problem was actually found soon. Te decisive insight has
not been conclusively dated by historians; various people probably thought of it at
the same time. Te most important thing for us to know is: Tis development
opened the door to previously unheard-of possibilities for the exploitation of entire
economic regions while the participants in these regions actually experienced this
exploitation as a blessing.
How did this happen? As we know, a bank was not just a safe place to keep re
serves of precious metal. It also dealt in promissory notes or bills of exchange,
which were circulated amongst merchants as a means of payment, alongside coins.

35
Commonly, a bank would accept a bill of exchange, deduct a small fee and pay out
the rest as full-value coin money 27, as an entry on the relevant account, or in its
own banknotes.
As long as this payout of the bill of exchange was made in coins, it was an ordin
ary discount transaction: Te bank was content with the sum retained as a fee for
its services and kept hold of the bill of exchange until it became due.
If the payout was made in the banks own banknotes, this could mean one of two
things: either the banknotes were covered by the gold or precious metal reserves of
the bank, or they were not secured in this way. In the frst case, the transaction
was hardly any diferent to the coin variant. However, the later case was a com
pletely diferent mater.
Here, the transaction can be considered as a case of transformation with signifcant
consequences!
For the bank, the bill of exchange had a real value and could be used to justify the
issuing of additional banknotes. Afer all, the bank could be confdent that the bill
of exchange would be paid on its due date and they would receive the money at
this defned point in the future. So the bank was not taking a signifcant risk in
paying out the value of the bill of exchange now. But that word is very important
now.
In practice, this meant that the transaction consisted of issuing securities (bank
notes) which were collateralised at the time of issue with no other value than the
bill of exchange! Tis bill would only be due transformable into normal means of
payment in the futuret, but the banknotes issued were due immediately: they
could be taken to the next store or merchant and used for further transactions. So
they diluted the value of the existing money in exactly the same way as completely
unsecured banknotes but appeared in the banks balance as collateralised securit
ies28!

27 Here we mean precious metal coins, i.e. commodity money.

28 In the other case, where the payout was made in the form of an entry for the relevant bank ac
count, the situation was very similar, the only diference being the efort saved by the bank,
which could setle the values without resorting to the physical medium of paper banknotes.

36
Here one of the special functions of the balance sheet becomes particularly visible:
obfuscation. Considering how laborious it is to produce balance sheets, I ofen
wondered why they became commonplace at all. Te answer is at least partially to
be found in the context I will now describe.
Te fact is that the balance sheet deals with partially fctitious values, as opposed
to the proft and loss statement, which concerns itself with realised values 29. A bal
ance sheet can be used to balance things which are not balanced at all, strictly
speaking.
Te key word here is rescheduling or term transformation. But what does that
mean? A bill of exchange is transformed into a means of payment due immediately
banknotes so that purchases can be made in the present with money that is ac
tually not available until the future (the due date30 of the bill of exchange). Technic
ally speaking, this is a short sale31. Despite this, the banks balance statement re
mains balanced because the value of the bill of exchange is entered as a security,
balancing the value of the banknotes issued32.
Te next round of the game, which was already taking things to the extreme, was
to take these banknotes that had been secured on the balance sheet and lend
them to someone as an interest-bearing loan. Tis process immediately created a
new certifcate of debt a promissory note which could serve in the same way as
collateral for a further emission of banknotes. Basing a short sale on a short sale
like this is, mathematically speaking, the second derivative. Of course, at some
point the very frst bill of exchange was paid and deleted (cleared), but in the
meantime numerous others had been emited based on the frst bill and entered

29 One aspect alone speaks volumes. In Germany today, two difering pictures of one and the same
company, i.e. two diferent balances, both count as correct: the tax accounting and commer
cial accounting balances (Steuerbilanz and Handelsbilanz).
30 Due date (also: maturity date) contractually determined point of time at which a debt is to be
paid back.
31 In fnance, short selling is the practice of selling securities or other fnancial instruments that
are not currently owned. [Art.] Short sale. In: Wikipedia, htp://en.wikipedia.org/wiki/Short
(fnance), accessed 24.03.20113
32 It is important to clearly understand the connections here. Te principles are the same as those
of the breathtaking pyramid schemes that have cropped up repeatedly and become widespread
over the course of centuries. Te specifc technicalities of the fnancial instruments involved are
ofen much more complex but the principles are the same.

37
onto the balance sheet as collateral. Tis exponentially multiplied the profts
available to the bank or banks participating. But the game was rigged and no other
business in the real economy could keep up 33. Whereas work previously had to be
performed to accumulate precious metal as securities, nothing more than a paper
and a pen were necessary to accumulate bills of exchange.
In order to present a full picture, it has to be admited that the intentions behind
this game were not always or not necessarily evil. Te banks decision makers
were ofen genuinely interested in providing an additional development impulse to
the economy in their region. And sometimes a new bank simply wanted to estab
lish itself against stif competition by providing credit in a particularly generous
way; it just underestimated the risk. Te business of banking was still relatively
new and everyone was entitled to experiment with its development.
In fact, a lot was learnt in this way in Scotland from 1762 to 1764 as an excessive
emission of banknotes led to a banking crisis. At this time the usual solution for
this problem lay in the so-called option clause that applied to all Scotish banks.
Tis clause gave bank directors the option of exchanging banknotes presented to
them for gold or silver or puting of the payout of hard cash for up to 6 months,
subject to an interest rate of 5%.34
Since investments in agriculture, manufacturing and trade at this time were yield
ing returns signifcantly higher than 5%, this option was being frequently mis
used, which damaged the reputation of paper money.
It is not surprising that eforts to monopolise the emission of banknotes were
already in full fow at that time. A contemporary document, Toughts Concerning
Bankst, and the Paper Currency of Scotland provides us with a beter picture and,

33 Te debt certifcates in the balance sheet were not merely hot air. Banks ofen, if not always,
ensured that their borrowers provided real assets as collateral for the loans. In fact, this process
was ofen simply a machine to relieve others of their assets. Should something go wrong, the
borrowers assets would be handed to the bank, which itself was only risking its good reputa
tion. It is important to recognise that as time went by fewer and fewer of the banknote emis
sions were actually covered by the banks own collateral. It was almost always collateral of third
parties! Money had been relieved of its dependence on the physical medium and now it was be
ing further relieved of its ties to any form of value.
34 Ross, I. S.: Adam Smith: Leben und Werk (Life and Work own re-translation), p. 233

38
according to experts, evidence of a direct infuence of the ideas of Adam Smith 35. In
this document, the authors, presumed to be the Glasgow merchants A. Ingram and
John Glassford, express their opposition to the atempts to grant a statutory mono
poly to the state banks36 a topic that was provoking great political debate at the
time.
Te authors themselves were co-proprietors of one of the many private banks
that had been founded at that time by merchants to fund their own businesses 37.
Tey argued that those behind these atempts have not considered that a mono
poly of this type represents one of the most comprehensive and most dangerous
monopolies that could be thought of, namely nothing less than a monetary mono
poly.38
However, history trod its inevitable path. Step for step, the banks that were closest
to those in government were granted a monopoly on banknote emission. Other
banking institutions were faced with bankruptcy or forced to concentrate on sec
ondary, but nonetheless lucrative, transactions.
As the emiters of fctitious money, i.e. the frst in the chain of money creation, the
banks thus received long-term opportunities to acquire goods and services at
prices which were calculated according to the old ideas of the value of money. Te
further away in the money creation chain their position was from a bank, the
longer workers and suppliers had to work for a reward that was of less value and
they were unaware of this.

35 See: Ross, I. S.: Adam Smith: Leben und Werk (Life and Work own re-translation), p. 234
36 Tis refers to the Bank of Scotland and Royal Bank of Scotland.
37 Te Scotish banking sector at this time did not have any restrictions as to who could found
banks. See: Ross, I. S. p. 234
38 Gherity, James A.: An Early Publication by Adam Smith. In: History of Political Economy 25, p.
277, cited in Ross I. S.: Adam Smith: Leben und Werk (Life and Work own re-translation),
p. 234-5

39
Figure 1: Balance sheets: The issue and lending out of banknotes, plus how a bill of exchange is entered
on the balance sheet
Figure 2: Balance sheets with phantom entry: Transformation of future payment flows into immediately
available banknotes
In other words, the extra knowledge about the real nature of money became a
source of ongoing proft. Concentrating money creation in only a few institutions
(banks) led to a systematic accumulation and concentration of these profts. Cent
ralisation had previously been an advantage because it enabled banks to increase
turnover in the mercantile world to the extent they were known and respected as
an institution, with confdence placed in their guarantees. However, these advant
ages now became the basis of increasing economic (and later political) power.

What was going wrong?

It is very important to realise that in the case described above, the practice of
credit is being misused for political purposes. Issuing credit money in itself is not a
mechanism of exploitation. But the practice of exceeding the institutions capacity
to pay out hard cash and continuing to conceal this fact was exploitation.
Applied properly, credit has always been used as a supplement to other means of
payment, as we saw at the beginning of the story. So we need to take a look at how
this scheme functions without deception in order to be able to present the contrast
more clearly.
Figure 3 uses an example that every reader is surely familiar with to illustrate the
economic cycle involved in an emission of credit money: postage stamps issued by
the post ofce.
Te emission of postage stamps is a way for the Post Ofce to obtain the means to
pay their expenses before it actually provides the service. Te sale of a postage
stamp is in fact a promise to the customer to carry out a service (e.g. a leter deliv
ery) at some point in the future when they present the voucher (stamp) for that
service.

42
Te Post Ofce therefore receives this money (e.g. euros) on credit and can use it
to pay its current bills to maintain the delivery service. Te readiness of the pur
chaser (customer) to grant this credit comes from their confdence that they will
indeed be able to exchange this voucher at any time for a service they need.
Let us take another step in our consideration and look at the case where the pur
chaser does not actually cash in the postage stamp for its original purpose. Instead
they may ofer them, for example, as payment of membership fees in an animal
protection charity. Here, the postage stamps are serving for a litle while as a
means of payment before they fnd their way back to the emiter (the Post Ofce)
and call up the service which had been promised as they were emited.
Tis later point is very important: Correctly emited credit money always returns
to the emiter and enacts the fnal demand for the value that had been promised to
the lender. At this point, the borrowers debt is then wiped out of existence. In our
example with the Post Ofce, at some point the person in possession of the postage
stamp actually sticks it on a leter and puts the leter in the leterbox. During the
delivery process, the stamp is franked and the debt is wiped out (cleared).
It is worth noting that the credit granted here is free of interest. Tis type of emis
sion grants the Post Ofce the advantages of upfront liquidity and guaranteed fu
ture demand for their services. Te customer sufers no disadvantage from exchan
ging their money for a stamp, since they would also not have received any interest
for their cash in their pocket and they can be sure of being able to use the stamp at
its face value39 at any time.
Let us now return to a bank using bills of exchange due in the future to secure cur
rent emissions of banknotes. What is actually happening?

39 Also known as nominal value: the value printed on the stamp.

43
Figure 3: Example of the economic cycle involved in an emission of credit money: postage stamps.
Te banknote originally came into existence by means of the bank promising to
pay out precious metal to the value of the banknote at any time. And just as the
stamp in the Post Ofce example serves as a voucher for a certain amount of the
service of the Post Ofce, initially the banknote was also simply a voucher en
titling its holder to a particular service of the bank: the paying out of precious
metal. And just as the stamp has a reason to return to the Post Ofce, the banknote
had a reason to return to the bank and this did indeed regularly happen.
But replacing the reserves of precious metal as collateral with bills of exchange due
at a future date was a step which radically changed the situation. Of course, the
banknote with a fnancial instrument as collateral did not look any diferent to a
banknote issued with genuine coverage of precious metal reserves. Formally, the
banks promise to exchange them for precious metal applied to both. And the
banks balance sheet was balanced. So everything appeared to be satisfactory 40. Un
til the time when a bank cashier was faced with a customer demanding redemption
of just one banknote more than their precious metal reserves actually covered.
Suddenly, the bank found itself in the situation of a merchant who could no longer
fulfl the promise he had made. In other words: It was bankrupt, even though its
balance sheet was formally still perfectly in order!
If it had proceeded in the same way as the Post Ofce with postage stamps, it could
have backed up its banknotes with its own services. For example, it could have
ofered the annual fee for a deposit box, or an hour of fnancial advice. Tese
would have been genuine services and would have secured the value of the bank
notes even when they were no longer covered by precious metal reserves. Instead,
their value would have been secured by the whole infrastructure of the bank,
which would still have been able to fulfl its pledges by delivering bank-related ser
vices.

40 Te situation was further obscured by applying the name of the prevailing currency unit (e.g.
ruble or pound sterling) to both the banknote and the appropriate full-value coin. See also: Un
fortunately currencies have until now mostly been state projects. Tese involve tricks as cheap
as simply applying the same name to both the gold coin and the banknote where a double cur
rency was in place. Tis leads to neither an economic cause nor an honest approach to reaching
parity of value between the two. S. H. Schwenke, Parity theory, p. 16 (own translation)

45
As in any correctly organised emission of credit money, the banknotes would have
had a chance and tendency to return to the origin of their emission in order for the
debt they embody to be cashed in and wiped out.
However, the banks decided to issue certifcates of credit carrying promises that
were impossible to fulfl with their own services. Why? Let us not forget that this
was an action of the political means.
As we read above, the raison dtre of any state is the political oppression and eco
nomic exploitation of its subjects. Te new fctitious money was ideally suited to
this purpose; it was a truly ingenious invention enabling its inventors to really
have their cake and eat it at the same time. Yes, of course it had its faws, however
these could be completely covered up by exercising state authority, so there was
nothing standing in the way of a truly legendary exploitation of society.
So from a fnancial point of view, what happens with credit money that is not cor
rectly emited? Te unsecured banknotes have no incentive to return to the emit
ter, so they return either irregularly or not at all. Tis behaviour corresponds ex
actly to the political approach to solving the problem: a constant fow of banknotes
back to the emiter is undesirable since this would show up the lack of value avail
able to pay them back.
For this reason, the banking sector immediately set about ensuring that the money
they had emited never returned to the bank counters. Tis was achieved by creat
ing ever larger money circulation cycles, initially by merging banks, then by intro
ducing central clearing houses, and then, with the help of politicians, increasing
the size of the areas where a currency was valid41.
Te consequence of this is the much-cited roving money, desperately searching
for the service it was issued for. One of the ways this manifests itself is in an exor
bitantly increasing amount of money in circulation.

41 See: Rothbard, M. N. What has government done to our money?, p. 42-52, 75-76

46
In a correctly functioning credit money system, the money supply corresponds to
the amount of goods and services that could, in principle, be delivered. It then
automatically decreases as these goods and services are actually delivered to the
bearers of the credit money. Later we will take a more detailed look at this.
Te constant expansion of the money stock being observed today is therefore
nothing other than an indication that the existing money system is not satisfactor
ily fulflling its function. It is not bringing the agreements made back together; it
does not bring the certifcates of debt back to the debtor so that the service initially
promised can actually be delivered42. Instead, the worldwide credit mountain cur
rently towering ever higher over us is a very clear indication of how wide the gap
is between the nature of our existing money system and the real needs of the eco
nomy.
However, this accumulation of ever greater piles of money is inseparably connec
ted to the nature of our current monetary system. Tere is even an old name for
the principle behind this phenomenon: kiting or jobbing in bills. So we see the
main innovation today is not this phenomenon itself, but rather the fact that it is
no longer considered to be a slip-up or deviation from the norm. Instead it is
practised completely openly and even considered to be a foundation of the system.

The magic triangle

Kiting is a term in the fnancial world used to refer to a situation where a debtor
issues a new promissory note to pay of other promissory notes (debts) that are
due for repayment immediately. Where the amount of the new promissory note is
higher than the debts and the procedure is repeated with no genuine intention to
end the process, it is also known as paper hanging and is a clear indication of the
illiquidity or other insolvency of the person or legal entity involved. If these debts

42 What could we expect anyway? Perhaps a nice helping of state authority?

47
were all taken out with the same bank, the bank would soon see through the game
and quickly bring it to an end. So the process usually includes three or more banks
or creditors, ensuring that it does not become obvious to any one of them too soon.
When a creditor does realise what is going on, they are faced with a difcult de
cision: Either they agree to the next credit request and play another round of the
game, or they refuse the next credit. Te later would however generally mean that
they lose all the money which the debtor owes to them at that moment in time, be
cause refusing to grant the debtor this credit inevitably drives them straight into
insolvency (or makes the insolvency obvious).
In fact this process had already been described by Adam Smith 43 and is therefore
nothing new44.
For our purposes, the following detail is the most interesting part. If the creditor is
a bank, it probably included the promissory note of this debtor in its balance sheet
and used it as collateral to issue banknotes. If it were now to exit the game and re
fuse to grant the debtor any further credit, it would not only lose all of the money
this debtor owes it, but it would also jeopardise its own balance. Removing this
promissory note from one side of the balance would enlarge the imbalance
between the amount of issued banknotes and its collateral.
So the incentive to stay in the game is even greater in a situation such as this and
is always greater than the incentive to quit, especially because there is always the
hope that the bad luck will hit one of the other banks frst. Te subsequent sharing
out of any remaining assets held by the insolvent client would hopefully lead to a
smaller loss than if the bank called time itself.
Kiting is not to be considered as something that used to happen in the past. It is
still being actively pursued and involves ever larger units: corporations, nations

43 See: A. Smith: Wealth of Nations (German edition p. 254-258); and the rest of this chapter is also
very informative.
44 I have taken the liberty of explaining the context around this topic without using the usual
banking jargon. Te later normally leads a non-specialist to stop reading because it is too dif
cult.

48
and other regional administrative bodies. Tis is the result of a tendency to in
crease the size of the playing feld a tendency which has been built into the sys
tem right from the start.
Te principle has remained the same: the system has to constantly expand in order
to prevent the deception it is based on from coming to light. Since it becomes more
and more difcult to arrange the necessary new debt, those involved have simply
agreed never to let their game be busted: the modern keyword is system-relevant
in frequent use during the current fnancial crisis. Tis term is, of course, thor
oughly political in its nature and is only marginally connected to the actual in
debtedness of individual participants.
In something akin to a gigantic game of musical chairs, each round sees them
pushing ever larger mountains of debt certifcates in front of them. In the mean
time, the deception is no longer hidden from the public but instead sold to them
as something inevitable, which has to be borne together if the situation is not to
become even worse. It seems to be a question of Your money or your life? with
very high stakes.
So how does it work in practice? We cannot deny that the political means is cap
able of a leap of consciousness. It also has great powers of imagination, as can be
seen in the following example.
A bank needs collateral because it wants to circulate its own banknotes 45 based on
this collateral. However, it wants to issue banknotes to a value greater than the
value of its current reserves. Te possibility of issuing additional banknotes as de
clared46 credit money is dismissed because this will not deliver extraordinary
profts. Instead, it sets of on the well-trodden path of emiting unsecured money.
In fact, this is nothing other than a mechanism for systematic expropriation of
members of its society.

45 Or its digital equivalent, otherwise known as bank money or scriptural money, which very con
veniently has the same name as printed banknotes without having to have the same properties:
neither the property of being legal tender nor the property of having anonymous payment pro
cedures.
46 Declared credit money would mean that a precise declaration is given as to which value each
debt certifcate can be cashed in for. Tis is nothing other than what happens for a postage
stamp.

49
Now, a rational businessman would never voluntarily accept a debt certifcate if he
knew for sure that he would never be able to cash this in for any services. Te only
people who do accept this type of certifcate are those who know how to redeem
its value in another way.
Te value in this case is purely political in nature. In fact it is almost nothing more
than a promise to maintain the privileged treatment of the frst participants in the
chain of money issuing. Tis is sufcient because these privileges held by the frst
in the chain47 enable them to exploit the rest of society mercilessly.
Immediately afer their issuance, a debt certifcate should normally face a frst crit
ical test of their suitability: Are they accepted and bought up? However, this initial
test is avoided worldwide in the currently practised money system by institutional
ising the very frst acceptance of the debt certifcates. Issued mainly in the form of
government bonds, the debt certifcates are only bought up by privileged banks
known as primary dealers. So why do they do this? Are there any advantages for
them? Tey have the possibility of depositing these debt certifcates with the re
spective central bank at very litle cost. What do they get in return? Central bank
money in their central bank accounts. Now we come to the good part: Every unit
of central bank money entitles the depositing bank to create up to 100 units 48 of
money from nothing and to enter these into the assets side of their balance sheets
as bank money or scriptural money. (Te reader may remember that these bal
ance sheets are works of fction designed to bring fctitious values into balance.)
Tis money is referred to using the same name as central bank money which helps
to make the illusion perfect.
Banks that are not designated as primary dealers can acquire this type of bonds
on the secondary market, allowing them to then play the game in a similar way, al
though their profts will be a litle lower.

47 Te term primary dealer actually says it all!

48 Te exact factor is usually determined by the central bank based on the minimum reserve re
quirement. If this is at 1%, as is the case in January 2012 for the European Central Bank, then a
bank is allowed to create 100 of its own bank euros for every euro in its account at the central
bank.

50
Te monopoly on money emission held by this magic triangle state primary
dealer central bank ensures that the vast majority of participants in the eco
nomy are denied infuence. Te statutory obligation to accept what has been de
clared as legal tender further forces them to take part in this perfdious game 49.
Te systemic fallacy behind the initial step of replacing a true value with a political
promise is indeed very difcult to grasp without taking a leap of consciousness.
Obviously it is so blunt and open audacious, in fact that the rational mind of
most people simply refuses to accept or perceive it and recognise it as the decep
tion it is50. In this way, the world of fnance has created its perpetuum mobile, excel
lently serving the real purpose of all politics the economic exploitation of soci
ety.
Of course, it has to be admited that society would not tolerate a practice such as
this in the long term if it did not proft from it as well. More money in circulation
leads to more goods being turned over, more cooperation and subsequently more
specialisation, division of labour and other increases in productivity 51.
Te blossoming of the economy that is very ofen linked to the historical era of
precious metal money was not actually due to the full-value nature of the coins. In
stead, we have to note that there was already a signifcant circulation of credit
money at that time (since the beginning of the 17th century), in the form of bills of
exchange, promissory notes and other securities. However, it was the transforma
tion of these bills of exchange into unsecured banknotes which frst triggered the
feverish development that has continued until the present day.

49 Te fact that this newly created money can then immediately be lent out in return for interest is
a further important detail, but I do not think that it is the most important aspect here.
50 Additional assistance is provided by the social conditioning carried out in the media and state
schools.
51 Although sometimes the process was more zigzag than direct, since the unsecured money was
used much too ofen to fnance projects that were only remotely related to the real needs of
consumers: the technical term is misallocation of capital.

51
Figure 4: The magic triangle in the money creation chain

Some accounts of the golden era of the precious metal standard paint a very ro
mantic picture, but if we put this to one side we can see that the economy since the

52
end of the 17th century52 has been predominantly built on the treacherous sand of
unsecured banknotes. Te only diference between the later atempts to get rich by
emiting unsecured money and the experiments conducted by John Law 53 at the be
ginning of the 18th century is the degree of sophistication and their scope.
It is no coincidence that the turn of the 18th century saw the beginning of both
regular fnancial crises which upon closer examination are nothing other than
the inherent gaps in the system of unsecured money and the industrial revolu
tion.
Flooding the economy with unsecured money led to a side-efect which was prob
ably not intended: it enabled closer co-operation of economic participants and ever
more sophisticated ways to bring together their various abilities.
An increase in productivity means nothing other than a reduction in the amount of
working time necessary to produce a particular commodity of a particular quality.
As this development continues, it in turn enables every participant to receive more
value in return for the same working time as before.

52 In 1694 the Bank of England was founded, followed by the Bank of Scotland in 1695. Upon
foundation, both of them were granted the right to issue banknotes.
Te founding act passed by the Scotish government also granted the Bank of Scotland a mono
poly on banking business in Scotland for 21 years. [Art.] Bank of Scotland. In: Wikipedia,
htp://de.wikipedia.org/wiki/Bank_of_Scotland, accessed 27.10.20111.
Te way this business was conducted reveals a lot. In 1697, two measures helped the Bank of
England to increase its capital to 2,202,171 pounds: frstly, it issued banknotes which it knew it
would be unable to pay out, and secondly, it accepted defcient debt certifcates from the state
as a deposit (in modern terms, debt with a haircut). For this it received certain privileges, in
cluding a law to prevent a second bank being set up. Te privileges from the founding act in
1694 were extended from 1705 to 1710 (and later even further). J.G. Van Dillen: History of the
Principal Public Banks. 1964, p. 209211, referred to in the German Wikipedia article on the
Bank of England.
Te early history of the bank is one of repeated mutual assistance between the bank and the
government. In 1708 the Bank of England was granted a privilege (in fact, amounting to a
monopoly) on issuing banknotes. Tis was renewed by the government in 1742, 1764 and 1781.
Te frst of these three was granted in return for an interest-free [sic] loan to the state to the
tune of 1,600,000 pounds. Source: [Art.] Bank of England. In: Wikipedia,
htp://de.wikipedia.org/wiki/Bank_of_England, accessed 27.10.20111.
53 John Law of Lauriston (* 16 April 1671 in Edinburgh; 21 March 1729 in Venice) was a Scotish
gambler and banker who conducted experiments with paper money from 1716-1720 for Philipps
dOrlans, the Regent of France, leading to one of the frst speculation bubbles in history.
Source: [Art.] John Law. In: Wikipedia, htp://de.wikipedia.org/wiki/John_Law, accessed
27.01.20111

53
If the money system is correctly organised, this tendency manifests itself as an in
crease in either quantity or quality of consumption.
Even in an imperfect monetary system such as the one whose main points we have
just briefy considered, increased productivity leads to sinking prices, calculated in
the almost constant value of the currency unit. In this way, the fact that banks are
siphoning of ever more added value is not as noticeable to the rest of society, since
most people remain satisfed as long as they receive stable wages and prices also
remain stable or decrease, or even if they increase only slightly. Tey generally do
not occupy themselves with calculations of how much more they could have re
ceived if money had not been systematically diluted. In fact, these estimations
really are quite difcult without special knowledge.
Individuals and society as a whole both generally consider an appearance or devel
opment to be progressive if it leads to them experiencing an improvement in the
so-called quality ratio54.
Te whole development of humanity is characterised by a striving to improve this
quality ratio. Only this improvement led, in the course of time, to the surpluses
which initially secured our material needs and then, building on this, allowed for
the expansion of non-material achievements.
Te invention of banknotes and the inclusion (although indirect 55) of the economic
participants in the process of money creation set free unbelievable forces of devel
opment within society. Te difculty of discovering the hidden manipulation
within the system made it much easier for it to be implemented and to have a
long-lasting efect much like a drug. Te lack of truly practical alternatives was
also a factor which helped this system to remain in place for a very long time.
Te collective psyche did not seem to develop any awareness of the issues involved
until times of repeated and drastic crisis such as that which started in 2007 and is
still continuing at the time of writing (2012). Te gigantic sums of unsecured
money and the glaring gaps in the so-called balance sheets clearly indicate just

54 Tis term refers to the ratio of the amount of raw energy processed by a particular society to
the usable energy arising from this. See also the quote by F. Oppenheimer, footnote 26.
55 Te banks needed to make use of these economic participants debt certifcates.

54
how sick the prevailing monetary system really is. It desperately needs to be re
placed by a monetary system with a high capacity to guarantee opportunities for
cooperation between the various parts of the modern society at the highest pos
sible levels of efciency.

Obvious yet mistaken

As was described at the beginning of this chapter, it is taken for granted that
money is inseparably linked to banks. However, if we do take a closer look we fnd
that although this connection appears obvious and unquestionable, it is in fact
nothing other than an interim state of afairs occurring as part of a long, historical
development.
Money is an invention and like many inventions it has been worked on signifc
antly since it appeared which does not mean that there is no more room for im
provement. Te needs of the participants in the economy have changed repeatedly
and will change again; money was adapted and modifed accordingly and can be
adapted again.
During one of the many diferent phases of its development, money was incorpor
ated by the powers that be and misused for political purposes in other words, for
the economic exploitation of other parts of society. Tis state of afairs is our cur
rent reality and the starting point of our search for the next solutions.
It is generally assumed to be self-evident that the money supply can only be guar
anteed by the sector that is responsible for this: the fnancial sector. Tis is based
upon a sense of confdence that, in a society based on the division of labour, spe
cialisation leads to beter results than could be achieved by leting a layperson do
the task. In purely economic surroundings, we can usually be confdent that every
economic participant will conduct their activity in the best way they can, since this
will also be to their own advantage.

55
Tis confdence is indispensable in many areas; afer all, it is the basis for the
whole principle of division of labour56. However, it is also one of the causes for the
development of authority. Authority arises and expands along with the intellec
tual division of labour: everyone has to believe more and more while it becomes
less and less possible to know something for sure 57.
Money, however, is a very specifc economic good. Its key role as a medium of
communication for the economy leads to it becoming particularly desirable for
those involved in the political means. And as soon as the political means begins to
look for creative solutions in its own very particular way, the risk of manipulation
of this confdence becomes particularly signifcant.
We have seen how the once useful position of the banks gradually developed into a
monopoly and how this idea then gradually became anchored in our collective
consciousness thanks to the continuing establishment of a cultural superstructure.
Te ability to change the contents of our own consciousness or awareness is non
etheless the ability that makes us as humans fundamentally diferent to other liv
ing beings on this planet.
Society usually only accepts a solution if its advantages more than compensate for
any disadvantages it may have. It cannot aford to do anything other than this be
cause it is dependent on the production of surpluses; as with living beings, soci
etys development stagnates or withers and dies away if there are no surpluses for
a prolonged period.
Tere is no absolutely clear answer to the question of whether the current monet
ary system has actually reached its limits, not least because there are so many

56 For example, in A Study in Scarlet it was revealed that the famous detective Sherlock Holmes
was not aware that the Earth revolved around the Sun. He believed the human mind has a lim
ited capacity to store information and preferred to reserve this for directly useful facts: You say
that we go round the sun. If we went round the moon it would not make a pennyworth of dif
ference to me or to my work.
57 F. Oppenheimer: System der Soziologie, Vol. I/2, p. 538 (own translation)

56
countries whose potential for indebtedness has not been fully exploited. Tere are
still many regions where authoritarian regimes rule and where considerable debts
could be created afer the establishment of a so-called democratic government 58.
It is much more important to ask a diferent question: At the current development
level of our society, it is theoretically and technically possible to produce wares
and services in abundance, so why do we experience a constant lack of money,
biter poverty and oppressive fears of how to survive?
Te most noticeable defciency of modern money is the monopoly on monetary
emission. Te current system of money emission by central banks is solely de
signed to maintain power and ofers no guarantee at all that money will fow to the
parts of the system were it contributes to benefting society in the most efcient
way. Instead, it simply fows to the positions where there is the most opportunity
for (ever) more power.
Money emited in this way mainly fulfls the function of skimming of society's
surpluses for the beneft of the emiter. It does not fulfl its primary function of en
suring the highest possible number of economic transactions.
Tere is no justifcation for hoping that this will all sort itself out on its own: the
conditions in a system with a monopoly are not the conditions where an invisible
hand can act to facilitate self-correction of malfunctions.
So a solution has to be sought on the path of removing the monopoly. Of course,
the main challenge in trying to follow this path will be the resistance from the ex
isting fnancial-political system, which will not give up its ruling position without
a struggle. So, a purely technical or economic solution has to include some built-in
protection against the political means.

58 Te ever more audacious kiting carried out by governments and evidenced by their ever higher
levels of debt only serves to cover up the fact that behind the credit money issued by the banks
there are no real services or wares to back it up. It is backed up only by agreements among the
elites of the world to maintain it and continue the kiting system. In fact, this is the reason the
system maintains todays democratic governments. A genuine change or solution is not possible
in this situation. Te only possible development foreseen by this type of system is the creation
of ever larger economic-political conglomerates.

57
Additionally, a correctly structured monetary system also has to possess two fur
ther characteristics: an improved ability to adapt to the needs of the economy; and
an ability to prevent its renewed misuse by power elites, whether old or new.
Any atempt to formulate the properties of a well-functioning monetary system
will thus initially reveal numerous contradictions. But as we saw earlier in the
book, this is exactly what we need. Ten we can continue by converting these con
tradictions into inventions that remove them. So let us make the atempt.

The challenge

Go theret, I dont know wheret, bring me

thatt, I dont know what!

Russian fairy tale

Te monetary system adopted by a society represents the way in which that soci
ety organises the supply of money to the participants in its economy.
If a new monetary system is to efectively fulfl the needs of the participants in
todays economy and to catch on and prevail against the current monopoly on
money emission, I think it needs to satisfy the following requirements.
1. Ensure the largest possible number of economic transactions.
2. Regulate the amount of money in circulation and its availability in a way
which enables the turnover of all deliverable commodities and services in
a particular period of time.
3. Te amount of money in circulation should automatically adapt itself to
ensure optimal conditions.

58
 4. Te monetary system should include at least one unit of currency that
can serve as a measure of value and unit of accounting within that sys
tem. Tis will hereafer be called the system currency until we fnd a
beter name for it.
5. Te value of the system currency should be coupled with a clearly de
scribed service or a particular commodity that can be assumed to be per
manently in demand, so that this value will never fall to zero.
6. Te monetary system should make money available in denominations
that make it possible to account exactly for any realistic amounts.
7. Te value of the system currency should remain as stable as possible and
be resistant to manipulative atacks.
8. Te monetary system should allow for any number of further currencies 59
to be in circulation at the same time.
9. Te system also needs to make it possible to convert prices between cur
rencies.
10. Participation in this monetary system has to be voluntary for everyone.
11. Every participant should be allowed and enabled to emit their own
money.
12. Te monetary system should make available all desired information con
cerning each individual emission of money.
13. Te monetary system has to be so simple that every legally competent
person can understand and use it.
14. Te monetary system has to be available worldwide.
15. Te speed of transactions should be appropriate for our information age.

59 Te word currency should be understood here as referring to a money defned diferently to

the system currency but nonetheless gaining a reputation that enables it to serve as a sort of
generally recognised standard for particular types of accounting or in particular regions. Te
monetary system to be defned here has to allow for developments such as this.

59
 16. Te processing of transactions should be possible in an anonymous way,
corresponding to the current use of cash.
17. Nobody can be forced to accept payment in a particular currency against
their will.
18. Te monetary system should ofer the necessary infrastructure to admin
ister accounts and payments in every desired currency.
19. Te monetary system should be able to develop and adapt to new re
quirements.
20. Te monetary system should be able to withstand any atempts to mono
polise it.
21. Te monetary system should have a structure that enables the functions
described here but does not provide any vulnerabilities that can be at
tacked. In a way, this monetary system should exist without actually ex
isting.
Tis list is quite possibly incomplete and will be extended in the course of time.
Nonetheless, one thing should already be very clear: Te creation of the monetary
system such as this is a challenge that society has to face if it does not want to re
main enslaved forever. How can it be put into practice? Te rest of this book is
dedicated to the answer to this question.

60
 The concept from the whole to
the parts

Atentive readers will probably already have a good idea which direction we will
be taking. Instead of a monopolistic monetary system designed to enable a thin,
elite layer of society to skim of the surpluses, we are looking for a concept to set
up a monetary system that directs money fows in a way that optimally serves eco
nomic development. Te instrument of choice will be a correctly organised system
of credit money emission that allows each individual natural or legal person to de
cide for themselves whether they make use of credit money emited by someone
else or create their own.
Tis intent immediately throws up many questions, which we will deal with one
by one in the course of the book.
Te most important question is how to make it possible to set up a structure like
this in the frst place. Anyone who has looked into the subject of alternative
money even a litle bit will be aware of the problem that movements such as this
are only considered to be harmless as long as they develop in a moderate and re
gional framework and, above all, as long as they take the existing monopolistic
currencies as their basis60.
As soon as any such development begins to raise even slightly justifed claims to
universality, we can be sure that all available measures will be taken by the state

60 In this form, these regional money systems really do pose no danger to the existing monetary
system. Nonetheless, they provide valuable experiences and impulses which can be further de
veloped.

61
against them61. Generally, these propaganda measures will aim to criminalise the
dangerous movement, arguing that it threatens the security of our existing (state)
order. Having read this far, readers now know what is really meant: the security of
the established powers-that-be to skim of societys surpluses. Logically, the argu
ment will be made that these alternative systems endanger tax incomes.
For this reason, if we are to develop and subsequently operate an alternative mon
etary system, it needs to have particular characteristics which will enable it to suc
cessfully resist this sort of pressure.
Since I am trying to explain something which is not exactly an everyday idea, I
will frst describe the concept as a whole and then move on to each individual part
of it in detail.

The basic idea

Te core of the new monetary system will be an internet platform accessible from
anywhere that enables anyone to emit their own money and setle liabilities and
obligations using this money. Tis does not mean that everyone has to emit their
own money but rather that everyone has the possibility to do this if they want to.
Tis will transform the activity of emiting money from an elitist sovereign oper
ation into a completely normal business. Te most successful operators in this feld
of business will be those who perform their work to the satisfaction of the largest
number of participants.

61 Here, we can mention the current example of the discussion surrounding the bitcoins a digital
currency (see bitcoin.org). Te German National Association Digitale Wirtschaft (Digital Eco
nomy) warned in June, 2011: Te National Association Digital Economy warns consumers not
to use the means of payment known as bitcoins. Firstly, the issue and control of means of pay
ment is a sovereign task in our society. Using bitcoins as a means of payment will make it im
possible for the state to exercise the necessary control in cases of tax evasion or money launder
ing. For this reason, bitcoins are simply dangerous and have the potential to cause long-lasting
damage to our whole society due to tax evasion, money laundry or other illegal businesses.
Source: BVDW website htp://www.bvdw.org/medien/bvdw-warnt-verbraucher-und-haend
ler-vor-bitcoins-als-zahlungsmitel?media=3006, accessed 01.06.20111

62
Setting up

Te way that this platform is set up and operated should allow for the protection
of the platform itself and all of its participants from persecution by those who cur
rently proft from the existing money monopoly. It should also include built-in pro
tection against renewed monopolisation. Tis means that the whole concept has to
be infused with the characteristics of sharing and distribution: the ideas, materials,
information and facilities should all be distributed.
What does this mean in practice?
Tis book may describe the whole concept but that concept has not yet been im
plemented; it is not yet a new monetary system. It is simply an idea that has been
expressed in words.
Even if this idea is read by other people and gains their support, it still does not
constitute a new monetary system. It cannot be atacked or confscated because it
only exists in a few peoples imagination.
Since the system will be accessible via the internet, its parts need to be implemen
ted in the form of individual functional modules. A specialist can decide to imple
ment a particular function that interests him or her, and is free to do so. Tis indi
vidual module will only represent a part of the whole set of functions needed to
make up the system. And it will probably then be used for various technical pur
poses.
Should the specialist then decide to publish the code of their new module, on their
own server or one of many others existing with similar aims, this could then in
spire others to follow suit.
When the variety of modules available reaches a certain size and quality we will
have reached the stage where it becomes possible to piece together a working op
eration as a whole. Tis may well happen at more than one place or time, but this

63
is not a problem. Diferent variations will be on ofer in the same way that the
computer operating system Linux is available in many diferent distributions 62,
which vary in certain ways.
A single distribution is not yet a new monetary system, so it can hardly be re
garded as a danger to anything. Nonetheless, being based on the principle of open
code or open source, it becomes available to many others, including those who
would not be able to program a system like this themselves but are capable of run
ning it on their server to try it out. And even if people do this, it is still really only
a trial run and not yet a monetary system.
Here we are following the same logic that is used in component functions for data
storage, identifcation processes and similar: the principle of distribution or decent
ralisation. One advantage of this is that a particular server does not have to be
available to the system all the time for the whole system to remain operational. It
is sufcient if it is available for certain periods.
As a result the system will run on a number of servers, which do not have to be
fxed but exchange data amongst themselves constantly and ensure that the net of
information is maintained to keep the functions of the system working, without
there being a fxed physical structure that can be identifed as the system.

62 A distribution is a compilation of sofware that is handed out as a complete package. Tere can
be many reasons for doing this. One typical example is to put together sofware components
that can only be used meaningfully if they are installed together with other sofware. Or be
cause one programme depends on the operation of other programmes before it can be started. It
is also ofen the case that a distributor of the compilation adds a few specialities of their own
which are not available elsewhere in that form. Free sofware is a feld where this concept is
particularly common. Tere are many Linux distributions, BSD distributions and also distribu
tions of free DOS versions. Te distributor enjoys the advantage of being able to customise the
open-source sofware almost as much as they want. Tis can lead to a range of diferent distri
butions for the same sofware. Although these are all based on the same source code, they will
each have their own specifc characteristics in the installation, such as their look and feel, the
detailed selection of sofware (components), the design, etc. [Art.] Distribution (Sofware): In:
Wikipedia, htp://de.wikipedia.org/wiki/Distribution_%28Sofware%29, accessed 22.08.20111,
17:41 CET

64
Value reference

Te main purpose of the structure that arises in this way is to enable individual
participants to organise their own credit money emissions, administer these and
enable others to use them to setle obligations and liabilities. For this, the new
monetary system needs at least one value reference: a unit that can be used as a
measure to determine prices in other words, the systems own currency. As men
tioned above, theoretically and practically any number of currencies should be able
to exist within the system. However, this system currency needs to be particularly
carefully defned. It represents a form of genetic code allowing the system to keep
reproducing itself.
Te system currency I am proposing is primarily based on a service that is inher
ent to the system: the transfer of an amount of money from one participant to an
other63. Te scope of this service is therefore specifed in a very precise way 64; it in
cludes, among other things, the data administration and all necessary authentica
tion mechanisms. For now, we will call it the standard transfer.

Value stability

Te standard transfer service can be provided by any participant in the economy

who agrees to abide by the prescribed specifcations and fulfl the related obliga
tions. Since this function involves administering the relevant data, we will refer to
these service providers as Transaction Administrators (TAdmin). In order to fn
ance their expenses within the framework of the monetary system being set up,
each TAdmin emits their own credit money, covered by the promise to provide the
service of a standard transfer. Tis means that every monetary unit they emit can
be exchanged in the future by its holder for a standard transfer from the TAdmin.
As soon as this service has been claimed, this individual unit of money emited by
this specifc emiter is now cleared (destroyed).

63 Conventionally speaking, this corresponds to the service of booking an entry in a bank account,
or in other words, a bank transfer.
64 See the chapter Like a phoenix from the ashes.

65
Any number of operators can and will provide this service, emiting a type of
money defned by certain fundamental characteristics. Free access to the necessary
sofware to perform this activity will open it up to anyone. And this is one of the
built-in characteristics of the system that will protect it against any monopolisa
tion atempts. It is also the best guarantee that a sufcient number of monetary
units with a direct value reference to the standard booking will be available at any
one time. Te diversity of providers will additionally ensure that the price of the
standard transfer quickly oscillates towards a level determined by fair competition.

Emission

Te emission of money by other participants occurs in a similar way to the money

emissions of the transaction administrators: the scope of obligations promised by
the emiter are determined and conditions are defned with reference to the clear
ing or setling of the debt in other words, to the cancellation of the relevant mon
etary unit. For example: Te operator of an online music platform could emit credit
money in units that entitle the holder of the monetary unit to download exactly
one music track. As each purchase of a song occurs, one unit of the money stock
emited under these conditions is cancelled, reducing the amount of this money in
circulation by one unit.
During the lifetime of each unit, from its emission to its use in exchange for the
predetermined service or commodity, this credit money can change hands as a way
of setling other liabilities or obligations. For example, someone in possession of
these music download money units might use them to purchase books from an
other participant in the economy who runs a bookshop and is prepared to accept
this type of money65.

65 Tere is no obligation to accept a particular type of money, so every participant can decide for
themselves which emiters they prefer. Tis decision will be based on how serious the emiter
appears to be and the payment practices of the other people and companies they do business
with. For more on this topic, please see the chapter Administering money stocks.

66
So every participant who needs to carry out some transactions can decide whether
to use types of money emited by someone else to do this or to emit their own
money.
If a participant in the economy decides to issue their own credit money, the easiest
and most natural way to bring this money into circulation is to use it to setle the
bills they have to pay. But they can only do this if their business partners are will
ing to accept it.
Every participant can decide for themselves which money from which emiters
they prefer. Commercial vendors will generally make it easy to fnd out which
types of money and payment they accept, just as vendors currently make it clear
which debit or credit cards and other payment services (online payments etc.) they
accept66.

Emission administrator

Participants who do decide to emit their own money will need the services of an
other professional: the emission administrator. Tis service, too, will beneft from
being ofered by competing service providers who will all be obliged to observe
certain rules.
Te services provided by the emission administrator are mainly concerned with
publicising the details of the emission, administering the transfer of possession of
the money stocks, and making statistics relating to these emissions available to the
public. In practice, the administration of money stocks will be the administration
of a wallet67 or an account. Te anonymity of the money possessor and the security
of the transactions will be ensured by means of cryptographic procedures.

66 We can assume that traditional currencies will also feature here initially.
67 Te term wallet is being used here to refer to the part of a participants money stocks which is
currently being administered under a particular participant ID by a particular emission adminis
trator. In some ways this wallet will be similar to a bank account, but there are key diferences.
For more on this topic, please see the section Te standard transfer: step by step.

67
Figure 5: The cycle of credit money, from emission to encashment, based
on an issue of standard transfer units emited by a transaction
administrator

68
An emission administrator is a source of trust and confdence and involving them
in the process helps to solve problems such as: preventing someone from spending
the same money unit twice; and ensuring that a particular transaction is completed
by issuing both a payment confrmation and a receipt confrmation.
Allowing all potential operators to have access to open-source sofware helps to
ensure that this service can also be provided by many diferent operators. Tis re
duces the vulnerability of the system to atack by its opponents and also helps to
solve technical problems which would simply be insurmountable if the administra
tion of emissions were to be carried out centrally.
So each individual emission administrator only provides a part of the whole tech
nical infrastructure. Tey do not decide if an emission is allowed to take place or
not. And they only publish as much information about each emission as is neces
sary for the technical functionality of the system. Te emiter carries the respons
ibility for ensuring that published details relating to the emission are complete and
reliable; this will actually be one of the factors most signifcant in determining the
success or otherwise of a particular emission. Every emiter is free to publish more
information than technically necessary in order to advertise their emission.
Te emission administrator earns their money by charging fees for each individual
service they provide. Of course, they can also issue their own credit money based
on these services.
So hopefully this overview was sufcient to provide an initial understanding of the
principles involved in the new monetary system being proposed in this book.
Subsequent chapters will go into more detail about the advantages and disadvant
ages of emiting ones own money, the issues of anonymity, payment procedures,
determining value, strategies for emiting money, the scope of tasks performed by
the emission administrator and how they will be paid for, the administration of
money stocks, the build-up of assets, the efects on society and others.
But frst I want to present some psychological issues, which I consider to be no less
important for the success of the idea than the technical details.

69
 A personal dilemma

At the beginning of this book I mentioned how the decision to publish my ideas
for a reorganisation of the monetary system came about as a result of a personal
maturation process. Some readers will possibly fnd it of interest to hear more
about how this happened.
Initially I wanted to keep the idea secret. For a start, I did not want people to think
I was crazy and then came the fear that if I spoke to anyone outside of my immedi
ate family about it, I would risk the idea being stolen. Te era we are living in is
characterised by a hunt for the most valuable resources of the future: ideas. Even
the most trivial ideas and innovations are quickly patented by anybody who can
aford to do this and patent ofces are irrationally granting patents for sofware or
genes. Te spirit of our age seems to be infectious, spreading the feeling that we
have to: Act quickly! Mark your territory or you will lose it!
So what other choices did I have? Firstly, I could try to implement the ideas myself.
However, the project was an enormous one and I do not have many of the tech
nical qualifcations I would need. Another option, of course, was to seek external
fnancing.
Te prevailing monetary system does not seem content living out its monopolistic
character in an unscrupulous way (and becoming ever more unscrupulous): it also
forces the rest of the economy and even large parts of our culture to adopt the
same character as it has. Tis is a manifestation of its (actually very logical) eforts
to survive.
Te infuence it exercises is very subtle and almost unnoticeable, particularly if we
do not know what we should watch out for. Nonetheless we can be sure of one
thing: our frst reaction might appear spontaneous but its actually one that has
been instilled into us and almost always leads us (back) in a direction that con
forms with the system.
So, in the case of someone with a business idea, the frst, spontaneous reaction is
usually to go and speak to the bank manager. And before we notice, we are up to
our neck in debts with hopes and promises of (fantastic) profts in the future.

70
Luckily, the nature of my idea already led me to suspect that fnding funding in the
normal way would pose problems. Afer all, what would I have said to the bank
manager or potential investor? Perhaps: Please give me enough money to imple
ment this project which will make the rest of your money and the basis of your
money-lending business obsolete.
So time passed. I began to study sociology as presented by Franz Oppenheimer, in
cluding descriptions of the processes which occur because of the diferent posi
tions taken by diferent groups within any society.
And all of the inhibitions I had because of my original spontaneous reactions
turned out to be very useful and even healing. Tey helped me gain a valuable in
sight: taking an individualistic approach to my idea would inevitably have led to
failure. Te project would either have been nipped in the bud or bought out.
So my very personal leap of consciousness consisted of the insight that I had previ
ously identifed myself with the wrong group. I had acted out of the deep-rooted
conviction of my own self-importance, my talents and my considerable ability to
implement ideas. I wanted to belong to the few successful, clever and chosen ones
at any cost.
However, the reality was that despite considering myself to be unique, I was and
am part of a much larger group: a group whose position in society condemns them
to repeatedly make compromises even though they know beter. Te prevailing
system simply forces them to make these moral, ethical and fnancial concessions.
Tis group has to struggle whenever it wants to carry out an action it deems to be
fairly rational because the established reality is actually irrational. And the mem
bers of this group then ofen have to watch as the results of their struggles turn
out to be a failure.
At this point I remembered a saying I used to hear as a child in my Russian home
land: If youre so clever, why are you so poor? Yes, indeed. Why?
I have chosen to write this publicly because I suspect that many of my readers are
very familiar with these deliberations. Not everyone can be assumed to be ready to
invest their own eforts in the commons. And some who might be ready and will
ing then get put of by the shocking nonsense so ofen spouted to back up words

71
such as solidarity, social etc. A certain resistance can now quite ofen be ob
served whenever it comes to calls for us to show community spirit or ofer prac
tical solidarity and mutual assistance.
It is, however, a fact that individual resistance is useless when it comes to combat
ing an all-powerful, global fnancial system with an extremely important resource
at its disposal its monopoly and immense infuence because of this. Tis system
will prevail until the society that it is exploiting matures enough to realise that
clearly individualistic ways of thinking are actually the source on which the sys
tem feeds, allowing it to reproduce itself day afer day.
Te only approach that promises any success will be one that follows the rules
which this system does not understand. And this means it will be a com
munity-based project.
Tere are, in fact, already examples of this in place. Wikipedia and Wikileaks are
certainly two of the most well-known, but there are many more than just these. In
fact, these two examples also show us the difculties that projects such as these are
inevitably confronted with when it comes to the resistance ofered by the prevail
ing powers-that-be: these two projects also need money ordinary money and
so they can be infuenced and oppressed by freezing their bank accounts or with
other similar harassment.
We can be certain that any atempt to establish a monetary system such as that de
scribed in this book will have to reckon with strong resistance. So I conclude that
one very signifcant condition for the implementation of this project will be that it
is not dependent upon funding in form of monopolistic money in any way. A pro
ject aiming to set up an alternative, community-based monetary system should be
able to create its own structures in order to mobilise the necessary human and ma
terial resources.

72
 Confidence

In his appeal for donations to Wikipedia in December 2010, its founder, Jimmy
Wales wrote:

I got a lot of funny looks 10 years ago when I started talking to people about
Wikipedia. Lets just say some people were sceptical of the notion that volun
teers from all across the world could come together to create a remarkable
pool of human knowledge all for the simple purpose of sharing.

No ads. No agenda. No strings attached.

A decade after its founding, nearly 400 million people use Wikipedia and its
sister sites every month almost a third of the internet-connected world.

It is the fifth most popular website in the world, but Wikipedia isnt anything
like a commercial website. The other four spend billions and are operated by
corporations with thousands of staff and huge marketing efforts.

Wikipedia is a community creation, written by volunteers making one entry at

a time. Wikipedia is about the power of people like us to do extraordinary
things. People like us write Wikipedia, one word at a time. People like us fund
it, one donation at a time. Its proof of our collective potential to change the
world.68

Te existence of websites such as Wikipedia is enough proof that communities can

pool their eforts and achieve things that would hardly be fundable in a normal
way. Tese projects show how an idea can fnd sufcient support in a community
as soon as it has the potential to serve that community. Te idea can then manifest
itself in real structures.

68 A Personal Appeal from Jimmy Wales, 2010

73
Franz Oppenheimer writes:

Society is a collective noun. As such it is more than just the sum of individu
als. That the whole is made up of parts which are, when looked at from an
other point of view, independent things or beings doesnt change this fact:
within the consideration that sees it as a collective entity, there are no indi
vidual parts. Instead there are characteristics. If this was not true, there
would be no difference between a river and a fountain, between the tree nurs
ery and the Forest, or between an army and a marauding band. Aristotle had
already faced this idea quite strictly when he said the whole is of necessity
prior to the part. He meant that logically and logically it is unassailable. ...
We might want to add that today we can go further than the Greek philo
sopher: we know that we are not merely talking about a logical priority of the
whole over the parts that, looking at the developmental history, a very real
factual and temporal priority. T h e o r g a n i s m i s e a r l i e r t h a n i t s
p a r t s , w h i c h i t p u t s f o r t h a s i t g r o w s .69

In the hope that the idea of an alternative monetary system also has the potential
to be of use to society in general I will now move on to a description of the
whole as I envisage it, atempting to describe this in as much detail as is needed to
enable subsequent joint eforts to be made, leading to the establishment of working
parts, which in turn then grow until the total system will work, with everything
that will then follow from this.
Te worst that can happen is that nothing will change. And this, I think, is a risk I
can justify taking.

69 F. Oppenheimer, System der Soziologie, Vol. I/2, p. 445, no emphasis in original.

74
 Credit money correctly emitted

If we are proposing money emission for everyone, then of course we have to

know what this involves or rather, everyone has to know this. So lets start with
the question: What is it in fact that is emited?
Earlier in the book we looked at the example of the Post Ofce and its emission of
postage stamps, which gave us our frst insights into this subject. But it is a long
way from emission by a large institution such as the Post Ofce to money emission
by private individuals. Te gap we have to bridge here is primarily a mental one, so
what can help us overcome it? Te atentive reader may already know the answer:
a leap of consciousness.
In the course of the rest of this chapter I will be citing extensively from books by
Walter Zander Railway Money and Unemployment70 and Siegfried H. Schwenke
Te parity theory of money anarchist nominal goods economy without capital
ism and without the state71. Te considerations these two authors have given to
the practical aspects of credit money emission complement my ideas almost per
fectly and I have no doubt that their ideas will enrich the ensuing text.

70 W. Zander, Railway Money and Unemployment, originally published in Deutsches Volksrecht

(1-5 July 1933), here cited from the English translation in Annals of Collective Economy Vol. IX 3t,
Dec 1933. Hereinafer simply Railway Money and Unemployment
71 S. H. Schwenke: Parittstheorie des Geldes anarchistische Nominalgterwirtschaf ohne
Kapitalismus und ohne Staat (Te parity theory of money anarchist nominal goods economy
without capitalism and without the state), PDF fle as of 01.10.20111, currently unpublished. Here
inafer simply Parity theory

75
 What does credit money mean?

In its most general sense, credit money is a documented promise to perform a par
ticular service or deliver a particular commodity as soon as the promissory docu
ment is presented for redemption to the person who made the promise (the emit
ter).
An example would be a mail-order company that sends an e-mail to its customers
which includes a code entitling them to free delivery on the next order. Tis code is
a promise which fulfls the defnition given above. So credit money in this sense is
a voucher that can be cashed in under defned circumstances or conditions.
In this example, each code tends to be tied to a particular customer and further
conditions are atached that prevent them from being passed on, hoarded or collec
ted. All of these conditions make it difcult to use these vouchers as money. In
other words, they have a low marketability.
But what would happen if we removed these conditions?
Let us consider as an example a railway company that decides not to pay its sup
pliers with the prevailing money being used as a currency in its country. Instead it
issues its own vouchers which can be exchanged for services provided by the rail
way and then pays its suppliers with these vouchers. What happens next?
We will consider the possible consequences step for step in two versions.
Version 1: Te railway company emits these vouchers with a particular value in
marks72 which can only be exchanged for services of the railway company to this
value. It is expressly prescribed that these vouchers cannot be exchanged for the
designated amount of marks.
Tis idea is not new. It draws on the description provided by Dr Walter Zander in
1933. His plan was very comprehensive and based in turn on the historical experi
ences of the 19th century.

72 Te reader may substitute the currency used in their country.

76
Dr Zander considered it necessary to come up with a plan such as this because the
German railway company was almost unable to make investments in the expan
sion of its business during times of crisis, although its position in the economy at
that time required it to do this in order to combat unemployment. He continues:

The Railway is justified in proceeding warily. Cash purchases are out of the
question in present circumstances. On the other hand, the promise to pay at a
future date signifies the sale of means of payment on terms, (see on this sub
ject: Henry Meulen, Industrial Justice through Banking Reform, London,
1917, p. 16 ff.) for the Railway undertakes to deliver something at a fixed date
which at the time of the promise it only hopes to possess. Whether its hope
will materialise, is uncertain. The undertaking to pay at maturity contains
therefore a speculative element, which is particularly hazardous in times of
depression. It is therefore obvious that the Railway must be extremely circum
spect in making credit purchases, i.e. in promising to pay at a later date with
resources which have yet to be secured.

But the Railway may promise something else, namely, to transport commodit
ies and persons that is, to fulfil its function as a Railway. There is nothing
speculative about that. The means required for this, rolling stock and other
plant, are available. This is therefore fundamentally different from a promise
to pay at a future date, for in the latter case the means of payment have yet to
be secured and this by having transported passengers and goods. The capa
city of the Railway to act as a carrier is at any rate unquestionable.

Such is the starting point of the plan. The Railway places orders to be paid
for not in legal tender (Central Bank notes), but in transport certificates
which the Railway booking offices accept as cash payment. The Railway thus
pays its contractors [for the services they provided] with warrants entitling

77
 the contractors to equivalent railway services [in the direct form of transport
kilometres]. The certificates are made out to bearer 73 and are issued in de
nominations74 convenient for free circulation.

Of course, no one would be legally bound to accept such certificates in pay

ment. They are only legal tender against the Railway which issued them. Nor
have they any legal value, for they do not represent a forced currency 75 The
market rate is an open one, but the Railway has to accept the certificates at
their nominal value, regardless of the market rate.

Version 2: Te railway company emits certifcates or vouchers that promise to

deliver a particular service ofered by the railways and can only be redeemed for
this particular service.
Te fundamental diference between this version and version 1 is that the bearer of
this certifcate is promised the service whereas in version 1 the bearer is promised
a particular value of that service expressed in a specifc currency.
For example, the railway company emits vouchers that each promise the delivery
of the service transporting one person for 1 km. Te bearer of one of these
vouchers will always be able to travel 1 km by rail.
Tis difers from the situation of the bearer of a voucher in version 1, since if the
railway company were to change their prices, the distance the bearer would be
able to travel would also change. If the voucher entitles the bearer to the service
transport by rail to the value of one mark, it might be the case that at the time of
emission this would enable the bearer to travel 1 km. But the railway company
might raise their prices one month afer the emission, so the voucher would entitle
the bearer to travel less than one kilometre.

73 Inscribing the certifcates with promise to pay the bearer means they are not tied to a specifc
person. Anyone can pass them on to another person and this new bearer is equally entitled to
cash them in at the issuer in return for the service or commodity promised.
74 Denominations are the variety of values which the certifcates are issued in. Including smaller
values helps to enable combinations of these certifcates to be used to balance out values (make
a payment) of any amount.
75 Te cited translation is reproduced here directly. However, in the original German the term is
not currency but Zwangskurs = forced rate.

78
Tis price increase is not always the result of the railway companys selfsh in
terests or policies: the efect is the same if the currency used in this case the
mark loses value for reasons that have nothing directly to do with the railway
company.
If we consider the vouchers issued in version 2 of the emission, their value ex
pressed in marks would increase if the value of that currency decreased, but the
service promised would remain the same in our example, the transport of one
person for 1 km.
I think it is important to emphasise this diference between the two versions. For
the bearer of the voucher, the second version of the emission is generally more ad
vantageous. Te only reason why we might tend to spontaneously choose the
frst version is the fact that we are accustomed to assessing the value of all services
and commodities in one particular currency.
In the new money system, this tendency might fnd its expression in the habit of
using a system currency76 to indicate values. Te system currency is based on a
service which takes place according to fxed standards and ensures the basic func
tionality of the new money system. Tis service is made available by a number of
independent providers, so its value will be kept in a dynamic equilibrium and fuc
tuate only slightly around an average value.
In general, however, it should sufce to give a description of the service or com
modity that is promised upon redemption by its emiter. Using the system currency
as a reference value could be used for valuation and price indications. Direct indic
ations of a particular value in a third currency should however be avoided at the
time of emission because this could negatively infuence the circulatory behaviour
of the credit money due to these indications ofering a greater chance for specula
tion.

76 Currency inherent to the system: in this proposal, it is based on the standard transfer. See also
the section Te standard transfer as reference value for a currency.

79
However, at the time of writing this can merely be a recommendation. Te free
dom to emit and the practical experience gained will then reveal which types of
emission prove to be the most workable and popular.
Considering the circulation of credit money leads us directly to our next question:

What does correctly emitted mean?

Te main function of money, as we have seen, is to ensure the largest possible

number of transactions between the participants in an economy.
If credit money is issued on the basis of deliverable services or goods, as we as
sume in this book, then its very existence is an indication of where free capacity is
currently available and to what extent. Closing the economic cycle then occurs
simply by ensuring that emited credit money fnds its way to a bearer who is
looking for exactly the service or commodity that the credit money promises.
Several intermediate steps may well be necessary before the credit money and the
fnal consumer of the promised service fnd each other. Tis depends on the money
stocks which the potential fnal consumer originally holds and on how quickly
they can exchange them for the actual credit money they need. Today, the search
facilities necessary to facilitate this are a routine part of everyday life, thanks to
electronic data storage and search machines which were unavailable 20 years ago
and would have probably meant that a monetary system such as this would have
been doomed to failure.
In general, like any other service provider, the money emiter will also provide
their services or commodities in exchange for a range of diferent monies from
other emiters (as well as their own). Afer all, they want to do what is necessary to
sell their products. Additionally, having stocks of money from other emiters will
also help them to pay their suppliers (who may demand particular types of credit
money).

80
Walter Zander describes the circulatory behaviour of the railway credit money in
his plan as follows:

The extent of the circulation of the railway money will depend on its utility.
The starting point is the contractor who received the certificates from the
Railway. To the degree that he can profitably utilise the services of the Rail
way himself, that is, by having persons and goods to send by rail, the cer
tificates manifestly have value for him. This value is equivalent to the pay
ments he would have to make for despatching those persons and goods. If, for
instance, his monthly expenses for freights and passenger tickets averaged
1,000 marks, he could utilise transport certificates to that value as if they
were cash. So far the certificates have par value 77 for him. If a large-scale
contracting firm were involved, such as the Electro Trust, it would be able to
make considerable use of the certificates.

Insofar as the contractor has no use for the certificates, he will dispose of
them otherwise. His subcontractors come here into consideration in the first
place. He will therefore, as far as possible, place his orders on the basis of
payments to be made in transport certificates.

Beyond this, he can have recourse to the free market. Inasmuch as practically
everybody uses the railway, his prospects of disposing of them are decidedly
encouraging. Hence not only firms come in question, but private persons who
wish to travel or have goods to despatch by rail. Moreover, there is the prob
ability that the manual and clerical workers of the contracting firms may
agree to accept as part of their remuneration railway money. This they would
make use of themselves (monthly season tickets and holiday travel) or dispose
of in shops whose owners can utilise it or pass it on.

The value of the circulating certificates will be determined by the law of sup
ply and demand. Should the market rate fall below the nominal value say to

77 par [< lat. par = equal]; here: par value = nominal value

81
 95 % thereof everybody who desires to travel or forward goods by rail
would be eager to acquire certificates, for the Railway is obliged to accept
the latter at their face value. The holder of the railway money (prospective
passenger or forwarder) may thus save 5% of his railway expenses. The at
tractiveness of the certificates thus grows as their value drops and, accord
ingly, a fall in their value stimulates the demand for them. In turn, the grow
ing demand will raise the market rate until the nominal value is again
reached, when the demand will slacken. An open market for the railway
money guarantees therefore its soundness.

Hence those who regularly use the railway, including more especially large
firms, would instruct their bankers to purchase transport certificates as soon
as they have fallen below par. At the stock exchange the railway money would
be regularly dealt in and retail trading therein might be facilitated if in the
immediate vicinity of the railway booking offices exchange bureaus sold rail
way money. The trade in transport certificates would be hence free and un
limited.

The Railway would naturally undertake not to raise its tariffs so long as the
transport certificates remained in circulation, for otherwise it might depreci
ate the value of the certificates for its own benefit. It is obvious that they have
to ensure the reliability of the railway traffic in this regard.78

Zanders plan is based on an emission of the type described in version 1, with its
disadvantages as mentioned above. Otherwise, his description is a very clear illus
tration of a successful credit money emission.
Te money emiter has to precisely declare what is promised with the money they
are emiting. Tey have to refer to the commodities, delivery capacities or services
they are capable of delivering which will enable them to fnally clear the debts
which they have created (the emited money vouchers). In other words, this spe

78 W. Zander: Railway Money and Unemployment

82
cifc economic cycle has to close. Te creditworthiness of a debtor is based solely
on their ability to close the gaps in the specifc economic cycle which arises when
they emit their money. And this has to be done within a foreseeable time. It is up
to the emiter/debtor to convince potential recipients of their money of the credib
ility of their promises.

Acceptance money79 can be said to close the circle because it flows back to
the place where it was originally emitted. It can be said to circulate because
there is a particular point on this circle which can be considered as both
entry and exit.80

Te duration of circulation of a particular money as a means of payment for the

conducting of business will generally depend only on its marketability: in other
words, its popularity. Tis will be decided by characteristics such as: how well-
known it is, how easy it is to use and cash in, the reliability of the emiter, and its
suitability for hoarding.
Tis last point deserves closer consideration.
Te tendency to hoard corresponds to a very understandable need to store the
value of ones own work over a longer period of time. In the course of history, cash
has ofen been used for this, as well as material goods and fnancial products. Te
fact that all of these methods have ofen lead to real losses in value (or even com
plete losses) can be traced back to many factors. One of these is a purely technical
problem: work is a very difcult thing to store.
Hoarding money will always take place and it will undoubtedly also occur if we
have the freedom to emit money at least in the initial phases. However, we
should not forget that hoarding is actually an obstruction to the main function of
money (maximising turnover). In fact, fnancial products with long due dates are
generally not referred to as money. Tey are more suited to hoarding, whereas
other means of payment that can be cashed in quickly are needed for use as
money.

79 S. H. Schwenke uses the term acceptance money [Annahmegeld] as a synonym for correctly
emited credit money [richtig emitiertes Kreditgeld].
80 Parity theory, p. 158 (own translation)

83
 The hoarders give ... the emitters interest-free loans. However, this only
works with acceptance money when there is freedom of emission and is not
intended to be the general case. Where there is freedom of emission, hoarding
will be relatively rare. It will be in competition with capital investments that
retain their value.81

In the end, this will mean that the need to hoard will be satisfed by fnancial
products with longer due dates, ofering more atractive conditions for those wish
ing to save. Credit money with a current due date generally does not ofer any in
terest82 and will not be used for this.
Te lack of interest paid on credit money is a consequence of the way it is issued
and of its function. In the case of credit money, the emiter is actually the bor
rower. Tey beneft when a third party accepts their money, enjoying the advant
age of a delay before they have to provide a service in return and planning security
because the money they emit has to come back and be cashed in there will be fu
ture demand for their products.
For these reasons, if an emiter tried to gain a further advantage by demanding in
terest on their money, the conditions created by the freedom of emission would en
sure that this would not be a competitive thing to do. Tere would be enough al
ternatives on the market, so hardly anyone would react positively and accept this
money.

Regardless of other conditions, the emission of acceptance money is always

interest-free and it secures the future turnover of ones own goods and ser
vices. This should provide sufficient motivation.83

A further characteristic that can be modifed in order to infuence the way that
credit money circulates is its period of validity. Placing a limit on this is not to be

81 Parity theory, p. 169 (own translation)

82 Breaking the money monopoly and extending the freedom to emit to everyone will not mean
that familiar capital investments no longer function. Investing in property or purchasing gold
coins will still be popular. In the chapter Accumulating capital and credit we will return to this
issue again.
83 Parity theory, p. 162

84
understood in the same way as the demurrage-charged money proposed by Silvio
Gesell84. Limiting the maturity or period of validity is simply one of the instru
ments that can be used to regulate the fow of the emited money back to its emit
ter. It is entirely optional.
Tere can be many reasons for doing this. Te frst is that an emiter, for example a
factory, may be interested in ensuring a regular demand upon their production ca
pacity. Seting a range of due dates for emissions of its money would be a way to
regulate the return fow.

Since it [the factory] wants to sell its goods as soon as possible, and not
sometime in the next 100 years, it will set a limit to the validity [of its credit
money].85

Another reason for seting a term limitation would be to help protect the emiter
against unfriendly contacts. Tis might be particularly relevant in the early days
of the new system. In the system described in this book, the moneys return ad
dress has to be clearly indicated for each emission. Even if the service or goods
promised are fully electronic and can be delivered online, there still has to be a
specifc, named internet address, valid as long as the money is valid. If the emiter
is atacked before they can fulfl their obligations, their creditors would sufer. By
seting a short period of validity, the emiter helps to ensure that they will still be
identifable at the due date and able to fulfl their obligations. Te next emissions
can be issued under a new identity or from a new address and the due date set to
refect the period for which this address will be valid 86. Acting fexibly such as this
allows an emiter who fears atack to decrease their vulnerability.

84 Johann Silvio Gesell (* 17 March 1862 in Sankt Vith (Rhine Province); 11 March 1930 in the
Eden orchard cooperative near Oranienburg, Berlin) was a merchant, fnancial theorist, social
reformer and founder of the Freiwirtschaf (free economy) economic school of thought. [Art.]
Johann Silvio Gesell. In: Wikipedia, htp://de.wikipedia.org/wiki/Silvio_Gesell, accessed
23.08.20111, 13:04 CEST
85 Parity theory, p. 193
86 Here we are referring to any suitable contact details, such as an IP address or a street address, or
anything similar.

85
 As far as its circulation and turnover is concerned, acceptance money be
haves like a debt certificate with a time limit for payment, or rather, perform
ance. It is an obvious, honest debt-certificate money with a defined debtor re
turn flow. Its function as a means to enable turnover arises indirectly because
of its primary function of repaying debts.87

Te aim of a correctly organised emission of money can actually be expressed as

the destruction of that money. In other words, credit money should always have
the inherent property of ensuring that the promised service or goods are actually
provided, which then destroys that money. Tis promise has to be redeemed be
cause otherwise an economy based on the division of labour would be lef with an
unclosed gap.

All that is necessary is the public nature of the emission basis, the condition
of voluntary acceptance and evaluation in general payment settlement, and
the possibility for everyone other than the emitter to reject it. 88

Bitcoins

At this point it may be wise to take a look at the topic of bitcoins. Readers who
know about this innovation have probably already been asking themselves
whether or not the use of bitcoins would be a beter proposal or even the defnitive
solution for the problem of supplying society with money.
Bitcoins are in fact just numbers that have been calculated according to strict cri
teria and stored in a global, distributed database. Each bitcoin is assigned a specifc
virtual address. Knowledge of this address together with its corresponding digital

87 Parity theory, p. 174

88 Parity theory, p. 208

86
key enables a transaction to be made using this bitcoin. For example, it can be
transferred to a new owner: this is represented by linking it to another virtual ad
dress and a new digital key.
Te processing power needed to generate suitable new numbers is so large that the
computers of bitcoin system users have been connected into a network to allow for
parallel calculations in a collective efort to come up with new bitcoins. Tis pro
cess is called mining and consumes a great deal of energy 89.
Te value of bitcoins and their usability as a means of payment are mainly a result
of three factors: their suitability for quick, worldwide and generally anonymous
transfer; the mathematically limited total amount of bitcoins which can be gener
ated; and the fact that their use does not lead to their issuer skimming of any ad
ded value90, as happens with customary fat money91. Te processing power and en
ergy needed for mining also plays a certain role when it comes to the value stabil
ity of these coins, although I dont consider this to be decisive.
From a fnancial point of view, bitcoins are similar to commodity money. Teir
electronic and limited nature makes them a type of digital gold. So it is no surprise
that mining this gold appears to be a new Klondike for some. However, we would
do well to remember how those selling the shovels during the gold rush ofen
made more money than the actual prospectors.
Te bitcoin system exhibits some remarkable achievements, including the organ
isation of payment processes, security measures, evaluation (exchange platforms),
communication infrastructure and even a change in our awareness of money itself.
Nonetheless, regarding its function as a means of payment, this digital gold ex
hibits similar defcits to those we fnd with precious metal coins or cowrie shells
and, in part, fat money.

89 Estimates as of August 2011 were between 24 and 200 MW, which would be equivalent to the
electricity consumption of a town or a small city. Source: [Art.] Bitcoin/Processing eforts for
mining. In: Wikipedia, htp://de.wikipedia.org/wiki/Bitcoin#Rechenaufwand_beim_Mining, ac
cessed 23.08.20111 (own translation)
90 At least, this seems to apply at the time of writing.
91 See Glossary.

87
Te frst defcit is the irregular circulation behaviour and a high tendency to hoard
bitcoins.
Bitcoins arise randomly in one of the nodes of an existing network of computers;
there is no relation between where they arise and the current economic situation
of the owner determined by this calculation. For participants who are not depend
ent on selling bitcoins for their livelihood, this leads to a high incentive to hoard
them, especially because exchange rates can be expected to rise.
So far, the market development of bitcoins related to fat money has exhibited tre
mendous, although very inconsistent, growth. From November 2010 to the begin
ning of June 2011, the exchange rate increased by a factor of 20 to c. 30 US dollars
per unit. However, it then collapsed to a value of 8-10 dollars in August 2011 and
sank further to 2-3 dollars in October 2011, recovering to 5 US dollars by June
201292. Te further development in the period between the publication of this book
in German and this English translation followed the same patern, with some very
signifcant rate fuctuations. On March 28, 2013, the rate of 94 US dollars meant
that the market capitalisation had reached 1 billion US dollars 93. On July 7, 2013, as
I edit this paragraph for the last time, the rate according to the bitcoins market
www.bitcoin.de is 68.19 US dollars94.
Since the total amount of bitcoins is subject to a mathematical limitation of ap
proximately 21 million units and estimates suggest that these will all be found by
2033, current owners of bitcoins which have already been discovered can be justi
fed in their expectation that exchange rates between bitcoins and fat money will
increase signifcantly when the system enjoys more widespread acceptance, which
will probably be the case.95

92 [Art.] Bitcoin/Exchange rate development and acceptance. In: Wikipedia,

htp://de.wikipedia.org/wiki/Bitcoin#Kursentwicklung_und_Akzeptanz, accessed 07.07.20113
(own translation)
93 ibid.
94 Website www.bitcoin.de accessed 07.07.20113.
95 Te current (2013) trends in the exchange rate confrm this prognosis, which I originally wrote
in mid-2012.

88
Te critical point here is that persistent collection (hoarding) of resources which
considerably exceed a persons predicted needs to meet their livelihood will inevit
ably be used to develop monopolist positions and the power gains resulting from
these positions, irrespective of the ethical principles which these individual collect
ors espouse. Te possibility for individual money possessors to hold back their
money stocks from circulation even in situations of high general demand is itself
the possibility to create a position of monopoly and to beneft from the profts real
isable from this.
If bitcoins remain the only practical alternative to fat currencies, it can be expec
ted that the core stocks of bitcoins will gradually end up in the possession of exist
ing money monopolists. Teir current capacity to create money is not mathematic
ally limited and the yields they receive are generally signifcantly higher than the
yields in the bitcoin system96. When these monopolists establish their position in
this system, it is only a question of time and technology until mechanisms to skim
of added value are devised and built into it, too.
Even this cleverly designed and modern method of payment would then become a
tool of the monopolies. Tat is bad enough in itself, but even worse would be one
of the likely consequences: the whole idea of a community-created, global digital
money would be compromised.
Te euphoria exhibited by current users of bitcoins is understandable, however we
can assume that most of them come from the feld of information technology and
not from the fnancial sector. Seting up a sustainably operational monetary system
needs more than just secure encryption processes (these are, of course, essential
for digital money).
Bitcoins may well be capable of breaking down existing barriers when it comes to
our thoughts about money, and they are performing important pioneer work. Te
bitcoin system will give us valuable experience and even parts of the infrastructure
needed for further developments in the feld of alternative digital money. Without

96 Todays fnancial and banking sector seems to operate on a scale where 1 billion dollars is the
most usual accounting unit. Just one of these would be sufcient to completely buy out the cur
rent total market capitalisation of bitcoins.

89
a doubt, they will continue to circulate as one of the means of payment available
but they are not suitable for use as the sole means to ensure an optimal supply of
money in society.
Like gold coins before them or even a shipload of tinned sardines, bitcoins contain
no information regarding available labour or production capacities. Tey circulate
as chaotically as gold coins do and they encourage hoarding in the same way, too.
Tey are a scarce good and can be concentrated in just a few hands in the same
way as fat money can, which means they enable personal enrichment at the costs
of others and will never fulfl the function of closing economic cycles with the
same degree of precision that correctly emited credit money can.

So whats the difference?

Apart from the fact that honest debt-certifcate money has none of the prevailing
monopolistic moneys built-in functions enabling the skimming of of added value,
it is also more suitable for bringing participants in the economy together.
Decentralised emission allows the money to arise where it is needed: the place
where it will disappear due to its fnal usage.
Two key diferences allow it to facilitate sales which would not happen under the
conditions of forced exchange-rate money: frstly, it is in itself a quantitative sign
of available economic capacities; and secondly, it does not have to overcome the
hurdle of generating interest in addition to proft. In the areas where it is applied,
we will observe a particularly close cooperation between participants and consid
erable synergy efects, which in turn will result in a higher quality of life.

90
Tis is the exact opposite of the hostile competition97 which we observe wherever
monopolistic money is being used. A money monopolist is a supplier of a scarce
commodity desired by everybody, so they fnd themselves in a situation where
they can dictate their own conditions when they supply it. Tis refers not only to
interest, which would simply not be enforceable under conditions of monetary
freedom, but also the insistence on generating proft. In order to generate the re
quired proft and give up their added value to the bank in the form of interest, a
producer is forced to make savings elsewhere. Te producer cannot push through
price increases in a market with no price agreements, so savings have to be made
in the places that yield to the pressure most easily. Tis is ofen the staf who also
face a situation of hostile competition amongst themselves, just as the manufac
turers compete with each other for sales.
Te money monopolists therefore have the decisive lever in their hand, allowing
them to control the conditions experienced by the producers and workers, who are
both competing for their money while they look on and smile happily.
Te constant skimming of of the surpluses produced is an inherent efect of this
money. It means that producers and workers fnd themselves in a situation with al
most no room for manoeuvre. If the market situation deteriorates, both groups fnd
themselves in an existentially threatening situation very quickly and are forced to
continue underbidding each other, instead of using their reserves to wait and sit
out the situation, or being able to use surplus time to reorient themselves for the
future.
An example of how cooperation can be enabled by using credit money would be a
grouping of several shops into a shop community which emits its own credit
money to pay its suppliers. In addition, it would use its own credit money to buy
the debt certifcates issued by local workers, who would accept payment with the
credit money of the shop community because they regularly go shopping there.

97 Franz Oppenheimer suggests dividing the term competition into two peaceful competition
and hostile competition depending on whether we are referring to the groups of buyers or
sellers. Te buyers exhibit solidarity with each other as they strive to purchase as cheaply as
possible, whereas the sellers, insofar as they have not formed price cartels, are forced to un
derbid each other, which explains the diferences in the psychology of these two groups. See:
F. Oppenheimer, System der Soziologie, Vol. I/2, p. 673.

91
Suppliers would be prepared to accept the credit money of the shop community
because they also would be able to use this money for some of the payment of
their own workers. Te economic cycle is completed as soon as the shops in the
shop community accept the communitys debt certifcates at their tills as payment
for the goods they sell. Tis process enables numerous economic transactions
without frst having to negotiate for loans and pay them back with interest.
Tis approach is actually quite obvious, but under the current conditions its re
semblance to bartering would be criminalised as black market practices. Without
the technical infrastructure needed to clarify this, fear of punishment makes it im
possible to implement this exchange on a large scale. To reiterate: It is possible to
facilitate the complete economic cycle without using the money of a third party. In
particular, there is no need for third-party money which is only made available in
return for interest and whose value is mainly derived from the ability to pay taxes
with it.

The system is as simple and understandable as our systems of cinema, train

or cloakroom tickets. Over- and under-emission do not happen very often, if
at all, because the system itself prevents this 98. The coverage on offer and the
return flow of the tickets or vouchers are very clear. 99

In contrast, modern forced exchange-rate money is a construction which does all it

can to hide the fact that it is based on a political plot by those striving to control
and exploit the rest of society. One of its main foundations is a state which man
ages in one clever move to force upon its citizens both the obligation to pay tax
and a type of money whose main value derives from the fact that it can be used to
pay taxes.
Furthermore, ordinary monopolistic credit money has no way to disappear. In
stead, it spends its almost infnite lifetime circulating in a very difuse way, driven
only by the monopolies desire for more proft and therefore seeking out new debt
ors, preferably those with the highest capacity for indebtedness. Indeed its busi

98 For more on this topic, please see the chapter Emission management.
99 S. H. Schwenke: Parity theory, p. 295

92
ness model is mainly the creation of dependencies because these are the desired
and logical result of its purpose being political: it is no longer an economic con
struction.
Te reasons favouring correctly emited credit money might sound dry and theor
etical: the fact that it has no built-in skimming of of added value; and a circulation
behaviour favouring optimisation of sales and turnover. However, compared to the
use of monopolistic money, these theoretical concepts become very practical difer
ences such as the diference between heteronomy and self-determination or
between being comfortably well of or living on the edge of ruin. As a de
cision-making aid for short-, mid-, and long-term economic planning, correctly
emited credit money acts like skilful navigation.
Monetary emission as described in this book needs to be understood as a can and
not a must. Today, people can become self-employed but not everybody does; in
a future with freedom of emission, not everybody will need to or want to emit
their own credit money and it would not make sense for everybody to do this. Te
opportunities which emissions will open up for both natural and legal persons will
however be considerable these will be described later in more detail.
First we will address a diferent topic: overcoming the restrictions used by the ex
isting fnancial-political system to protect the profts and the power it gains from
its monopolies. I consider it necessary to have a realistic assessment of the tech
nical and organisational possibilities for implementing the new monetary system
before we start to wax lyrical about its potential!

93
 Free as in freedom

Te next question needing to be asked is: Who is going to do all of this? Afer all,
in order to work properly, an internet platform needs lots of specifc sofware that
has to be writen especially for this purpose and then tested, maintained and dis
tributed.
Here I would like to take a look at a trend in sofware development that started
some thirty years ago and has since become something of a cornerstone of a new
culture. Today it is known by the names Free and Open Source Sofware (FOSS)
or Free//Libre and Open Source Sofware (FLOSS).
Readers who are not closely involved in the sofware industry may not be familiar
with these abbreviations and even insiders do not always agree about all of the ba
sic principles behind this movement. So what can we fnd behind these names?
And what does this all have to do with the development of a new monetary sys
tem?

May the source be with you100

What motivates someone to make a product freely available to the whole world
afer investing lots of time, specialist knowledge and other resources in its cre
ation? Idealism? Protest? Te desire to be noticed? All of those might be good reas

100 A play on the well-known phrase from the Star Wars saga: May the force be with you!

94
ons. However, if this type of behaviour becomes widespread, with lots of people
doing this on a regular basis, then there must be more to this movement than just
personal preferences: something which is of beneft to all involved.
Originally, at the beginning of the information technology age, all sofware was
open-source. Programmers exchanged their source code101 with each other com
pletely freely, supplementing it, checking it for mistakes, improving it and passing
it on. Tis approach was efcient and appeared obvious to the hacker culture
where it was cultivated. Tis milieu was and still is characterised by an interest in
solving technical problems.

The thing that makes a hacker different from other technology fans is the
self-referential sense of devotion in the way they deal with technology. An ob
server may not be able to find any meaningful reason for the task at hand, but
the hacker will be doing it simply because he has fun solving the task even if
a purely practical consideration does not find a problem that needs to be
solved. The Jargon File102 portrays a hacker as enjoying the intellectual chal
lenge of overcoming or skirting around barriers and limitations in a creative
way. This usually involves technology but is to be understood in the wider
sense of trying things out and developing things. Reworking technology and
using devices in a way they were not originally designed for then became a
significant characteristic of the hacker subculture. Working together with
other members of the respective scene is a further social component of the
hacker culture. The self-image of hackers also references hacker ethics

101 Source code is the text of a computer program in a form readable to humans, writen in a pro
gramming language. Tis program cannot be carried out by a computer until it is converted into
machine code. Tese instructions can be carried out by the processor but can no longer be read
or changed in a meaningful way by a human. Source: [Art.] Source code. In: Wikipedia,
htp://de.wikipedia.org/wiki/Qellcode; [Art.] Machine code In: Wikipedia, htp://de.wikipedi
a.org/wiki/Maschinencode, both accessed 25.08.20111 11:27 CEST
102 Te Jargon File is a popular reference work compiling hacker expressions (also available from
bookshops as Te New Hackers Dictionary). First started in 1975, it is still being continued
and contains an encyclopedia of various hacker terms and expressions as well as insights into
the various sub-areas within the original internet and hacker cultures. Source: [Art.] Jargon
File In: Wikipedia, htp://de.wikipedia.org/wiki/Jargon_File, accessed 25.08.20111 (own transla
tion)

95
 which clearly illustrate their values. For example, it includes the attitude that
the access to information should be free, decentralised, anti-bureaucratic and
anti-authoritarian. Everyone should be able to see how the world works and
nobody should be forced103 to invent the wheel a second time.104

Te tendency to use proprietary sofware 105 which began in the 1970s stood in
strong contrast to what appeared so obvious to this culture. Proprietary sofware
was generally delivered to clients in the form of machine-readable code to prevent
other programmers from being able to make changes to it. In cases where the sof
ware malfunctioned they neither had the option of looking for the causes by ana
lysing the source code nor could they resolve the problem operatively. Instead the
usual approach was to contact the producer and hope that they would take on the
task of fnding the error or deploy a specialist to carry out the necessary repairs,
albeit for an expensive hourly rate.
Tis development was shaped by the conditions prevailing in the USA, which was
leading the computer sector at the time. One of the main implications of propriet
ary sofware was that the rights of ownership were claimed by the company fnan
cing its development, so programmers ofen had no right of access to their own
code later for example, if they changed employer.
Of course, we have to admit that it is completely possible to achieve the same func
tionality with diferent sets of program code, but denying programmers access to
sofware they helped to write forced many to reinvent the wheel over and over

103 Even if nobody should be prohibited from doing so.

104 [Art.] Hacker/Distinctions. In: Wikipedia, htp://de.wikipedia.org/wiki/Hacker#Abgrenzung, ac
cessed on 25.08.20111 (own translation)
105 Proprietary [<lat, proprius: own, owned] of or relating to property or ownership; of or relating
to the quality of being an owner. Source: [Art.] Proprietary In: Wiktionary, htp://en.wiktion
ary.org/wiki/proprietary, accessed 29.05.20113
In the feld of information and communications technology, the term proprietary designates
sofware that is tied to its producer. Tis generally means that the source code is not accessible
to the user. Te producer may also place restrictions on the usage of the sofware; for example,
it may be restricted to use with hardware or sofware components from the same producer or
from a limited selection of other producers. In most cases, a payment has to be made in order to
use this sofware. Blocking access to the source code removes the possibility of customising the
sofware to the needs of individual users.

96
again. Ambitious employers wanting to develop a product that they had exclusive
rights to would ofen be unwilling to purchase the rights to similar code from
other owners.
Under the prevailing economic conditions, this atitude is actually quite under
standable, but from a purely technical viewpoint, the situation was so glaringly ab
surd that a counter-reaction from the hacker movement was almost inevitable.
A major milestone within this counter-reaction was the founding of the free sof
ware movement by Richard Stallman, who set about developing a completely free
operating system in 1984 out of protest against the limitations in the rights of sof
ware users. Known as the GNU106 project, it now incorporates numerous licenses
that allow programmers to publish their sofware or the relevant documentation
for the purposes of unrestricted usage, modifcation and distribution107.
So what are the immediate benefts of free and open-source108 sofware?
Te user benefts from a huge and comprehensive choice of functionality which is
generally free or almost free. Tis range of functionality is achieved by the ability
to combine a very wide range of individual sofware modules. Each of these mod
ules arises out of a real need in daily practice, is implemented in the course of real
operations, and is improved to meet operational demands. Te developer working
directly on this is not alone, but can call on the whole community of developers for
assistance. Tis cooperation enables the developers to fnd and eliminate bugs, in
cluding security risks, more quickly109.

106 GNU stands for GNUs Not Unix, a name which was chosen to make extremely clear the dif
ference between the gnu free operating system and UNIX, a proprietary operating system
which the new one was designed to resemble. Source: [Art.] GNU Project In: Wikipedia,
htp://de.wikipedia.org/wiki/GNU-Projekt, accessed 25.08.20111 13:20 CEST (own translation)
107 See: [Art.] Free sofware In: Wikipedia, htp://de.wikipedia.org/wiki/Freie_Sofware, accessed
25.08.20111 13:06 CEST
108 I am using the terms open-source and free sofware alternately or together to avoid annoy
ing either side of the current debate about the diferences in their usage. For a book such as this,
these diferences are too specifc to go into in detail.
109 Of course, this does not mean that the issue of security no longer needs our alert atention. In
fact, there are cases where programmers revealed that they built back doors into free sofware
acting on orders from security services. Tis was revealed afer the expiration of the contractual
period of discretion. Source: htp://bsd.slashdot.org/story/10/12/15/0047235/FBI-Al
leged-To-Have-Backdoored-OpenBSDs-IPSEC-Stack, accessed 27.10.20111, 16:47 CEST

97
In cases where the necessary functionality can only be achieved by combining in
dividual modules, the user of free or open source sofware either has to do this in
their own time if they have the necessary specialist knowledge or they com
mission a specialist to do this for them. Te diference here is that there is no frm
with a monopoly who insists on a particular contractor at a particular price, but
rather a free market where the user can choose a specialist ofering the necessary
qualifcations and market-determined hourly rate.
Te successful expansion in the use of free or open source sofware shows that this
model has been able to establish itself because the fnancial and psychological bar
riers faced by a user wishing to implement new sofware are reduced due to the
availability of a diverse range of qualifed specialists without compromising se
curity or fexibility. Indeed, in these regards, it is equal to or even beter than pro
prietary sofware.
It is worth noting that free in this context does not primarily refer to the cost, but
rather the freedom of publication for the source code. Making available a pool of
fexibly applicable sofware modules, which can be changed as users wish, is equi
valent to creating a whole palete of tools or a type of joint production basis which
can be used by any client to tackle any practical problem, once it has been adapted
to their specifc needs.
Tis service of adapting or customising the modules to the particular needs of the
client is the service which then generates income for the programmers. So making
money out of the joint production basis actually only happens in the second step,
once the frst step of creating this basis has succeeded in shaking of dependen
cies110.

110 Te danger of once again becoming dependent is of course ever present, and we need to be con
stantly alert in this regard. Companies that currently have the greatest infuence can use their
privileged position in the prevailing money distribution hierarchy to secure this position for the
future by buying up intellectual property rights and making (and keeping) creators of cultural
works dependent on them for fnancing. As well as large sofware companies, other companies
currently on a rights shopping spree include publishing houses and the flm and music sectors.
It sufces to mention just one example to illustrate these eforts: sofware patents.

98
Created by sofware developers around the world and itself spread out around the
world with data stored in multiple mirrors 111, this joint production basis will be
much less vulnerable to atack by outsiders and conceivably difcult to monopol
ise. Te key to using a joint basis such as this is simply the ability to learn the spe
cialist skills needed to make use of it. So there is less signifcance in factors such as
the size of ones workforce, property possession or capital: resources which are
currently shared amongst themselves by the elite and not freely available to every
one. Access to the source code then does actually become the key to economic self-
determination and power. So here free can be understood in the sense of free as
in freedom and not free as in free beer112.

Interests in common

It is revealing to realise that the term hacker is generally regarded as a negative

term in our mass media. Regular reports of hacker atacks create the general pub
lic impression that hackers are mainly interested in cracking security measures

111 Data mirroring is the act of reproducing a collection of data by means of a mirror server.
Tese mirror servers each host an exact copy of that particular data collection: they create a 1:1
reproduction of the data to be mirrored and make this available for access. It cannot always be
guaranteed that the mirror copy is completely up-to-date, compared with the original server,
since there will generally be a delay before any changes are recorded on all the mirror servers.
Source: [Art] Data mirroring. In: Wikipedia, htp://de.wikipedia.org/wiki/Datenspiegelung, ac
cessed 25.08.20111 13:54 CEST
112 In English, free can mean either no costs or no restrictions. So developers and activists
have been known to illustrate this diference with the comparison between free as in free beer
and free as in freedom.
Free sofware generally refers to the freedom aspect: users are granted the rights to use the
sofware freely, i.e. without restrictions. Tis freedom also includes the freedom to sell on their
sofware at any price they wish to. Some licences for free sofware include copyright clauses
(share alike) which dictate that these freedoms must also be granted to any further purchasers
or users of sofware should the user pass or sell on the sofware or a derivative work. In contrast
to this, freeware is the term used for sofware which is distributed without charge, but which
does not necessarily grant the user freedom with regard to the usage or source code. If it does
not grant these freedoms, then it is not free sofware. Tese freedoms are carefully defned for
free sofware by the Free Sofware Foundation. [Art.] Freie Sofware/Freeware. In: Wikipe
dia, htp://de.wikipedia.org/wiki/Freie_Sofware#Freeware, accessed 25.08.20111 (own translation)

99
set up by others113. However, should someone take a closer look at hackers statutes
(such as the Jargon File), ethics or actual practice, they will see that the reality
looks quite diferent114.
It is not specifcally hackers who are of particular interest for the concept de
scribed in this book. Rather, I wish to examine the whole community of FOSS de
velopers115 and the characteristics that the members of this large movement have in
common which actually grant them a privileged position in our societys economic
life compared to other professions.
For me, one fact is particularly signifcant: Tis group was the only one to have the
opportunity to make particular use of some advantages of the internet (or its pre
decessor ARPANET116) since the beginning of the 1970s, and not just since it be
came more widespread in the 1990s. Tis means the term networking has be

113 For this reason, many true hackers make the diference clear by using the terms crackers or
script kiddies to describe people who have fun gaining unauthorised entry into others secure
systems. See: [Art.] Hacker. In: Wikipedia, htp://de.wikipedia.org/wiki/Hacker, accessed
25.08.20111
114 I invite the reader to decide for themselves whether they are sympathetic towards the following
principles of hacker ethics:
- Access to computersand anything which might teach you something about the way the
world worksshould be unlimited and total.
- All information should be free.
- Mistrust authority. Promote decentralization.
- Hackers should be judged by their hacking, not bogus criteria such as degrees, age, race or po
sition.
- You can create art and beauty on a computer.
- Computers can change your life for the beter.
- Dont rummage around in other peoples data.
- Use public data, protect private data.
Source: Steven Levy, cited in Wikipedia Hacker ethic,
htps://en.wikipedia.org/wiki/Hacker_ethic#Te_hacker_ethics, Website of the Chaos Computer
Club, htp://www.ccc.de/hackerethics, accessed on 25.08.20111, 15:04 CEST
115 Te diference between a hacker and a normal sofware developer becomes clear upon reading
this quote from Eric S. Raymonds: Tere is a community, a shared culture, of expert program
mers and networking wizards that traces its history back through decades to the frst time-shar
ing minicomputers and the earliest ARPAnet experiments. ... If you are part of this culture, if
you have contributed to it and other people in it know who you are and call you a hacker,
youre a hacker. Source: [Art.] Hacker/Distinctions In: How To Become A Hacker available
at htp://www.catb.org/esr/faqs/hacker-howto.html accessed 29.05.20113

100
come an established part of their culture, especially their experience in working to
gether with others and implementing joint projects, ofen without even having met
or spoken to the others involved in person.
Tis means that the establishment of authority within this movement does not de
pend on aspects such as a persons origin, religion, health, sexual orientation or so
cial status. Te main criteria for deciding how much weight a person carries in the
group are simply the contribution that an individual has made and their degree of
professionalism117.
Tis and the practice of freely exchanging the results of their own work i.e.
without restricting the source code or documentation both encouraged the devel
opment of efcient working methods within this community, with regular usable
output, fat hierarchies and practical, functional administration mechanisms.
Te specifc requirements of this specialist area also mean that the average intelli
gence and level of education of people in this group are above that of society in
general. Networking and the use of English as a common language enables mem
bers of this global group to inform each other quickly of relevant occurrences and
to source all information they need to plan their reactions, including knowledge
only available in specifc locations.
It is not always easy for an outsider to familiarise themselves with the way of
thinking and behaving prevalent in this group and especially not with their spe
cialist knowledge. So the group has developed a special position within society.
Tey are spread around the world and use a medium of communication which they
understand beter than anyone else, so they are less vulnerable to atack. Tis
makes it possible for them to carry out projects which the powers-that-be might
not approve of.

116 Te ARPANET or Advanced Research Projects Agency Network was originally developed for the
US Air Force, starting in 1962 with a small group of researchers under leadership from the Mas
sachusets Institute of Technology and US Defence Ministry. It was the predecessor of todays
internet. [Art.] ARPANET. In: Wikipedia, htp://de.wikipedia.org/wiki/ARPANET, accessed
25.08.20111 14:22 CEST (own translation)
117 One practical example of this is the Apache Sofware Foundation, whose membership is restric
ted to active developers and contributors to the Apache projects. [Art.] Apache Sofware
Foundation. In: Wikipedia, htp://de.wikipedia.org/wiki/Apache_Sofware_Foundation, accessed
27.10.20111

101
Tese characteristics and the availability of a joint basis of production such as free
and open source sofware have enabled the members of this movement to achieve
a professional status characterised by a particularly high level of freedom com
pared to other professions.
Tis status itself serves as an example to us of what we can achieve if we have spe
cialist knowledge, intelligence and the ability to think in longer periods of time. It
becomes possible to free ourselves from the pressures and dependencies of the ex
isting fnancial and political system. Knowledge is ofen spoken of as the most im
portant resource of the future. When we hear this, we should think about this
group as an example which reveals approaches that could also help other parts of
society to achieve greater freedom in their professional and economic lives.
Bearing this in mind, it is no wonder that ruling powers and the mass media they
control exhibit a clear dislike for the FOSS developers and the hackers they see at
their forefront. Afer all, these are people who can ofer a type of resistance they
are not used to. Tis profession is of vital importance for the economy and it is
very difcult to replace them with cheap labour, because of their high levels of
qualifcation. For these reasons, FOSS developers have an advantage compared to
other professions when it comes to seeing their demands met during project nego
tiations.
Readers may think I am painting a rosy picture of the situation, but this is far from
the case. It is true that there are many IT professionals who do not realise how sig
nifcant free or open source sofware is. And large sofware and media corpora
tions are indeed increasing their eforts to secure the rights to intellectual property
for themselves. So the situation may be described as a dynamic equilibrium which
at any time can tip in any direction. Large companies enjoy the advantage of hav
ing powerful owners and access to much larger sources of credit, which leads to
signifcant economic advantages in the prevailing monetary system.
Nonetheless, the situation I have described does ofer potential for development in
the other direction and as an example I will return to the question I posed at the
beginning of this chapter: How can we implement large-scale, comprehensive sof
ware to operate the monetary system that is described in this book?

102
As far as I can see, something similar to the FOSS movement can lead to the cre
ation of a mechanism that will help to create favourable conditions for liberating
society from the grip of a monopolistic monetary system. So I am hopeful that a
sufciently large number of volunteers will be found to gradually develop and re
lease the sofware modules needed, creating a joint collection which will make it
possible for themselves or others to put the operation into practice.
Specifc practical details of the modules needed will be provided in the following
chapters. At this point I would like to counter one objection which I am sure a fair
number of readers will be considering: Do you really believe that the hacker com
munity will want to transform this crazy idea into real sofware?
Well, to be precise, hackers on their own will not sufce. Other skills will be
needed, such as translators to make the instructions and documentation available
in a range of languages, forum operators and participants to explain how to use the
system to newcomers, people who put their servers at the disposal of the system to
mirror important contents, system operators, and more. All of this assistance will
be needed if the system is to work well.
Todays movement towards free approaches is by no means limited to the sof
ware sector and encompasses much larger groups than just sofware developers.
Tere are a great many composers and creators of intellectual works whose spe
cialist subjects and skills do not ofer them such favourable opportunities to escape
the conditions imposed upon them by the prevailing monopoly. So the question is
whether it is also possible for them to seize the opportunity of contributing to a
project which could strengthen their position in society?
Te leap of consciousness in this case is, above all, the leap over our own shadows:
vanity and self-importance. Taking this leap results in the ability to forego a direct
reward for our personal contribution, to then achieve greater economic freedom
later by using a joint basis. In our case, we are talking about a system that makes it
possible to supply society with money in a diferent way.

103
 Like a phoenix from the ashes

As I was considering the technical infrastructure it seemed important to be able to

defne a process that refected the core operations of the whole system. Tis pro
cess should be that of a service which is essential to the monetary system being de
scribed. Anyone ofering this service is then, by defnition, helping to constitute
the system as a whole.
Tis logic accords with the basic principle of developing and operating a distrib
uted system. Systems such as this can be repeatedly established and maintained by
diferent participants operating in the same way. Precisely defning the scope of
the standard service is similar to the role played by a seed which gives rise to a
pre-determined process leading, eventually, to a new plant.
Te basic principle has already been described above, and this standard service has
already been introduced as the standard transfer 118. So let us look at this in more
detail.
Te following description will contain sufcient technical details to illustrate the
context and connections within the system, but no more. Readers seeking a more
precise description are referred to the Appendix119, which presents the logic of the
procedures down to the level of individual communications between the parti
cipants involved.
And, of course, further details will gradually be discussed and resolved during en
suing discussions and the process of implementation.

118 Sub-chapter Value reference

119 Te standard transfer: step by step

104
 A brief description of the standard
transfer

Te core process in the standard transfer is the transfer of a freely chosen amount
of credit money from one possessor120. We will refer to the provider ofering this
service as the transaction administrator (TAdmin).
Te model considered here works with distributed databases containing informa
tion about emited money and the current possessors of this money. We will refer
to the operator of these databases as the emission administrator (EAdmin). Tese
two roles are separate. However, the service of administering emissions and data
bases can also be ofered by a TAdmin and this will ofen be the case.
Te process of a standard transfer is not completed until the transfer of possession
for the stock of money concerned is registered in the appropriate database(s), so
the commissioned TAdmin has to maintain the connection to all participants as
long as is necessary for this. Participants here include: the customer (the current
possessor of the monetary units), and the emission and database administrators re
sponsible for the monetary units involved in the sum of money being transferred.
A commission to transfer an amount of credit money from possessor A to pos
sessor B generally triggers the following events:

Checking if possessor A is indeed who they claim to be (authentication).

Checking if possessor A actually has the power of disposition for the mon
etary units involved in the transaction (authorisation).

Transfer of possession for all monetary units involved in the transaction

from possessor A to possessor B by registering this in the relevant data
base(s), assuming the previous two checks have positive results.

120 Te English-speaking reader may fnd it more natural to think of the owner of monetary units
rather than the possessor as used in this book. However, there is an important legal distinc
tion between ownership/property (in German, Eigentum) and possession (Besitz) and I wish
to preserve this distinction where possible.

105
 Notifcation to A and B121 concerning the execution of the transaction,
which includes details of the changes made in corresponding database re
cords. Tis serves as an additional control and makes it possible for users
to keep a local overview of their own data.
Each of these events is comprised of several steps at the technical level, but we will
reserve these details until later in order not to overload this initial presentation.
At this point it is important to remember that the standard transfer refers to the
process of transferring any specifed amount of money, even if this is made up of
monetary units issued by diferent emiters.
Tis requirement is essential, because the monetary system based on this process is
designed to be a system where various types of money are being used at the same
time: afer all, the basic idea is to de-monopolise the monetary system. In other
words, not restricting the process to one particular type of money is one of the sig
nifcant characteristics of the process and system. And it is this condition that
makes the role of transaction administrator necessary: if the transfer only con
cerned a homogeneous amount of money, the emission administrator could carry
out the commission and process by themselves.
Another important aspect to note is that the costs of the transaction are borne by
the participant who commissioned the transaction in order to transfer their money
into the possession of another person. (Or to another identity which they use
themselves.)
Here we need to note the diference between transfer of possession and transfer of
ownership: the former is a purely technical process, whereas the later is a legal
process.

121 It will not always be possible to notify B since B will have the option of not entering an e-mail
address for this if they wish to maintain anonymity.

106
 Emission and database administration

We already mentioned this role above, so now we need to provide a few further ex
planations to make it clear what is involved.
Te monetary system that is being described step for step in these pages has the
aim of allowing any natural or legal person to emit their own money. Te emission
itself has to satisfy particular conditions if it is to be included and administered
within the system. Te most basic of these are certain formalities such as the iden
tifcation of the emiter and details of the economic promise being made as the
basis of this credit money emission. However, the emission administrator 122 is not
in principle responsible for permiting or refusing an emission 123. His role is restric
ted to monitoring whether it is published and administered in accordance with the
rules and conditions of the system. Tis includes:

Checking the details of the emission to see if they are complete.

Publishing them under a unique emission ID on his servers.

Entering this into his database and generating the monetary units for this
emission. Administering the possession of these units.

Collecting and publishing statistics and other data during the lifetime of
the emission.

Answering enquiries from the possessors with regard to the amount of

their monetary holdings being held in his databases.
In order to fulfl their tasks, one of the things that an emission administrator will
have to do is to operate a database in the form of at least three identical data
stocks. Tese should be kept geographically as far apart from each other as pos
sible in order to secure the data against natural disasters such as lightning, earth

122 Not to be confused with the transaction administrator (TAdmin), who coordinates the transfer
of amounts of money between possessors.
123 Te emission administrator can refuse special cases where the emiter is issuing the credit
money on the promise of actions or services which are contrary to the laws of the country they
are based in. Te emiter will then have to look around for another emission administrator.

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quakes, tsunami and similar events. An arrangement such as this ensures that in
the event of any such damage, the data can be reconstituted and any conficts
arising can be resolved.
Te databases of any particular emission administrator contain only data relating
to emiters who commissioned him to administer their emissions. Considered on a
purely practical level, it will be impossible for any single person or company to re
cord all information about all possible emiters and their emissions. Furthermore,
the principal of distributed data storage also ensures that the problems do not oc
cur which could arise if one central data source was used, which would be ex
tremely susceptible to technical or political problems.
In this regard, the question could be posed as to how far this decentralisation can
be taken? For example, would it be technically feasible to design the data storage
in such a way that the data on every individual emission could be compressed, en
crypted and mirrored with an exact timestamp? Te responsibility for day-to-day
administration would still lie with the emission administrator. Where needed, they
would know which timestamp the current version of the data has and then search
for the appropriate stock of data, download it, change it and then make it available
for mirroring once again. With this system, the emission administrator would be
less vulnerable to atack, since they would not be (completely) reliant on their own
databases.

System participants and their

verification

Te monetary system being described places two types of demands on the identi
fcation of its participants. One group of participants the money emiter, the
transaction administrator and the emission administrator have to be identifable
right down to the practical level of their identity as a natural or legal person, since

108
this is the level at which they act in their respective role 124. Te second group is
made up of those using the monetary system to make payments. Tese do not have
to be identifable at the practical level of their legal persona but they do need an
identity that clearly distinguishes them from other participants within the system.
Teir anonymity is preserved throughout the systems payment process, just like it
is during a customary cash payment.
Tese two groups do actually overlap to a certain extent because, for example, a
money emiter will certainly be able to participate in the system under an addi
tional identity in order to make payments. Tinking further, it is also possible for
any participant to operate under a range of identities in order to administer difer
ent parts of their monetary assets.
Asymmetric cryptosystems125 ofer a convenient solution for the process of au
thenticating participants: in other words, checking whether the person who claims
to own a particular identity actually does own it.
Tis type of procedure involves each of the communicating parties having a pair of
digital keys. Each pair is made up of one secret part (private key) and one non-
secret part (public key). A digital key pair can be considered as two very large
numbers which correspond to each other. Te number of digits needed depends on
the encryption process and security level being used.

124 Te degree of identifcation needs to be sufcient to create the level of trust between the various
participants needed for them to accept each others services and emissions. Should a reader
have a suggestion how this level of trust can be achieved for the service-providing participants
without full disclosure at the real level of the natural or legal person, I would be very grateful to
hear this.
125 Te contents of the following explanation of asymmetric cryptographic systems are taken from
the corresponding Wikipedia articles. I made changes to shorten and adapt the text to the style
of the book. Source: [Art.] Asymmetrisches Kryptosystem. In: Wikipedia, htp://de.wikipedi
a.org/wiki/Asymmetrisches_Kryptosystem, accessed 14.09.20111

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A key pair is usually created on the participants local computer (ideally not net
worked) using appropriate sofware126. Te public key is shared with other commu
nications partners whereas the private key is kept by the participant in a safe
place. To share their public key, the participant needs to use a method of commu
nication that fulfls two requirements: frstly, it should guarantee that the informa
tion being sent can arrive safely at the recipient without being tampered with;
secondly, it should ofer the recipient a guarantee that the sender really is who
they say they are127.

126 For example, GPG (see Glossary)

127 Te problem being addressed here is how to establish the initial trust needed. Tis is actually a
recursive problem and not just a technical issue. A full consideration of the possible solutions
for this type of problem is unfortunately not within the scope of this book.

110
If a participant, let us call him Bob, wants to make sure that his message to another
participant, Alice, cannot be read by anyone else, he can use Alices public key to
encrypt the message to her. When Alice receives an encrypted message, she can
use her private key to decrypt it and then read it.
In order to prove that it really does come from him, Bob can also sign the encryp
ted message using his own private key. When Alice receives the message which
claims to be from Bob, she can use his public key to check this signature and verify
the origin of the message.
Te use of asymmetric128 key pairs for the purposes of our monetary system will
mean that the database of the emission administrator contains the public key of a
participant in the possessor feld of the monetary units that belong to them. So
the digital key can be used for an additional function: it serves as the identifcation
code for the wallet129 of a money possessor.

128 Asymmetric refers here to the situation that the encryptor and the decryptor of a message do
not need to possess the same key. Instead they each have one part of a pair of digital keys. Tis
means that the private key never has to be sent out, which reduces the risk of loss of discretion.
129 Te wallet identifer is really nothing other than what we currently refer to as a bank account
number.

111
Figure 7: Encryption and decryption of messages using asymmetric keys

112
 Wallet

Te use of a digital key as a wallet identifer is certainly a case of misappropriation.

Nonetheless, it serves our purposes so well that it is hard to think of an alternative.
Te term wallet as we are using it here refers to a feature that can be used to la
bel the entire monetary holding owned by a participant under a particular identity.
We therefore call this identity the wallet identifer or wallet ID.
Te most signifcant diference to a normal wallet is that money is not actually put
into this type of wallet. Instead, the wallet ID is placed onto the money. Technic
ally speaking, the wallet ID is entered into the possessor database feld 130 of every
monetary unit as soon as it enters into the possession of the participant to whom
this wallet ID belongs.
If some money changes possessor or wallet, the new wallet ID is entered into the
possessor feld for this money.
Tere are circumstances where a physical wallet today might contain more than
one money type for example, someone who lives near a border or who regularly
uses a regional complementary currency. An essential feature of the new monetary
system will make this the normal situation: it will be very common to possess dif
ferent types of credit money and to administer these under one wallet ID. Tis
means that the monetary units belonging to a particular wallet identifer may be
spread among the databases of several emission administrators.
So in order to determine exactly what the contents of their particular wallet are,
the money possessor will have to use the corresponding wallet ID to send a data
base query to all of the emission administrators responsible for the diferent types
of money that this money possessor accepts.
Since the wallet ID is also the public key of the money possessor, the emission ad
ministrators will also be able to use this to confrm the identity of the enquirer 131.

130 For a complete description of the format, please see the section Data format of a monetary
unit.

113
Figure 8: Qerying the contents of a wallet using the wallet ID

Afer positively confrming this, the EAdmin can then send the money possessor a
summary listing all the money stocks which exist in their databases with that wal

131 For example, the EAdmin could send a transaction number (TAN) which the participant has to
sign with their private key in order to prove that they have the rights to make an enquiry about
these particular money stocks.

114
let ID as possessor. Te participant will then feed this message into the sofware
they use on their local computer for administering their money stocks 132.
Of course, each emission administrator is free to decide for themselves whether
they charge a fee for this type of database query.
In practice it will surely be the case that some form of mixed solution or fat rate
becomes the standard (e.g. a certain number of queries per month for a fxed fee).
And this type of database query is certainly a suitable service which the emission
administrator can base their own emissions of money on133.

Anonymity

Participants who simply want to use this monetary system in order to make and
receive payments will only need to identify themselves to the system using their
wallet identifers. Teir anonymity is ensured to the extent that they can keep their
identity as a natural or legal person separate from their connection to their wallet
identifer.
Tis certainly runs contrary to the usual way of using digital keys: generally an
e-mail address is asked for when these keys are created and this is treated as suf
cient identifcation. In this case, publicising a public key on a key server (a com
mon practice) would then make it very easy to identify the possessor of money,
since their wallet ID is a public key and enquirers will easily fnd any information
traceable to this public key or the e-mail address used when generating it.
So there are some special additional aspects relating to the way we deal with di
gital keys if we want to use them as wallet IDs and still consider it important to
maintain anonymity when it comes to dealing with money134.

132 For more on this topic, please see the chapter Administering money stocks.
133 More in the chapters Emission and Emission management.

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Te frst additional aspect already needs to be considered during the creation of a
digital key pair which someone wants to use for their private fnancial afairs: if
they want to remain anonymous, they will not want to enter their legal name or a
traceable e-mail address. We need to share a wallet ID with people who owe us
money so that they can commission a transfer to us. However, we are then free to
conduct a self-transfer, puting this money into another wallet whose identifer
no one else knows.
In numerous other cases, the publication of the identity of the money recipient is
actually very desirable. For example, where a charitys wallet is being used as an
account to receive donations or a companys wallet for payments from customers,
it makes sense to publicise additional information such as a user ID or e-mail ad
dress which can be gleaned from the digital key. Tis makes it easier for the person
paying to be sure of the identity of the money recipient.
Nonetheless, in cases such as these it is also advisable to carry out additional
checks to make certain of a recipients real identity: it is not enough to simply trust
the entry on a key server. Before transferring money to another participant one
should always make sure that the wallet identifer really does belong to them and
is still valid135, otherwise it might be possible to fall victim to deception.
In the same way that publicising a bank account number poses no danger for the
holder of that bank account, publicising the wallet ID does not endanger the con
tent of that wallet. Its identifer is merely the public part of the key pair and does
not enable anyone to access the contents of a particular wallet. Tat is only pos
sible for the holder of the secret counterpart the private key.
So the process of authentication of a participant who is only using the system to
make a payment does not mean that they have to identify themselves with their

134 Te issue of anonymity and data security when it comes to administering the keys is not new;
this application of digital key pairs to enable anonymous payments merely makes the issues
more visible. Since our consideration of this new monetary system will involve the creation of
many new structures, it will quite possibly be a good opportunity to solve some old problems at
the same time.
135 If the owner of a wallet loses the private key corresponding to the wallet ID, the money in this
wallet is no longer available. And a thief who stole a private key could gain access to the monet
ary stocks in the wallet. In cases such as this, the possessor generally removes the validity of the
public key.

116
full name, social security number or civic registration details. It is sufcient for
them to say: I am the holder of the private key corresponding to the wallet ID XY
and I can prove this by decrypting and answering a message that has been encryp
ted with that wallet ID.
I consider it to be extremely important to allow for the possibility of making an
onymous payments. Just as we distinguish between the public and private parts of
our lives, we should also have the choice of how intensely we protect our private
fnancial sphere.

Ill wire you the money... the

standard transfer in detail

So what does Bob do when he is a participant in the new monetary system and
wants to transfer a sum of money to another participant, Alice?
First of all, he has to ask Alice for the identifer of the wallet she wants him to pay
the money into. Since these identifers will be prety long combinations of numbers
and leters, it seems highly appropriate to use digital communication for this. Of
course, they have to be sure these communications are secure 136. To convey this in
formation by telephone, a Key ID or fngerprint 137 can be used to uniquely identify
a public key that has already been published.

136 Te issue of how to share keys in a secure way is already a familiar problem today and there is a
choice of solutions. Nonetheless, direct contact with the key owner is still the most secure path
of transmission! One possibility for this are so-called key signing parties, where digital keys
can be exchanged and signed for each other. See also the explanations in the section, Trust
not a trivial mater.
137 In the context of using digital keys, a fngerprint is a unique sign that can be used alongside the
key-ID to identify a digital key. Generally speaking, it is a number derived by a special proced
ure and much shorter than the key itself. Tis makes it easier to transmit, particularly in per
sonal communication such as a telephone call. Te fngerprint can also be generated in the form
of an Aztec or similar code, which can then be read by a scanner or similar optical device.

117
Bob also has to check with Alice which money types from which emiters she ac
cepts. Usually, Alice will have a list which she then simply sends to Bob.
Bob then selects monetary units from his monetary holding to put together an
amount which corresponds to the sum he wants to transfer to Alice. Just as we
already use bookkeeping sofware, special programs will be available for adminis
tering money stocks and Bob will use sofware like this to put together this trans
fer138.
Te next step is for Bob to decide which transaction administrator (TAdmin) he
will use to carry out the transaction. Bob is initiating this transfer and is therefore
responsible for paying for the transaction, so if Bob currently holds credit money
from a particular TAdmin, he will generally choose them to carry out the service.
Let us assume for this example that Bob chooses a TAdmin called Kwik Transfer.
Bob calls up the website of Kwik Transfer and makes sure that this URL does actu
ally belong to the company 139. Te aim of this check is to decide whether he can
trust the operator and their public keys140.
Te distributed way in which this system operates means that Bob does not have a
personal protected area at Kwik Transfer (or any other TAdmin). Instead, he
merely has to unambiguously identify himself for the duration of the current ses
sion. For this, they make available a data channel to enable an encrypted data
transfer between all participants in the transaction.
Bob uses Kwik Transfers public key to encrypt his frst message to them. Tis con
tains: his request to carry out a money transfer; his wallet ID; the list of monetary
units he wants to transfer to Alice141; and Alices wallet ID.

138 For more on this topic, please see the chapter Administering money stocks.
139 For example by checking the digital certifcates used by the operator.
140 Tis problem actually goes further than we generally think: it arises every time we visit any
website. However, users generally do not notice the checking procedure because most internet
browsers are equipped with a set of the most popular digital certifcates and carry out this
check automatically. More on this problem can be found in the section Trust not a trivial
mater.
141 For the sake of simplicity and understanding, for the rest of this section I will not include details
of the exact sequence of all encryption and decryption procedures. In the chapter Te standard
transfer: step by step in the appendix, the same procedure is described in more detail.

118
Afer receiving Bobs message, Kwik Transfer checks the list of monetary units he
has provided to fnd out which emission administrators (EAdmin) are responsible
for them. Kwik Transfer then has to contact these EAdmins the issue of mutual
identifcation and establishment of trust are once again important.

Figure 9: Standard transfer: Procedure for the commission issued to the

TAdmin Kwik Transfer

In our example, Kwik Transfer fnds out that the monetary units in Bobs list are
the responsibility of two emission administrators: half of them at the EAdmin
Treasure Chest and half of them at Your Money.

119
Figure 10: Standard transfer: Forwarding Bobs commission to
responsible emission administrator

Kwik Transfer sends each of these EAdmins a list of the relevant monetary units,
together with Bobs and Alices wallet identifers.
Te emission administrators each require a confrmation from the previous pos
sessor in this case, from Bob that this transfer should actually be carried out.
Two features enable them to determine whether the transaction being requested

120
was actually initiated by the possessor of the monetary units (Bob). One is the wal
let identifer of the current possessor. Te other is the data channel made available
by the TAdmin, which enables an encrypted connection to Bob 142.
In order to authorise the transaction, each EAdmin generates a unique combina
tion of digits, the so-called transaction authentication number (TAN). Tey en
crypt this with Bobs public key which we know is the same as his wallet identi
fer and send it to Bob together with other details of the transaction via the data
channel provided by the Tadmin.

Figure 11: Change of possession of a monetary unit by entering

the wallet ID of the new possessor in the possessor
field in the database

If Bob is able to decrypt the TAN with his private key and read it, then he is able to
authorise the transaction. To do this, he signs the decrypted TAN and the details of
the transaction using his private key. He then sends this back to the EAdmin the
same way it came.

142 Te TAdmin is simply a mediator and connector in this process, so they only have access to data
being transmited in this channel if the data is directly addressed to them. Other data packets
are merely forwarded to their recipient.

121
Figure 12: Standard transfer: Procedure for the authorisation query issued by the
EAdmin to Bob
Figure 13: Standard transfer: Authorisation and implementation of the
transaction

123
Te emission administrator can check the signature using Bobs public key and
compare the returned TAN with the original. If both of these checks are positive,
the transaction can be considered as adequately authorised and it can be carried
out.
In its role as transaction administrator, Kwik Transfer is responsible for monitoring
and assisting the progress of the transaction right up until the moment when both
Treasure Chest and Your Money report that the procedure has been successfully
completed. If everything succeeds, Bob receives a message from both of the EAd
mins notifying him of the change to his monetary holdings. Te details can then be
fed into his money stock administration sofware on his local computer. Tis noti
fcation can also be presented to third parties (e.g. Alice) as proof that the money
transfer has been carried out.
If there is an error at any of the interim steps of the transaction or if any of the
participants fail any of the checks, the transaction fails and Kwik Transfer is re
sponsible for sending an error notifcation to Bob.
Alice does not receive a specifc notifcation at this stage. She will discover that her
monetary stocks have changed as soon as she sends a database query 143 with her
wallet ID to Treasure Chest or Your Money.

Payment of the TAdmin

Te example described above was kept deliberately short in order to present the
basic procedure of the transaction more clearly. In practice, each transaction that a
transaction administrator carries out for a customer will include a further step:
paying the administrator.
Te connection between the service provided by the TAdmin and the act of paying
the TAdmin is particularly signifcant because payment processes should generally

143 As described in the section Wallet.

124
be anonymous. Tis anonymity makes the relationship between a TAdmin and a
customer similar to the relationship between a street vendor and a passer-by: there
is basically no chance to charge for their services afer the event, because there is
no longer any way to contact the customer (the personal information of the cus
tomer is only provided during the transaction and to the extent necessary for this).
So paying the TAdmin has to be built into the transaction. And this also has to be
done in such a way that the whole transaction process can be cancelled if the pay
ment fails.
So every sum of money transferred for each commission from a customer has to be
increased by the amount necessary to pay for the service provided by the TAdmin.
Te monetary units reserved for this are not transferred into the possession of the
recipient of the transfer. Instead, they are transferred into the possession of the
TAdmin, who therefore has to provide the customer with their own public key
(wallet ID) for this purpose. Te practical details for this transfer of possession are
of course the same as for that between the actual transfer partners.

Of great importance

Once again, the reader is reminded that the Appendix includes a more detailed
technical description of the process of the standard transfer. Te reason why we
are dedicating so much space to the standard transfer is as follows: this essential
procedure actually refects the complete structure of the whole monetary system.
If we compare this standard transfer to traditional bank transfers or even to bit
coins, we will fnd the following unique feature: in one single procedure it is pos
sible to transfer amounts of money comprised of monetary units from diferent
emiters (heterogeneous sums of money). Tis refects the fact that freedom of
emission or de-monopolisation is an intrinsic part of the standard transfer and
the system as a whole.
Te non-uniform composition of the amounts being transferred is also the reason
why the role of transaction administrator is so necessary. For one single transac

125
tion to be carried out, more than one emission administrator may need to be con
tacted, so the procedure needs a coordinating role someone who keeps an eye on
the whole transaction until it is completed, providing support where necessary.

Trust not a trivial matter

Te use of digital keys may not be self-explanatory for readers who did not grow
up with computers.
Many computer operating systems actually already include programs that enable
their users to generate digital key pairs on their local computer. Tere are also a
range of front end applications making the administration and use of digital keys
quite easy.
In spite of this, as far as I can see there are still not many people who routinely en
crypt and/or sign their messages.
Tere still seems to be a signifcant need for information on how to use digital
keys. Above all, we need to break down psychological barriers and the initial fears
of people who do not have advanced computer skills. Here I am not just talking
about security measures but also about routine usage of sofware that is already
available.
A further challenge which lies beyond the scope of this book but nonetheless infu
ences the practicability of the system being presented is without a doubt the ques
tion of how to build initial trust between the participants involved particularly
the TAdmins and EAdmins.
It is the technical aspect of this trust-building that is being primarily addressed
here: the verifcation of the fact that a participant whose key has been signed by
many others is more likely to be the person they claim to be, as compared to the
claim of a participant whose key has fewer signatures.

126
Here trust is based on the confrmation of the claimed identity and not on the
quality of the services rendered. Of course, this does not exclude measures to build
up trust in the later sense, i.e. evaluating the professional qualities of a system
participant, but these need to be distinguished from the purely technical aspects.
Te problems we can recognise here are as follows. Firstly, the task of fnding a
suitable provider on the internet and making sure that they are in fact who they
claim to be. Secondly, geting hold of their public key. And thirdly, the decision
whether we can trust them. Building trust does seem to be an example of the clas
sical chicken or egg dilemma!
One possibility to resolve this dilemma has already been mentioned: key signing
parties, where people who are interested in building trust actually meet in real life
to exchange and sign their digital (public) keys. Another possibility, related to this,
is the Web of Trust. Tis is based on the consideration that I can trust someone I
do not know personally if they enjoy the trust of someone I do know and trust my
self144. For the purposes described in this book, this procedure seems to me to be
more practicable than the alternative solution: using digital certifcates 145. Te lat
ter imply the existence of a central certifcation body, which could undermine our
systems basic principle of distribution if the right to issue certifcates then became
subject to a monopoly, for example.
For the sake of completeness, we need to mention these difculties, but jumping to
the conclusion that these difculties prevent the system being implemented would
be too hasty. Where theres a will theres a way: Experience shows us that tech

144 Tis is referred to as transitive trust. With regard to asymmetric keys, it can be illustrated as
follows: Alice signs Bobs key; Bob signs Carls key; so Alice then trusts Carls key. Source:
[Art.] Web of Trust. In: Wikipedia, htp://de.wikipedia.org/wiki/Web_of_Trust, accessed
16.11.20111, 11:51 CET
145 A digital certifcate is a digital record that confrms specifc properties of a person or object. Te
authenticity and integrity of this certifcate can be verifed using a cryptographic procedure. In
particular, the digital certifcate has to contain the information needed for its verifcation.
A common way to do this is to include the public key which can confrm the identity of the cer
tifcate owner and other properties. Source: [Art.] Digital certifcate. In: Wikipedia,
htp://de.wikipedia.org/wiki/Digitales_Zertifkat, accessed 16.11.20111, 12:01 CET

127
nical hurdles can be overcome much sooner than we might think. Afer all, in the
early days of the internet the idea of ordering a pizza online seemed quite bizarre.
Today it has become a common part of everyday life.

128
 How about your own currency?

Te word currency belongs to the type of word that is ofen used but seldom un
derstood. And even looking it up in the encyclopedia does not help much: both the
German Duden and Wikipedia defne currency primarily in terms of the legal
tender regulated by governments or regional groupings of nations. A money sys
tem expressly designed to exist without any obligations overseen by government
obviously needs diferent standards.
So what is it: a currency?
It is a pre-determined standard that serves as a reference value for the measure
ment of payments. Te signifcance of a currency for the economy is similar to that
of the metre or kilogram for science and technology: it allows us to measure.
In the frst chapters of this book there were some examples of how certain eco
nomic goods were particularly suitable for use to facilitate exchanges. Tese then
became reference values and in this way eventually formed the basis of a currency.
So a sheep can be used as a currency standard in just the same way as a dollar.
Where there is no government enforcing an obligation to choose a particular cur
rency, the choice of currency simply refects a common agreement among the par
ticipants to use a specifc reference value as a unit of measurement for their busi
ness transactions.146

146 Compare this to S. H. Schwenke: Currency is a norm-value reference system for economic
goods. For example, a gold-referenced currency: Name of the currency unit Doro; Currency raw
material fne gold; Standard amount 1 gram; Standard calibration 10 grams fne gold coins.
Parity theory, p. 7

129
As well as this common agreement, the general defnition of a currency also in
cludes parameters such as: name or label, economic good serving as a reference,
standard value, standard amount, abbreviation etc.
In the course of human history, the phenomenon of governments claiming the sole
right to emit money occurred repeatedly. Tis was ofen enforced violently and
these conditions (monopolisation) were also ofen accompanied by manipulation of
the currency in their favour.
For this reason, any atempt to defne a currency for the new monetary system ne
cessarily has to consider how it can avoid this tendency towards monopolisation.
A further requirement is to ensure that the value of this currency remains as stable
as possible.
Afer many decades of economic experience with currencies that have litle or no
relation to real values, many readers will quite probably fnd it challenging to try
to imagine anything other than a statutory means of payment.
Of course, the trials and tribulations of the current worldwide fnancial crisis
(2007-) will also have led some readers to discover the advantages of precious
metal currencies. And there are many who appeal for the return to gold and sil
ver as the remedy to prevent any further economic crises. For them, the concept
of real value seems to be inextricably linked to real material that you can hold
in your hand.
However, at the beginning of this book 147 we saw that the direct connection
between monetary value and the monetary medium is not an inherent property of
money. It was simply an answer to the demands of the time and was necessary for
a time, but not anymore. In the past the functions of assessing value and storing
value were directly linked to the medium used as money, but this past fact is not
sufcient reason to justify insisting on these properties for the money of the fu
ture. Te deplorable state of afairs we are currently experiencing in our monetary
system developed gradually from that past form of monetary organisation. So re
viving these aspects is not really the best way to prevent this deterioration from
happening again.

147 Chapter Money not as obvious as we think?, sub-chapter Te revolution.

130
Our task here is not actually to fnd a replacement for gold or silver. Nor is it to
defne the ultimate currency. Instead, we are simply looking for a way to fulfl the
need for stable reference values known throughout the payment system, since
these are needed if we want to participate in an economy based on understanding
and cooperation between many diferent parties.
Considering what we have already learned about the functions of money, we know
that a currency has to be designed in such a way that it can be used as the basis for
emissions of money that close economic cycles in the most efcient way possible.
In order to fulfl this function in a modern way, it has to be coupled with a certain
value but in a way that does not restrict its capacity to be moved and transferred.
In todays world, modern obviously means that the money should be electronic
ally transmitable.
Coming to this conclusion leads us to the question whether the reference value of
the currency should then also be a digital economic good or a technical service in
some sense? And indeed we have already found a suitable candidate.

The standard transfer as reference value

for a currency

Why not?
As a specifc technical service with a fxed description, the standard transfer is
something that has an almost identical value for all participants at any given time.
Tis value is also linked to the overall functionality of the whole system; in other
words, it is a core process for bringing together economic participants, which is
the most important function of this money.
Emissions of credit money that promise the performance of a standard transfer
upon redemption will be in high and constant demand since this money is needed
for every transaction carried out by the participants involved in the system. At the

131
same time, it can be emited in whatever quantities are needed 148. And this type of
credit money actually renews and maintains the whole system every time a parti
cipant redeems a unit of it and requires the corresponding service.
Te distributed nature of the operation and the opportunity for many diferent in
dependent service providers to ofer the standard transfer will both then ensure
that these special characteristics do not allow the service to become misused as the
subject of a monopoly149. For the same reasons, the long-term average market value
of the standard transfer will remain fairly stable. If anything, technical progress
might lead to the value decreasing slightly over time.
Global availability and rapid transfer via the internet are also factors that should
be mentioned here.
Once again, it needs to be mentioned that the reference value of this currency is
not an absolute value that exists independently of time and place. It is simply a
standardised service that allows the values expressed in terms of this currency to
be compared independently of time and place. Tis service is only granted this spe
cial role if the systems users agree that it is a practicable solution.
All of these properties, together with the fact that it is a core function of the
money system, make the standard transfer extremely suitable as a universal, read
ily available measure of value. But that is not all. Tere is a high probability that a
currency using this value reference will assume the role we know today as that of
a reserve currency (also known as an anchor currency). Te key diference is that
this will not be the result of a politically enforced obligation, but rather the result
of the currencys excellent suitability for bringing together and connecting the ser
vices of individual economic participants with those of the others.

148 Economic indicators regulating the money supply are presented in the chapter Emission man
agement. Tere is no need for a regulatory authority here.
149 Of course, there is no guarantee for this. All we can do is ensure that the system includes built-
in factors that make monopolisation more difcult.

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 Designation

As work on this idea progressed, the name knots gradually became the most con
vincing designation for the monetary unit based on the standard transfer. Almost
every choice of name is a subjective mater and this is no exception there is no
objective reason why it has to be this, but readers may nevertheless be interested
in how this name came to be chosen.
My frst idea for the new moneys name came from combining the German words
for use or exchange: Nutzen oder Tauschen. Te initial leters formed NOT.
Tis name refers directly to a signifcant characteristic of credit money: we either
use it by cashing it in for the service provided or we exchange it by passing it
on as a means of payment for something else. Te O in the middle could then be
replaced with the symbol 150, representing the closing of the economic cycles.
Te designation NT with its concentric circles symbolising connection would
then be a clear contrast to the normal currency symbols such as , , $, which all
have two parallel lines and thus portray a channel rather than a cycle.
However, this designation would have the disadvantage of being too similar to the
word bank note. Although this similarity would actually have made spoken refer
ences easier, I wanted to make it very clear that this system is diferent to tradi
tional bank money.
Another aspect I needed to consider was the tiny size of the standard transfer ser
vice, which meant that credit money based on this service would be exchanged in
larger multiples, such as 1000 or 1024 units. Tis would naturally lead to a designa
tion with the prefx kilo- or k. And then NTs would become kN Ts.
I liked this new term, especially because the German word Knoten and the Eng
lish word knot clearly represent connection ways of linking two or more
things together.

150 Some eBook readers do not display this correctly. Te symbol consists of two concentric circles.
It is the Unicode symbol U+229A (CIRCLED RING OPERATOR)

133
But I was still looking for a way to make it clear that this money system is very
diferent to the existing one. And then I came up with the idea of a recursive ac
ronym151: KNOT = Knots Not Ordinary Treasuries. Tis style of name is an es
tablished tradition in the technology and open-source movements.
So the name of the currency would be KNOT and the credit money based on this
measure of value could simply be referred to as knots.
Te reference value is one standard transfer, as described in the chapter Like a
phoenix from the ashes.
Te standard code or abbreviation could be KNT or KNT.
And one individual monetary unit of this currency would be one knot. For a mul
tiple of one thousand we could use kiloknot, 1 kKNT or 1 kKNT, or simply
1000 KNT.

Other currencies

KNOT is a currency that is more or less automatically made available by the new
monetary system. Of course, this does not mean that credit money from other
emiters based on other services cannot also gain the status of being used as a ref
erence value.
For example, a company ofering music downloads called Knork might emit
credit money in units corresponding to the download of 1 music track, and they
might name their monetary units knorks. Knorks would be very liquid since they
can be exchanged for the corresponding service at any time (via the internet). Teir
relatively low value would also be a factor making them suitable for use as a refer
ence. Let us imagine that they also become very fashionable. Te Knork company

151 A recursive acronym is an acronym (an abbreviation made up of initial leters) which refers to
itself in the expression for which it stands. One of the best-known examples is GNU, referring
to itself in the break-down of the acronym: GNU is Not UNIX.

134
has a good reputation and its product range clearly matches the publics taste.
Afer a short time, knorks become so popular that an online bookshop decides to
list its prices in knorks as well as knots. Tey discover that young people primarily
pay using knorks, which prompts a clothing retailer to start listing prices for its
young fashion lines in knorks, too. And so on.
As soon as knorks begin to be used in this way as reference values for other
products and services, the knork has atained the status of a currency. Tis will
automatically lead to greater demand for knorks. And there will possibly be more
demand than the company Knork could meet (in terms of providing the necessary
services promised for the issue of the credit money). However, these additional
knorks demanded by the system will not be cashed in immediately. Instead, they
will primarily remain in circulation as means of payment. Te company Knork
could regard this additional turnover of their credit money as a type of trust in ad
vance credit or a bonus from their customers due to their success.
It is not possible in advance to precisely predict the factors that will lead a parti
cipant in the system to gain this sort of status, but we can defnitely say that
without statutory enforcement of one currency, there will be more than one cur
rency in use within particular felds of business, population groups or geographical
areas.
Some readers might ask whether it would be easier to use traditional currencies (of
the type , , $). Of course, initially these fat currencies will still be in use, paral
lel to the new monetary system. And they will indeed continue to be used as a ref
erence. But I doubt it will continue to be easier to use them in the long term. Read
ers should not forget that the advantages of the old currencies cannot be enjoyed
without sufering their disadvantages, too. If these traditional, forced currencies
had fulflled their economic functions in a perfect way, it would not be necessary
to develop alternative monetary systems.
Although the designation knots actually refers to the currency emited on the
basis of the standard transfer, it could happen that emiters of other credit money
use this term as part of the designation for their money. And this might eventually
lead to the term being used to describe credit money in general and not just the

135
system-inherent currency: Can you spare me a few knots, guvnor? For example,
the money units emited by the company Knork might be referred to as knork
knots instead of just knorks.

Giving change

Even in a new monetary system, vendors and purchasers will want to conduct
their business down to the last penny: exact transactions will still be necessary. It
is quite likely that one KNOT will not represent the value of the smallest possible
transaction conducted using money from the new system. Nonetheless, the system
ofers several answer to the question of how to give change.
Te most probable solution will be the use of a type of money that uses a much
smaller reference value. Examples could include money issued on the basis of:
sending one SMS text message; one minutes telephone call; or a particular volume
of mobile data usage.
Another solution could be simply writing of amounts less than the value of
1 KNT; or chalking them up recording them on the customers account and
cashing them in with the next purchase. 152
Even bitcoins ofer a solution to this problem, since they are known for their easy
divisibility and as a cyber-currency they could be easily integrated into this new
monetary system.
And since the standard transfer refers to the transfer of a complete sum of money
that can comprise diferent units from diferent credit money emiters, there are no
additional technical problems posed by stocking up a sum of money with low-
value monetary units.

152 Of course, this can only take place with non-anonymous purchases where the purchaser uses a
customer account with an identity known to the vendor.

136
 Assessment of value

Since we will now be talking about a new currency, we might ask the question:
What will the new price tags look like? What numbers have to be writen on
them? Tese might seem like innocuous questions, but answering it is a process of
assessing value and has two parts: How is the market value of a currency determ
ined? What authorities or actors are involved in this?
How does value arise anyway? How is it that we know what price is appropri
ate for something new appearing on the market?
Well, in fact, we do not know this. In each individual case, the initial labelling of
the price can be considered as an estimate. It does not have to be objective and in
most cases it is not. Seting value is a purely subjective afair. However, it is made
objective as soon as it becomes clear that a number of participants in the market
exhibit the tendency to exchange one particular commodity for another in a partic
ular ratio. An objective average arises from a large number of subjective transac
tions where their value reference is publicly known. Tis average value then in
turn has a binding efect because it becomes accepted as the exchange rate153.
Of course, it is possible to exchange goods at a very diferent rate, even if a com
monly accepted exchange rate is known. Tis probably happens now and again but
it is not the situation we are considering. For our purposes, we just need to know
the average. In practice, this will be calculated at auctions and on other trading
platforms.
Te later might be known as knot exchanges, if we follow the analogy of todays
stock exchanges. So we will use this term from now on to refer to a general trading
venue, accessible by internet and used to trade in knots.

153 Exchange rate (in the context of this book) the market price of securities and foreign curren
cies etc. [Art.] Kurs / Def. 4. In: Duden Deutsches Universalwrterbuch, p. 914

137
Of course there will be more than one such knot exchange. And the fundamentally
distributed nature of the system will mean that a wide range of trading venues for
emited knots arise, which will also serve to reduce the possibilities for manipulat
ing exchange rates.
Tese rates will generally be expressed in terms of the currencies used at any par
ticular knot exchange. Te value of the knots 154 which themselves serve as one of
these currencies will be expressed with reference to one of the other currencies
used at each trading venue, e.g. 1 KNOT = 1.67816 knorks.
Te current exchange rates 155 will be part of the data that each knot exchange pub
lishes every trading day. Te rate at which the monetary units of a particular emis
sion are being traded also belongs to the statistics that an emission administrator
continuously records in their data collection relating to the progress of each emis
sion156.
Tere will be no way of avoiding slight variations between the current exchange
rates at diferent knot exchanges for monetary units from one particular emission,
but I foresee these variations as being relatively insignifcant. Tey will mostly be
the result of local situations at a particular exchange or the occurrences on a par
ticular day. In fact, this efect itself is the result of the self-regulation within the
system which stems from the unrestricted access to all trading venues: as long as
emiters continue to fulfl their obligations and accept their credit money back in
return for the corresponding service or goods, there will always be participants in
the market willing to take advantage of lower exchange rates to build up reserves
of that credit money or to cash it in directly and gain that service or good at the
current advantageous price.
Te question of how to publish the price of goods or services in a new currency
will therefore soon be clear at least as soon as the initial price fuctuations have

154 Here used in the sense of the currency money KNOT.

155 Conventional terms for this are still the opening and closing prices or rates. However, since
trade is carried out around the world and therefore around the clock, it seems more appropriate
to speak of current rates. Tese could be defned as the average of a comparatively short trad
ing period, such as an hour. Tey could then be calculated and published at every knot ex
change.
156 For more on this topic, please see the chapter Emission.

138
setled. Te existence of the KNOT as the systems own currency and stable refer
ence value will also make it easier to compare the rates of other currencies to each
other, in turn facilitating the publication of prices for other goods and services.
It is extremely important to understand that there is no need for a special state
authority to achieve this. Tis process needs no external stabilising power. Under
the conditions of monetary freedom, the rule of supply and demand will sufce to
regulate the exchange rates of all types of money 157 unlike the situation we have
with unsecured government money. In fact, the rate will refect more than just the
prevailing economic reality: it will also contain important clues for the emiter,
which we will consider in more detail below, in the chapter Emission manage
ment.

157 Not only those that serve as reference values (currencies), but the monetary units of all other
emiters as well.

139
 Overview of the technical
infrastructure

Te previous chapters have considered the various functions of the new monetary
system with regard to the transactions that will take place. Now we turn to a lar
ger-scale consideration of the interaction between the various components in the
system.
Once again, the reader is reminded that here we are primarily concerned with the
functionality of all the components. At this stage, it is not crucial to know the ex
act physical, material details of how these functions are organised. Te only essen
tial consideration is to ensure that the principle of distributed operation is main
tained at all levels.

Software packages

It goes without saying that sofware modules will be needed to realise the indi
vidual functions and that these need to be designed in such a way that they work
together and enable the system as a whole to operate in a uniform way.
Inspiration can be drawn from examples in other projects based on free and open-
source sofware. Many details will only be put into practice afer this book is pub
lished, such as the design of the discussion platforms, developer environment, the
division into sub-projects, version administration and similar aspects.

140
At the time of writing, I am planning to publish this book itself under a non-com
mercial open licence and on a suitable server. 158 Tis will be a start, at least. All fur
ther developments will be dependent upon the reception of this book and the ideas
within it.
In the end, a development platform will make available functional sofware pack
ages (distributions) that can be used by operators.

Emission administrator

Te emission administrator (EAdmin) is the service provider who provides the

emiter with the technical infrastructure they need for their emission of money.
Tis covers all phases of the emission:

Determination of the identity of the emiter

Compiling and publishing the basic data for an emission: the scope of the
service or goods provided as a basis for the emission; conditions for cash
ing in the credit money.

Allocation of a unique identifcation number to each emission and to each

of the monetary units emited.

Recording data regarding transfer of possession in the cases where the

emited money is used as a means of payment between third parties.

Documenting the cashing in of each monetary unit. In this case the status
of a particular monetary unit is recorded as redeemed, which means it
can no longer be used as part of any payment fows.

Compiling and publishing statistics relating to a particular emission.

158 Te German edition was published under the free licence CC BY-NC-ND 3.0 and is available at
no cost from htp://www.kabatinte.net/shop/3.shtml. Te English edition will be sold at a low
price.

141
Readers might ask whether it is really necessary to have a separate body respons
ible for administering emissions, since it is the responsibility of each potential
money emiter to determine and publish the conditions for their emission(s). Of
course, this is true but it will not be realistic or possible to expect every money
emiter to be able to set up a professional database conforming to strict security
criteria, performance demands and technical standards. Tese are the requirements
of the system, however. So without specialists it would be impossible for smaller
emiters to take part. And this would defnitely not live up to the concept of
Money emission for everyone!
Te tasks of the emission administrator include technical duties such as the install
ation and administration of at least three identical databases, separated from each
other organisationally and spatially to ensure that a problem in one will not afect
the other two. Having three identical databases is also a technical criterion that
helps to make a majority decision in cases of conficting data. 159
Security and efciency will be the customers main criteria when it comes to
choosing an emission administrator responsible for holding the data regarding
their emissions.
In principle, the emission administrator is the only participant who actually knows
who the possessor160 of each individual monetary unit is. Te possessor themselves
has to order a database query for each of their wallet identifers from the respect
ive EAdmins to obtain an overview of their current monetary holdings.
Te existence of the emission administrator as a professional service provider also
helps to prevent the problem of double payment: the atempt to use one and the
same monetary unit to pay two vendors at the same time.
Te fact that there will be no monopoly on the right to carry out this service
makes it very difcult to abuse the position. Anyone with the necessary technical

159 Te responsibility remains with the EAdmin even if the data records for individual emissions
are kept in the way suggested in the section Emission and database administration, by mirror
ing individual data strings.
160 Te term possessor is used here to refer to a particular possessor ID (identical to a wallet ID)
and not to a natural or legal person, since anonymity of money possession is one of the guiding
principles behind the monetary system being described in this book.

142
competencies will be able to become an EAdmin. And anyone ofering this stand
ardised technical service to their customers will not be able to aford to upset
them.
It stands beyond reasonable doubt that there will be a large number of emission
administrators within the system. Not only because security considerations make
it wise to administer emissions in a decentralised manner, but also because it is un
imaginable that one single service provider would be able to process the enormous
quantities of data involved in administering the self-replenishing number of money
emissions around the world.
To make it clear: Each individual emission administrator only administers the data
regarding the money stocks arising from emissions they provided technical sup
port to. Exceptions are cases where one EAdmin becomes the legally responsible
successor of another EAdmin and takes on their emissions. Te income of an EAd
min is obviously dependent on the number of clients they have.
As well as the administration of the emission data itself, other important sources of
income for the EAdmin will include fees for database queries 161 and charges for
selling statistics.
Statistics on emissions will be in demand by those planning future emissions, as
well as consumers seeking to assess the value of their monetary holdings. Com
panies specialising in the analysis of fnancial data will probably make the most
use of this information, by summarizing it and ofering target group-specifc re
ports as part of their service.
Te fact that there are many emission administrators performing the same service
within the system also means that any one individuals total monetary holding will
generally be spread over the databases of more than one EAdmin. As well as the
desired efects, this distribution will also present a few problems, which we will
deal with below in the chapter Administering money stocks.
Te emission of credit money by an emission administrator is a special case to con
sider. Tere is nothing that fundamentally forbids someone from administering

161 To enquire as to the money stocks held for a particular wallet ID of a money possessor; please
see the section Wallet.

143
their own emission, since it is the customers who, in the end, decide whether
credit money emited by a specifc emiter is actually accepted. In some cases, for
example during the initial phase, it might be advisable for an emission adminis
trator to let another provider administer their emission. Tis will help to avoid any
misunderstandings or potential for distrust and criticism. For the same reason,
when in later phases one administrator takes over or buys up another, or becomes
the legal successor for any other reason, it would be advisable to transfer the ad
ministration of the data for their own emissions to a legally independent EAdmin.
Te duties of an emission administrator also include providing the public with
sufcient general information about the emissions they are responsible for. Appro
priate data can be made available for this purpose on their own servers and relev
ant mirrors.

Transaction administrator (TAdmin)

Te tasks of the transaction administrator (TAdmin) arise from the fact that sums
of money used to make payments within the proposed system will generally be
comprised of monetary units from a range of diferent emiters. Tis means that
one single payment process will involve contacting diferent emission administrat
ors and that the whole payment transaction will fail if just one of these contact at
tempts fails.
Te individual technical steps which take place during a payment transaction have
already been mentioned during the presentation of the standard transfer 162. Carry
ing out these steps requires all those involved to be highly professional. Te trans
action administrator assumes the role of coordinator for a complex transaction

162 In the section Ill wire you the money... the standard transfer in detail and in the Appendix,
Te standard transfer: step by step.

144
with enquiries going out to several partners at the same time. Tey ensure close
cooperation for the duration of the transaction between parties who otherwise
have no direct connection to each other.

Figure 14: Enquiries to various EAdmins when transferring possession of

a heterogeneous sum of money

Te standard transfer brings together diverse, separate data in a meaningful way.

Without this bundling of data it would not be possible to operate a distributed pay
ment system, since a system such as this has many diferent ends and these need to
be brought together for just enough time to fulfl a particular function. Keeping
these connections short, sporadic, spontaneous and unpredictable helps to ensure
that the vulnerability of all participants remains as low as possible.

145
Te efcient performance of this technically very sophisticated service can only be
ensured by a professional. Tis specialisation is also a guarantee that the service
and its operation will be continually adapted to meet new challenges and keep up
with developments in technology.
For the transaction administrator we can also be certain that it will be difcult to
abuse or monopolise the role. To carry out this service, free access to the requisite
sofware and technical skills will be necessary and these will determine who joins
the ranks of those professionals ofering the service.
Te variety of transaction administrators and the fact they emit their own credit
money knots on the basis of the standard transfer will ensure that there is al
ways enough system-inherent money fowing to supply those participants who do
not emit their own money.
At the same time, the self-interest of the transaction administrators will ensure
that they do not get carried away and emit signifcantly more money than is being
demanded163. Tis keeps the value of the system-inherent currency KNOT suf
ciently stable, in a dynamic equilibrium.
Te demand for the standard transfer service will also ensure that the existence of
the system itself is self-maintaining.
Te functions of transaction and emission administration could also be organised
together, but they do not have to be performed together. At this stage of considera
tions regarding the operation of the system, it does seem sensible for some TAd
mins to ofer emission administration as well, maintaining their own emission
databases. But in the end, the actual operations when put into practice will show
whether it is more practicable to operate these services together or separately.

163 Te things that we need to watch out for in this regard are mentioned in the chapter Emission
management.

146
 Knot exchanges and payment service
providers

Te current exchange rate for the monetary units of a particular emission will gen
erally be determined by calculations at the knot exchanges. Tese are an essential
part of the system infrastructure, but we do not need to explain their design and
operation specifcally in this book since this type of exchange is already well
known and they can be adapted to specifc requirements of specifc users. Tis role
is also one which could be ofered as a further service from a provider also acting
as a transaction or emission administrator. However, many exchanges will un
doubtedly be operated by dedicated specialists.
Within the new money system, an important role will be played by payment ser
vice providers. Te large number of money emiters will lead to a great variety in
the composition of individual monetary holdings, so it will ofen be necessary to
take a sum of money that is made up of monetary units from several emiters and
convert it into an amount of equal value but comprised of units from a diferent set
of emiters.
Tis is connected to the fact that any particular participant in a transaction will
only be able to keep track of a limited number of emissions, which means they will
only want to accept monetary units from emiters who they know or who they can
trust.
At this juncture, payment service providers can step in and for a fee ofer to
bridge the gap.

147
Figure 15: Role of the payment service provider in payment flows using
knots

148
 Intermezzo: Readers questions

Having read and thought about the issues presented in this book so far, many read
ers will have questions. So I will address these at this point. A concept that claims
to ofer a new solution for an old problem will understandably be compared to
other proposals relating to the same topic.
Although right from the beginning it was not my intention to ofer an analysis of
existing alternatives, as this book went through the proofreading phase it became
clear that it is necessary to emphasise and highlight the main characteristics which
make the model proposed in this book diferent to other models.
Furthermore, this chapter ofers an opportunity to explain a few aspects more
closely where details would have been confusing if presented when introducing
the concept.
Tis intermezzo has been structured in the familiar format of frequently asked
questions (FAQ). Test readers helped tremendously in the selection of the issues
here and I am extremely grateful to them.

How can we be sure that the new monetary system will not be worse than
the old one? What will happen if the new system stealthily undermines the
old one but then does not prove to be better? The worst that could happen
would surely be more severe than nothing changing.

As far as I can see there is no possibility of absolute security in life. For every de
cision we make, we simply evaluate available information and probabilities, rely on

149
prevailing consensuses and personal experiences, and try in this way to fnd a
solution which will lead us to our desired goal with the least efort. Of course, this
process will be diferent for everyone, depending on their respective worldview.
In the case of a project as comprehensive and wide-ranging as a monetary system,
such as the one described in this book, an implementation will only be possible if a
large number of contributors take part. Whether it is then established in a stealthy
or blatant way is not decisive: in either case it would mean that a large number of
people believe it represents an improvement in their situations.
Even if the frst atempts do not lead to a completely perfect technical system be
ing built, as long as the project remains a communal enterprise, we can remain
hopeful that it will be successively improved and that satisfactory results will be
achieved in the mid- to long-term.
It would be illusory to assume that this new monetary system will suddenly push
aside all others. Tat is neither the plan nor a good idea. Te number of parti
cipants in the new monetary system should only grow if it really does ofer ad
vantages compared to other alternatives.
Some may suggest we do not actually put this into action until it has been proven
to run properly and with no danger of an error: in my opinion, this would lead to
stagnation. Tese conditions are almost impossible to meet and this demand is of
ten made by people who, when it comes down to it, do not want to change any
thing but do not want to admit it. Tey like to run through various diferent pos
sibilities without commiting themselves: as long as everything remains in the
realm of non-commital thought experiments, they see no reason to act.
One possible reason for this atitude might be found in the consideration that striv
ing for stability, reliability and continuity is a necessary prerequisite for keeping
society together. For this reason, the majority of people always try to keep hold of
things that have proven themselves, repairing them when necessary and as long as
they can. An individuals tolerance for sufering plays a large role here.
It takes a serious crisis to break down this desire for continuity and mobilise soci
etys powers to bring about signifcant change. In the near future we should see
whether the current fnancial crisis has the potential to do this or not.

150
 Thinking about digital, decentralised payment systems, we should ask the
question: Are efficiency, mass output and speed really all that count? Or
shouldnt the digital human also be allowed to be out of date, laborious
and slow? In other words, surely they should be able to have tangible
money in their hands when they go to the real market where living people
are, where the sun shines, where the products have aromas and everything
is so wonderfully unhygienic and sensually imperfect?

Tis question seems to come from an admitedly very deeply rooted conviction
that the widespread usage of one type of money would automatically happen at
the expense of others. In other words: We have become so accustomed to the con
ditions of a monetary monopoly, that we now consider it impossible for money
we can touch to coexist alongside a monetary system implemented with a very
high level of technology.
Te monetary system described in this book has already been declared as having
the aim of re-establishing monetary freedom by de-monopolising the creation of
money and its circulation. So, under these conditions of monetary freedom, supply
and demand would also regulate the use of other ways of making payments, in
cluding unhygienic notes and coins.
Tis question also reveals that consumers generally do not worry about how the
goods are produced which they go looking for on their tranquil, sensual shopping
trips. Te questioner would most probably not be willing to pay an unlimited price
for the situation they are demanding. Hardly anyone today would readily be pre
pared to give up cheap telephones, computers and cameras etc. And very few con
sumers would actually be willing to work under the conditions prevailing at the
real market they insist on being allowed to frequent.
A monetary system that wants to live up to the claim of being modern will not be
able to establish itself if it does not fulfl the demands of the economy. And this
economy demands efciency. Money as a universal interface between the indi
vidual steps of production is important primarily for business participants in the

151
economy. Personal quality of life, however, is the responsibility of each individual,
whether they prefer it sensual-imperfect or rational-practical. We should not con
fuse these issues.

Today there is already a visible trend towards phasing out cash. There is a
danger that this development could lead to increased surveillance of the
population. The monetary system based on knots being proposed here is
also an electronic system without a primary cash component, so where is
the guarantee that a perfectly implemented knot system would not deliver a
very useful tool into the hands of those seeking to exercise global control?

Again, this question arises because of the painful experiences we have sufered in
many sectors arising in turn from the monopolistic nature of the monetary system.
Under its infuence, privatisation, globalisation and technical innovation have in
creasingly resulted in centralised power relationships further monopolies.
Te trend away from the use of cash money has not been spared from this distort
ing infuence and under the current conditions of monetary monopoly it is indeed
a very problematic development: where cash can no longer be used, we are de
pendent on the other means of payment available, and today these are anything
other than anonymous. If there was an alternative system that enabled anonymous
payments, everyone who valued their anonymity would change to the system,
whether or not cash still existed.
Te medium is not the important thing: anonymity as a principle is.
Within the monetary system being proposed here, great consideration has been
paid to this principle. Te personal identity of the participants does not have to be
disclosed as long as they are not the emiters, and participation in the system itself
is optional. Decentralised money creation means that diferent types of money are
available and compete with each other. So the acceptance of any one particular
type of money is also optional. Suppliers of payment services are competing for
customers and therefore cannot impose conditions such as the loss of anonymity

152
upon them. Furthermore, the money is backed by current real goods and this prop
erty of being full-value money no longer makes it possible to generate income
from nothing without working; at least, this would not be a sustainable business
model. Without this political advantage, none of the parties involved can force
their conditions upon the other.
Te design of the system will enable participants to start using it without having to
convince a political majority frst. In this way it can truly develop as a grassroots
initiative and perhaps it might even be beter if the elites only fnd out about it
when it is already operating.

Since anyone can emit money in this knots monetary system, wouldnt this
mean that with around 40 million economically active citizens in Germany
we would have 40 million currencies?

If each of these 40 million individuals actually emited their own money, then we
would have 40 million emiters and 40 million diferent types of money, but we
would defnitely not have 40 million currencies.
A particular type of money can only be called a currency if it is adopted as a meas
ure of value for their business transactions by a sizeable group of market parti
cipants. Money, or rather credit money, refers to any debt certifcate that enables
an immediate setlement of a business transaction.
For example, if a local swimming pool pays the invoice from the plumber using
swimming-pool knots and the plumber in turn uses these to buy bread from the
baker who then redeems them on a sunny afernoon with his family at the swim
ming pool, these swimming-pool knots are being used as credit money, but they
are not yet a currency.
Swimming-pool knots become a currency when their acceptance becomes very
widespread and they can be used to compare the values of many other goods and
types of money. In other words, when not only the swimming pool itself but also

153
the baker, an online bookshop, a chain of clothing shops, a window factory and the
electricity supply company list their prices in swimming-pool knots and accept
this type of money as payment.
So although there can be a very large number of diferent types of credit money,
comparatively few will achieve the status of a currency.

One of the major advantages of modern monopolistic money is the simpli

city it lends to writing and paying invoices. Wouldnt it be easier to limit
ourselves to one currency?

Easier, certainly, but not expedient.

If we think about restricting the system to one currency, we immediately have to
pose the question, which one should it be? And why? Actually, it is an absurd
question because the aim of the monetary system being proposed is to remove the
monetary monopoly currently prevailing.
Te system is also designed to be as fexible as possible in order to preserve the po
tential of adapting it to meet as many requirements as possible in the course of fu
ture practice. It is similar to a modular system containing a range of diferent basic
elements. How many of these will actually be used and how ofen are questions
which will only be answered during practical trials.
Fears that the diversity of possibilities will lead to chaos are misplaced, as far as I
can see. A system such as this is based on and encourages process optimisation, so
in practice the initial trial phase will lead to a handful of currencies being chosen,
and the ease of invoicing will not be noticeably less than with current forced cur
rencies.
It is obvious that diferent currencies will be used in diferent regions or in difer
ent sectors of the economy and it can be expected that particular currencies will
establish themselves for particular purposes because they best meet the specifc re

154
quirements. It is not signifcant whether the amount printed on the invoice is ex
pressed in euros or in knots. Te important thing is the freedom of choice for the
economic participants and the technical solutions that ensure this freedom.

Can you briefly summarise how it will all work, please?

Participants who decide to emit their own credit money generally bring this into
circulation by using it to pay their bills. Tis credit money is linked to a promise
made by the emiter to deliver a particular service or product upon presentation of
the credit money by the current holder. Meeting this promise (redeeming the
money) presents no problem to the emiter because delivering this service is ex
actly what their whole business has been set up to do.
Usually, an emiter will need some assistance to carry out the emission and this
will be provided by an emission administrator (EAdmin). Teir task will be to keep
track of all entries concerning the emission in the respective database, particularly
the generation of new monetary units as commissioned by the emiter and the
compilation of useful statistics.164
Of course, this can be carried out by the emiter themselves if they have the neces
sary IT skills and capacity. Generally speaking, specialisation leads to increased
efciency, so most emiters will fnd it advantageous to commission the services of
professional emission administrators. Tis is comparable to the familiar decisions
relating to organising internet access: how much do we organise ourselves and
how much do we purchase from a provider?
Recipients of credit money can call up the promised services or products from the
emiter directly or they can use this money to make further payments. In this way,
the money supply is also ensured for those participants who do not emit their own
money: when performing services or delivering products they simply accept
money from other emiters as payment.

164 For more on this topic, please see the chapter Emission.

155
From a technical point of view, transferring sums of money from one participant to
another is recorded by emission administrators as a transfer of possession entered
into their databases. Te sums to be transferred will generally be heterogeneous,
i.e. comprised of a variety of monies, so another specialist will be needed to co
ordinate this: the transaction administrator (TAdmin).
Te system is conceived to allow for the highest possible level of distribution. Te
sofware that will enable this functionality will be made available in the form of
free sofware/open source modules from voluntary sofware developers. Tis char
acteristic will make it virtually impossible for a monopoly to take over the system.

Transaction administrators, emission administrators, payment service pro

viders, knot exchanges its a huge infrastructure! Do we really need all
that?

TAdmins and EAdmins are defnitely essential roles which ensure the operation of
the whole system, as I have explained at diferent points in the book.
Payment service providers and knot exchanges seem to me to be logical and useful
roles; they are actually nothing other than the result of carrying over current stock
market and payment practices into the new model.
Time and experience will show us whether these roles can be combined or
whether each one is best carried out by a particular specialist. It is quite possible
that beter models will eventually be found to assume the tasks of valuation and
money or bonds trading.
Again, here it is worth remembering that the system has a modular structure: ac
tual demand will decide which elements are actually needed and to what extent.

156
 Why have you devoted so much space to the standard transfer?

Te standard transfer represents the core of the whole concept: frstly, the whole
structure is refected within this process, and secondly, it serves as the value refer
ence for the system-inherent currency, KNOT.
Te later is particularly important because adopting a standardised service as a
value reference for a currency is, as far as I can tell, a true innovation. It is actually
the key invention. Tis makes it possible for many service professionals to emit
credit money with a common value reference at the same time, allowing this refer
ence to serve as a currency without allowing any individual emiter to have a
monopoly on it.
Te process of standard transfer presented here has the inherent characteristic of
enabling the transfer of a variety of types of money within one single transaction.
It is therefore the very quintessence of demonopolisation when it comes to the cre
ation of money.
Te existence of the transaction administrator as a role is a direct consequence of
the worldwide distributed structure and a variety of monies being used, which
makes it necessary to have a coordinator knoting the loose ends for the duration
of each particular transaction and thus enabling the transfer.
In the course of time, other types of non-standard transfer will be ofered to deal
with special cases, perhaps for particularly small or particularly large amounts. At
present, however, it is not possible to predict how signifcant these non-standard
transfers will be.

157
 What are the main advantages of using correctly emitted credit money,
compared to the monopolistic or forced exchange rate money of today?

One important advantage is the wider distribution of the credit base of an emiter.
He is no longer dependent on banks as the sole source of credit. Instead, the ac
ceptance of his money by a third party such as his supplier is in itself already
short-term credit. Tis form of credit is interest-free, unlike the usual bank credit.
Looking at it another way, banks will see their opportunities to impose their condi
tions diminish in direct relation to the expansion in usage of correctly emited
credit money.
For example, if the banks shut of the credit line to a refnery, it would not have to
declare itself bankrupt if its suppliers were willing to accept the refnerys credit
money (petrol knots). Te only condition the refnery would be subject to is its
commitment to deliver petrol or an equivalent from its product range upon de
mand from the petrol knot holder.
Decisions relating to a companys cessation or continuation of business would be
much more strongly dependent on its customers than they are today.
Correspondingly, the money elites would be less able to implement projects which
sustain their power at the cost of the general public.
Te interestfree nature of the short-term credits and the lack of pressure to make
a proft would lead to signifcantly larger number of transactions being carried out.
Services and goods would be on ofer which are currently not proftable due to the
conditions of monopolistic money, such as the necessity to cover interest and com
pulsory taxes.
Te money supply arising through the use of correctly emited credit money has
another advantage: it is a direct representation of existing economic capacities,
containing information which tells us how many services and products can be
called upon and when.

158
 Will the disadvantages of constantly having to monitor exchange rates and
administer many different money types and currencies outweigh the advant
ages of the new monetary system?

Since the efort involved can generally be performed by computers, the answer is
no.
Te advantages of removing dependencies upon monopolistic money would surely
be very signifcant, especially in terms of increased fnancial room for manoeuvre.
It is my opinion that these advantages will more than outweigh the efort of imple
menting the necessary administration and trading sofware, however sophisticated
this may have to be.

Knots are all well and good, but this system is too complicated for the nor
mal user.

If you ask todays normal internet user to explain how the internet works, only
very few would be able to do so. Nonetheless, the internet and all of the services
based on it have become an essential part of everyday life. Te same applies to
computers, smartphones, tablets and similar devices.
In the same way as all of these technical systems, the implementers of the knot-
based money supply face the challenge of doing this in the most practical way, cre
ating interfaces that are easy to use. Good usability means that using knots has to
be no more difcult than todays online banking or administering a mobile phone
contract. Otherwise the system will not establish itself.
Regarding the choice of diferent types of money: If consumer choice is a good
thing for other products, why should it not be a good thing for money? Numerous
institutions have developed to evaluate and test consumer goods in a professional
way, so we can assume this will also happen for the diferent emissions of money.

159
As far as I can see, the danger is not that there will be too many monies. A much
more real danger is that of distorting and compromising the whole process of
money emission for everyone through regulation.

How can we make sure that enough money is emitted in the knots monetary
system?

Since emiters gain direct advantages by introducing their own credit money into
the system, such as the fact that this represents an interest-free credit granted to
them by the money holder, we can assume that participants will initiate enough
emissions to indeed beneft from these advantages.
Te limits they should set on an emission to ensure that it does not end in ruins
are described in the chapter Emission management.

Why do we need yet another new model for money? After all we already
have many proposals, such as Silvio Gesells Freigeld (free money),
Joseph Hubers Vollgeld or full-seigniorage plain money, flowing
money or local currencies. Wouldnt it make sense to support these initiat
ives and help them to grow to a significant role in the money supply system?

In my opinion, a modern monetary system needs to fulfl a certain set of condi

tions, which I listed above 165. So my evaluation of alternative monetary models is
also based on this list. However, not all proposed alternatives share the same goals,
so applying this list is not always possible.
One of the main conditions responsible for my decision to draf another concept
was the fact that practically all of the models I knew about contained components

165 See the section Te challenge.

160
which, as far as I can see, do not bring any decisive advantages compared to the
current monetary monopoly. Tese include centralised money creation or the com
mitment to use one single currency166.
All variants of Freigeld which impose a demurrage (a charge to encourage circu
lation) or recall it at regular intervals (as is the case with fowing money) are
only possible within a monetary monopoly. Otherwise, the participants in the eco
nomy would simply switch to money issued by a diferent emiter that did not im
pose these conditions. So any alternative proposals based on Freigeld or a demur
rage-charged money imply the existence of a central bank, even if this is not em
phasised in the main presentation of that model.
Local currency initiatives have the main aim of keeping purchasing power within
their particular region. Even though there is a wide variety of initiatives, this goal
understandably always infuences their design.
With a few exceptions, local currencies are tied to the central bank currency pre
vailing in their region167. Computerised methods of payment are rare and the use of
the internet is ofen deliberately rejected. Tis feature alone makes it difcult for
them to expand widely.
In contrast, my proposal also considers the interests of companies active interna
tionally or outside of their home region.

166 Bitcoins are a special case which I describe above.

167 Sometimes this link is indirect, as with the Rheingold initiative which is based on the old
German mark, but in practice traded at a fxed exchange rate of 1:2 to the euro. Source: Web
site of the Rheingoldregio e.V. i.G.: htp://www.rheingoldregio.de/index.php?menu=21&id=31,
accessed 11.03.20112, 18:04 CET

161
 Monetary systems so heavily dependent upon technology would be very vul
nerable. What would happen if there was a power cut longer than a couple
of hours? What would happen if there was a mega sun storm, a mega com
puter virus or a mega attack from digital terrorists?

Of course, a hypothetical worldwide power cut is a killer argument for any concept
that assumes a stable power supply.
However, a sustained planet-wide power cut is only really imaginable in the case
of a truly global disaster. In this case, many systems which our society depends on
would fail, not only an electronically based payment system. Filling stations would
no longer be able to supply fuel; delivery trucks without fuel would be stuck on the
highways; supermarkets would be closed, not only because no food had been de
livered, but also because most of them do not have any windows and without light
it would be pitch black inside; electronic tills would not work; product labels could
not be scanned automatically etc. In other words: Te whole of humanity would
have to quickly reorganise itself at a lower technological level in this scenario, and
this would mean that money has to fulfl very diferent requirements.
Money as an economic instrument has the task of serving as an interface between
diferent production processes. If these processes cannot take place, any form of
money would be useless.

Knots seem to be designed to maximise turnover and sales. So what about

saving?

Saving is actually nothing other than shifing current demand to a future time. Or
ganised in a sensible way, it can help to balance out the irregularities in an indi
viduals income during the diferent stages of their life, i.e. especially between pro
ductive and non-productive periods.

162
Whereas the goal of saving in the monopolistic monetary system is generally con
centrated on increasing the amount of money available (capital invested plus in
terest and compound interest), the primary focus of the knots monetary system is
the tangible future purchasing power.
Teoretically, ordinary knots without a term limitation could be used for saving
but since they carry no interest, this would mean that the saver grants the emiter
an interest-free credit for the period of saving.
For this reason, I think that the knots monetary system will eventually develop in
vestment possibilities ofering a greater beneft to the saver. It is to be expected
that this will primarily be in the form of investment bonds. Tese are securities
which have the same tangible and real value reference as usual knots but with the
diference that the service or product promised is not available immediately but
only at or afer a particular date in the future. Tis will be refected in their lower
price at the beginning of their emission. Once the agreed date is reached, these
bonds transform automatically into normal knots whose value equivalent can be
called up without discounts or reductions from the emiter. Te emiter needs to do
nothing other than deliver their usual service or product.
Tis compares with the bonds typically used today, which commit the debtor to
paying back his obligations exclusively with monopolistic money which they have
to acquire by frst fnding a third party willing to buy their goods or service and
then delivering the money received to the creditor. Todays scheme can therefore
be seen to be more speculative in nature because upon issuing the bond, the debtor
commits themselves to giving back something which they do not actually have at
the moment but simply hope they will acquire at some point.
Tis issue is examined more closely below, in the chapter Accumulating capital
and credit.

Can knots outdo an investment in precious metal?

An investment in precious metal, or in any other raw material, is based on the as

sumption that the current level of demand for this raw material will stay the same

163
or increase in the future. Strictly speaking, this assumption is speculative. For pre
cious metal, it is based on a convention widespread among investors which says
that precious metal is a safe haven.
Investment in precious metal is also a common form of assets today because other
investments generally measure their value in a particular amount of monopolistic
money and not in purchasing power. Under the conditions of monetary freedom,
however, it will face competition from a large number of other possibilities equally
suitable for preserving current purchasing power over time to satisfy future con
sumption.
It is therefore likely that the special status of precious metal assets and the specu
lative portion of the investment success which depends on this will not survive for
long. Which leads us to the answer to the question posed: yes.

And what now?

Now we have answered the most frequently asked questions about the proposal as
a whole, in the second half of the book we will delve into explanations of the ac
tual practice of emission, administering money stocks and accumulating assets.

164
 Emission

Of course, everything I have writen so far was just the prelude. Te excitement
only really starts when we need to make practical decisions about whether and
how to make our own emission or accept credit money from another emiter.
Te majority of the data which an emission manager 168 deals with is included in
the technical parameters of an emission. So it seems reasonable to devote the next
part of the book to the data structure of an emission.

Data format of an emission

For practical reasons, the emission data will be separated into two parts: the static
and the dynamic data. Te static part includes the descriptors for the emission

168 Te term emission manager as used here and below refers to the decision-maker in all con
cerns relating to the emission, on the side of the emiter. Although the term manager is ofen
very similar to administrator, the two terms are used in this book to mean specifcally difer
ent roles. Te role of emission manager could be carried out by an individual or a department
within an emiting company. It might even be a service company commissioned by the emiter.
Te role is that of deciding whether and when it would make sense for each emiter to enact a
new emission and how these emissions should be designed. In contrast , the emission adminis
trator (EAdmin) does not take these decisions. Instead, they provide the necessary technical in
frastructure for making and administering the emissions. Te fact that the responsibilities and
activities of the two roles are closely related to each other and are both closely tied to the emis
sion itself does make it difcult to choose two terms that distinguish precisely between the
roles. Emissions ofcer, emissions director, emissions service department or similar titles
might fnd their supporters, but since the crucial diference is that one role is the de
cision-maker and the other is not, it would appear that manager vs. administrator is a suit
able choice.

165
parameters that are essential to the value of the emited money. Examples include:
emiter identity, description of goods or services provided upon redemption, details
of any term limitation. Te dynamic part of the data includes supplementary emis
sion data. Tese are of a descriptive character and serve to beter inform users of
the emited money about the emission and its development. For instance, the dy
namic part could include information about the proportion of units redeemed or
current exchange rates.
Entries in the static part are not changed afer they are made at the beginning of
an emission, i.e. the time of making the initial entry in the database of the emission
administrator. Te dynamic part documents the progress of the emission. It is con
tinually updated, collated and published by those authorised to do so in general,
the emission administrator.
We now move on to describe individual data felds which together make up the
data entry containing all the relevant entries for a particular emission. Te data
types and data feld lengths are given merely as a guideline; the later should
provide an idea of the number range needed.

166
 Static fields of the emission

Table 1: Fields in the static part of the data for a money emission

Data feld Data type Comment

Emission ID integer Estimated data feld length

2048 bit

Emiter ID integer Estimated data feld length

2048 bit

Identifer of emission adminis integer/text See description of feld

trator Identifer of emission ad
ministrator

Time of emission timestamp accurate to the second

Redeemable as of (date and time) timestamp accurate to the second

Redeemable until (date and time) timestamp accurate to the second

Value reference of the emission text where needed

Emission ID

Te Emission ID is a unique number assigned by the emission administrator. Te

data feld length should be chosen to enable an integer number range sufcient for
the number of emissions expected during the entire lifetime of the system.

167
Emitter ID

Te emiter ID is a unique number assigned to the emiter when they register with
an emission administrator. Tis means that the same emiter will receive another
emiter ID if they register with a diferent EAdmin and have their emission admin
istered by that EAdmin.
Te assignment of emiter IDs can be proceeded by a process of identifcation suf
cient to enable the EAdmin to determine whether the emiter actually is the nat
ural or legal person they claim to be. Te emission administrator has to decide how
to conduct this identifcation. Certainty relating to the identity of the emiter is
one of the factors that will determine the success or failure of an emission. So it
needs to be carried out with just as much precision as necessary to ensure that po
tential customers will accept the emission. In certain circumstances, this could
mean that the emission administrator does not have to carry out any identifcation
at all, if the customers are content to rely on the self-declaration made by the
emiter in the feld value reference.
Here we need to remember the systems inherent property of enabling anonymous
payment transactions where desired. Identifcation down to the level of the natural
or legal person can only be demanded by an emiter. System participants using
money emited by others to make payments can do this anonymously by using a
pair of digital keys which they generated using a fctional identity.
In the initial, introductory phase of the new monetary system, political opposition
is to be expected. Here, unambiguous identifcation of the emiters will be one of
the most vulnerable aspects of the system, since anyone admiting to participation
in an alternative monetary system could undoubtedly become a subject of persecu
tion. One solution here might be to supplement the system by using other cy
ber-currencies such as bitcoins. Tese do not have the value coverage inherent in
credit money, but it is exactly this feature which makes it possible to emit them
without an identifable emiter. In this case, an owner of bitcoins could carry out
an emission under an unconfrmed identity by feeding their bitcoins into the data
base of the emission administrator. Here, the bitcoins would act as a security de
posit counteracting the insecurity due to the identity used.

168
During normal operation of the system i.e. in the absence of political persecution
details of who the emiter is should be publicised routinely in order to promote
the emissions acceptance levels. It should be considered as a necessary part of the
emission procedure and can be performed by the emiter themselves or the Ead
min.

Identifier of emission administrator

Te identifer of the emission administrator mainly plays a role during the genera
tion of the monetary units and during subsequent payment transactions. Tis will
be described in more detail in the section Data format of a monetary unit.
Additionally, in cases where the emission administrator sells their business (in part
or in its entirety) or merges with another EAdmin, this feld will be used to trace
the origin of the emission.

Time of emission

For a system designed to be distributed across the globe, it makes sense to use a
time reference system that is location-independent. Discussions about which
time to use can be avoided by considering the option of a system time, for in
stance by counting from a defned system start or similar event. Te time reference
used should generally be accurate to the micro-second, even if this accuracy is not
needed in every time-related feld169. Te data feld length here should also be
chosen to ensure that the possible time range covers the possible system lifetime.
For the feld Time of emission it should sufce to record it to the nearest second.

169 More information on this can be found at Time of last transaction.

169
Limiting the period of validity of emitted
monetary units

Te period of validity of an emission can be limited by entering values in the felds

Redeemable as of and Redeemable until.
Te feld Redeemable as of might come into play when the emission is being
used as a way of issuing bonds to fnance long-term investments. Using a standard
format makes it easier to integrate these bonds into the normal circulation of
money. Tis will be treated in more detail in the chapter Accumulating capital and
credit.
Te feld Redeemable until can be used to record the last possible date when the
limited money can be redeemed. Criteria which will help to decide if and why it
makes sense to limit the period of validity for an emission are addressed in the
chapter Emission management.
Entries on term limitation are not obligatory. If no entry has been made, both of
these felds will contain a default null value. For the feld Redeemable as of, this
null value will be interpreted as immediately redeemable. For the Redeemable
until feld it stands for unlimited term / no time restriction.
As far as the time format is concerned, the remarks made for the feld Time of
emission are valid here, too.

Value reference of the emission

Tis feld will be used to record the details provided by the emiter of the value ref
erence linked to the emission; in other words the promise upon which the emited
monetary units are based. Tis value reference should be given for one monetary
unit, i.e. it should defne the value or service or product which the possessor is en
titled to when they redeem one monetary unit. Tis is also the feld to record in
formation about the identity of the emiter, payment modalities, and further terms
and conditions for the emission. Examples could be conditions dictating how the
agreed service or product can be delivered (online, branch network, etc.).

170
If the agreed value is a reference to a service delivered by an individual, such as
technical consultancy, any notes concerning the necessity to arrange an appoint
ment in advance, for example, should also be entered in this area of the emission
description.
For emissions where the period of validity is being limited, this feld could also in
clude the reasons for this term limitation and any specifc conditions that apply to
the emiters willingness to accept monetary units that were not redeemed in time.
Of course, if no entry is made in this regard, the units will simply be invalid.

Dynamic fields of the emission

Table 2: Fields in the dynamic part of the data for a money emission

Data feld Data type Comment

Status integer

Current exchange rate in foating-point number

KNOT

Emission volume Number integer Estimated data feld

of emited monetary units length 2048 bit

Return Number of re integer Estimated data feld

deemed monetary units length 2048 bit

Proportion redeemed (%) foating-point number

Te dynamic data felds describe the progress of the monetary emission and are
made available by the emission administrator. Fixing the particular format to be
used should make it easier to fll them in automatically.

171
Status

Te feld Status contains an entry recording the current progress of the emission,
indicated with a number code that will be fxed within the system. For example,
the following values might be used:

0070007000: Planned
0070007001: Emission and redemption both possible.
0070007010: No further emission possible. Redemption possible.
0070007011: Emission is possible. Redemption not possible.170
0070007100: No further emission. Redemption possible at legal successor.
0070007101: Emission and redemption conducted by legal successor.
0070007110: Liquidation of the emiter; legal successor uncertain.
0070007111: Emission and redemption both closed; archived for statistical pur
poses.

Te status Archiving for statistical purposes also means that the database entries
of the previously emited monetary units have been deleted from the database of
the emission administrator. Te emission data is now only stored as a summary in
the dynamic part of the data records (although this dynamic part will no longer be
changed since no money movements will take place).

Current exchange rate in KNOT

Te value of emited monetary units generally depends on a large number of

factors. In the absence of a political obligation to accept a particular money, the de
cisive factor is mainly the relationship between supply and demand.

170 For the case of emissions used as bond issues, see the chapter Accumulating capital and credit.

172
Te assessment of value and the ways this can happen within the monetary system
being described in this book are presented in the chapter Overview of the tech
nical infrastructure. Generally it will happen at knot exchanges specially de
signed for that purpose, or at auctions and comparable platforms.
So generally speaking an emission administrator does not actually know the cur
rent exchange rate of a monetary unit, unless they also operate a knot exchange.
Tis would indeed be a sensible extension of their business activity. However, it
should not be expected or demanded of them.
In fact, the source of the data is not the decisive factor here; the most important
thing is that it is known and fulfls its purpose. Practically speaking, one of the fol
lowing options will probably prove to be the best: publication of the exchange rate
on a knot exchange operated by the emission administrator; adoption of a value
from another large knot exchange or the calculation of the average of the values of
several other trading exchanges, whose number and selection criteria are also pub
lished.
Te exchange rate should be updated at least daily. It would be beter to update it
more ofen, perhaps every hour or minute.

Emission volume

Tis feld contains the number of emited monetary units that have been emited
since this emission started. Te data feld length needs to be chosen to contain a
number large enough for most cases. Should an emission be so successful that the
data feld length of this feld is no longer sufcient, the easiest option would surely
be to discontinue the emission because it exceeds the maximum emission size and
then continue its operation under a new emission ID.

173
Returned units

Tis feld contains the current number of monetary units that have been redeemed.
Te data feld length is the same as for emission volume.
Dividing the number of returned units by the emission volume gives the propor
tion redeemed for the period of the emission: this shows the proportion of the
credit granted to the emiter at the beginning of this emission which has already
been cashed in.

Wiki for the emission

A wiki for the progress of the emission would be an advantageous addition to the
obligatory parts described above. Of course, this would assume that the emission
administrator has the necessary technical expertise for this, but it has the advant
age of not needing to be kept or published in a fxed format. It would simply serve
to facilitate the exchange and collection of useful information.
It would be lef to the EAdmin themselves to decide whether to ofer a wiki and
which rules, if any, they want to apply to it. For example, they could decide who
was entitled to edit the wiki, whether user registration was needed, and for whom,
etc.
Tere now follows a list of possible topics to include in a wiki, provided as inspira
tion.

Language modules

Recording the wiki texts in a range of languages would undoubtedly increase re

cognition and awareness of the emissions, and in turn, their success. As a min
imum, translating the description of the emission would make great sense within a

174
global monetary system. Whereas the static part of the data on an emission cannot
be changed afer the emission start, translations of the emission description in the
wiki could even be added at a later date.

Statistics

Providing data evaluations beyond the basic statistics regarding an emission could
form an additional source of income for emission administrators. One of the most
important statistics here would be a calculation of the redemption rate for selected
time periods: hours, days or weeks. Emission managers, for instance, would be one
group willing to pay for this type of valuable information.
One possibility of using these statistics would be to publish part of them for free in
the emission wiki. More sophisticated evaluations could be provided in the form of
a database query performed upon payment of a fee.

Feedback and comments

A well-used possibility for participants to share their own experiences of an emis

sion or an emiter would be valuable as a guide for potential customers and also for
emiters to learn how they can improve their service in future. Tis would also be
an appropriate place to publish credit rating notifcations for emiters.
Providing a feedback and comment module would imply some extra work for the
EAdmin, but this would be rewarded by additional information regarding the qual
ity of their service and it would atract visitors and customers.

175
 Data format of a monetary unit

From a technical point of view, digital money such as knots exists only in the form
of data records in databases. Of course, this does not mean that their value is
purely virtual. On the contrary, the value reference is created during the act of
emission and the emiter is a guarantor, promising to maintain this value reference
until all emited monetary units have been redeemed.

Figure 16: A monetary unit: The relationships between its database entry,
possessor and value reference

176
From a legal point of view, a knot is the claim that its owner has on the fulflment
of contractual obligations which the emiter of this knot commited themselves to
as part of the emission. Te individual monetary unit can therefore be regarded as
merely providing the link between the agreed value and the person entitled to this
value, who can claim that value by redeeming the unit (see Figure 16).
Te following table summarises the felds of each individual monetary unit. As
ever, these are guidelines and can be changed or supplemented as and when these
concepts are implemented technically.

Table 3: Data format of a monetary unit

Data feld Data type Comment

Emission ID integer Estimated data feld length

2048 bit

Identifer of emission adminis integer/text Depends on which data is

trator entered, see Data feld de
scription

Time of frst issue timestamp Accurate to the second

Serial number of the monetary integer Estimated data feld length

unit 2048 bit

Public key of the possessor integer

Time of last transaction timestamp Accurate to the microsecond

TAdmin identifer for the last integer

transaction

Status integer

A technically minded reader might consider some of the felds to be unnecessary.

However, they are in fact indispensable for the practical aspects of payment and
administration: the following descriptions will back up this claim.

177
Emission ID

Te emission ID is also assigned to every individual unit emited within that emis
sion. Tis creates an unambiguous value reference for this monetary unit: it con
frms the entitlement of the holder to the goods or services detailed in the emission
description.

Identifier of emission administrator

Te EAdmin ID is the second feld taken from the emission description and entered
in every record representing a monetary unit that is created during the course of
that particular emission.
Its contents form a unique, system-internal registration number, which is assigned
to every emission and transaction administrator as soon as they start performing
this role.171
Te purpose of the EAdmin ID is to enable system participants to fnd the emission
administrator responsible for a particular monetary unit as quickly as possible
whenever that unit is involved in a payment or when its holder wishes to redeem
it and claim their value.
Here we once again clearly see how important the issue of building trust is for the
parties involved. Within the system it should be possible to use the EAdmin ID to
identify the internet address where this EAdmin is operating as a service provider,
as well as at least one valid public key which can immediately be used for the
transaction or database query that the participant wants to carry out.
As well as the solutions that have already been proposed in this book, such as the
web of trust, key signing parties or even certifcation, it may well also be worth
considering whether the EAdmin identifer could simply be the internet address of

171 Te details of how this is carried out in practice are not relevant here. Any procedure will be
suitable as long as it guarantees the uniqueness of the ID assigned.

178
the emission administrator. Te advantages are obvious: contact to the EAdmin
would be possible immediately and they could keep their public key available at
this address in an automatically readable format.
Tere are, however, disadvantages: a permanent address such as this is vulnerable
to atack, and internet addresses are liable to change during the course of a long-
lifetime emission. In the later case, we would need some type of confdential for
warding to the new internet address. Tis then leads back to the original issue of
building trust by means of a valid and transparent identifer.
So the most practical solution probably comes down to maintaining a distributed
public database like todays key servers where professional service providers
can enter and update their system-internal identifers, public keys and current in
ternet addresses. Mutual signing of published keys would support the establish
ment of the necessary levels of trust.

Time of first issue

Tis feld records the date and time when a particular monetary unit was frst
emited, down to the second.172

Serial number of the monetary unit

Te serial number is generated for each new monetary unit as the emission pro
gresses and recorded in this feld. Te feld length should be chosen to enable a
number range sufcient for most emissions.
Taken together, the emission ID, EAdmin ID and serial number provide absolutely
unique identifcation of each individual monetary unit within the system.

172 See also the description of the feld Time of emission.

179
Public key of the possessor

Tis entry is the only one that documents which participant is currently in posses
sion of a particular monetary unit. Teir public key is used, corresponding to the
wallet ID they are using for this monetary unit.
So each possessor is responsible for carefully keeping track of which public key
they are using for which monetary transactions in the same way as we keep
track of our bank accounts and account numbers today. Tis means that parti
cipants can freely share their public keys with their business partners in order to
carry out transfers. However, should they lose the corresponding private key, they
will endanger or even lose all monetary assets linked to that wallet.
It seems almost unnecessary to say that before a monetary transfer is initiated we
always have to make sure that the public key we are going to use really does be
long to the intended recipient and not to some lucky third party.

Time of last transaction

Recording the time of the last transaction undergone by a particular monetary unit
is intended to provide a way of solving potential confict situations that could arise
where a data collection173 has been damaged or where two or more transactions
atempt to access and change data at the same time.
As far as I can see, this record needs greater precision than other time felds since
todays stock and money exchange trading systems allow for a multitude of trans
actions to be carried out within a second. So expanding this feld to record the time
down to the nearest microsecond would be useful.

173 For instance, if there is an interruption to the power supply at one of the three copies of the
database kept by the emission administrator and this database then needs to be updated afer
wards.

180
Transaction administrator identifier for
the last transaction

As detailed elsewhere in this book, the TAdmin is responsible for managing the
communication between all participants in a transaction. Entering their ID here is
therefore a way to easily trace a responsible contact when it comes to potential
conficts, helping the participants in the system to avoid misuse or rectify it
promptly.
Remarks on the technical aspects of the TAdmin ID are the same as for the EAd
min ID.

Status

Te status here refers to the activity of the monetary unit within the system and
could be indicated by means of the following values:

0070007001: active; ready for transaction

0070007010: expired
0070007011: redeemed
0070007100: lapsed due to liquidation of emiter
0070007101: inactive: emiter has technical problems
0070007110: inactive: emiter has legal problems

At the time of writing, I can think of no further necessary values. However, the list
of statuses might change in the future.
Te monetary units with the status redeemed remain in the database and can be
individually evaluated until the corresponding emission receives the status
Closed; archived for statistical purposes. Tis emission status is not assigned un
til all of the monetary units of an individual emission have the status redeemed.

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Tey are then evaluated one last time before being deleted from the database. Te
summary data from the evaluation remains in the emission evaluation for statist
ical purposes this might be recorded in the emission wiki, for example.

First issue

Te ideal scenario is as follows: the frst issue of monetary units occurs because the
emiter uses them to pay invoices from their suppliers. At a contractual level, the
supplier has to agree to accept this type of credit money these debt certifcates
from the emiter as payment for the services or goods provided.
Additionally, there is also the possibility to acquire a particular type of money in
an auction held by the emiter or at a knot exchange.
Generally, this means the frst emission is based on an agreement between the
emiter and a money recipient to setle a specifc business transaction by assigning
possession of a certain number of monetary units to the recipient.
A key diference to later transactions is this: during the frst issue, there is no need
for the assistance of a transaction administrator. It is sufcient for the emiter to
instruct their emission administrator to generate this number of data records in
their database as monetary units linked to this particular emission and then to
enter the public key / wallet ID of the new possessor in the appropriate feld of
these new monetary units / data records. Here there are only two parties involved
in the communication and so there is no need for coordination of a complex pro
cess. For this case, the EAdmin ID is entered as the identifer of the last transaction
administrator.
It is worth noting that the actual money creation i.e. the generation of a certain
number of data records with the format of a monetary unit as part of the emission
process can actually only take place when a purchaser has already been found,
and not beforehand. So it is not possible to generate a reserve of monetary units
and sell them later.

182
Figure 17: Initial emission of the monetary units

Why? To put it bluntly: When we emit our own credit money we are emiting our
own debt. In legal terms, the existence of a unit of credit money describes a rela

183
tionship between two parties a creditor and a debtor. Bringing these two parties
together has only one possible legal and economic consequence: the dissolution of
the debt!
And with that, we come directly to the next point.

Redemption of monetary units

Within the monetary system being described in this book, the term redemption
refers to the event that takes place when the possessor of a monetary unit hands
this over to the emiter and exercises their claim to the goods or services promised
for this unit when it was emited.
At the technical level, this means the monetary unit can no longer circulate as
money: it is ofset against the corresponding service and has to disappear.
From an economic point of view, this event is the culmination of a long series of
events which originally began with the emission of the credit money.
And from the legal standpoint, the emission description is nothing other than the
formulation of conditions of the contract agreed by the money recipient and the
emiter when the recipient agreed to accept the money and then agreed again and
again by the participants who used that money to purchase something during the
time it circulated with the system. Considered in this way, the event of redemption
is therefore the performance of the contract according to these conditions: the
emiters promise to deliver the described goods or services has returned to its
source. Delivering these goods or services then closes the economic cycle. Te
credit money that enabled this economic cycle to close has now fulflled its func
tion and disappears.

184
For each emiter ID, the emission administrator keeps a list of the public keys 174
which the emiter has made public in order for people to be able to redeem their
monetary units.
Let us take as an example an economic participant who possesses 1 knork 175 and
wants to use it to purchase the download of one piece of music which is the
promise made for this credit money. During the payment process, the public key of
the company Knork will have to be entered as the ID of the new possessor of this
monetary unit.
Before entering the ID of the new possessor, the emission administrator automatic
ally checks this against the redemption list provided by the emiter to see if the ID
is identical to one of the public keys of the emiter themselves. If this is the case, it
triggers the technical process of redemption: the status of the monetary unit is
changed to redeemed, which prevents it from being used as a means of payment
again. It can only be used for statistical analysis for a while probably a few years.
As soon as all of the units of a particular emission are redeemed, the status of the
emission is changed to Closed; archived for statistical purposes, which then has
the efect of triggering the fnal deletion of all this emissions units from the data
bases176.
Some readers might ask why the unit marked as redeemed can not return into
monetary circulation. Technically speaking this would be possible. However, eco
nomically speaking, the event of redemption has to be documented so it becomes
possible for the emission to be analysed and evaluated by the emission manager:
they need data on the emission progress, rate of redemption etc. If we re-circulate
units that have already been redeemed this valuable information will be lost and
nothing gained.

174 Te issue of building trust plays a role here, too. Please see the remarks in the description of the
feld Identifer of emission administrator.
175 Knork a term used in this book for the credit money emited by a fctitious company named
Knork. Each unit of this money entitles the possessor to download one piece of music from the
companys online shop.
176 See also the remarks on the feld Status of the monetary unit.

185
Figure 18: Redemption
Maintaining lists in this way of public keys that lead to redemption of particular
credit money also allows larger companies to take into account their internal hier
archies. For example, the subsidiaries knork.ru and knork.ch might also emit and
redeem their own separate credit money. Te parent company knork.com would
then add its own public key to the redemption lists of knork.ru and knork.ch held
by the respective emission administrators. Tis allows it to accept the monetary
units emited by the two subsidiaries and deliver the same type of service. In this
case, the performance of contract by knork.com would also trigger the redemption
event.

187
 The emitter

To many readers, the term money emiter might sound somewhat mysterious
and even the synonymous alternative money issuer needs some explanation. Te
idea of becoming an emiter or issuer of their own money is not one which the av
erage economic participant can easily incorporate into the way they conduct their
business without some sort of paradigm shif. We will also see that companies,
banks and corporations are afected similarly to individuals.
As we have mentioned several times already, the fact that a company or individual
has the possibility of issuing their own money does not mean they have an obliga
tion to do so. Nonetheless, as time goes by we will certainly see ever more interest
in the idea, with an increasing number of individual emissions. Te following re
marks are intended to facilitate the initial understanding of the issues involved.
Generally it should be noted that those who decide to issue their own money need
to be aware that it can only really be called money if it is a representation of a
claim177 which has an immediate due date178.
Correctly emited credit money is a debt certifcate, so the possessor of the money
is the creditor and has a claim against the debtor (the money issuer). Tis means
they are entitled to make fnancial demands upon the debtor and if the creditor
cannot be sure of the fulflment of their demands at short notice, these debt certi
fcates are not suitable for use as money. Tis is necessary because money has to be
easily exchangeable for other goods, unlike fnancial securities, which generally

177 Claim a right to or demand for payment resulting from the delivery of goods or services.
[Art.] Forderung, Def. 1 c). In: Duden Deutsches Universalwrterbuch, p. 525
178 Due date (also: maturity date) contractually determined point of time at which a debt is to be
paid back.

188
have the property of storing value179. If the holder of a debt certifcate has to wait a
while until they can utilise the certifcate, then this waiting time is the factor that
disqualifes that certifcate from use as money.
Tis means that the money emiter has to ensure they maintain enough capacity to
meet these demands at the levels indicated by the predicted return rate. Otherwise
they would have to declare bankruptcy.
Of course, at short notice, on presentation180 and immediately are similar and
will have to be more precisely defned and distinguished in practice. In the end it
comes down to the participants involved: they have to agree whether the redemp
tion schedules are acceptable and whether or not they are suitable to be considered
as immediate or at short notice. Te experiences of the participants with each
money emiter will then be refected in their image and/or rating and the exchange
rates of the monetary units they issued.
As far as I can foresee, as the system develops over time the main focus of the
money emissions taking place will shif towards the consumer-related end of the
production chain to the manufacturers and retailers of fnished products. Tis
opinion is based on considerations as to how the eforts of an entire economic sec
tor are brought together in the direct contact with the end customers during the
sales process. A retail chain that emits money which can be redeemed for any
product from its comprehensive product range will atract the atention of a much
larger selection of customers than a manufacturer whose credit money promises
one of forty-eight diferent types of self-sealing stem bolts 181.
Of course, the new monetary system will have to operate for a while before we see
what the most important aspects are for the diferent economic groups participat
ing.

179 Te issue of short- and long-term fnancial obligations within the money system being proposed
is dealt with more comprehensively in the chapter Accumulating capital and credit.
180 On presentation = on demand upon presentation of the security.
181 Self-sealing stem bolts in Star Trek: Deep Space Nine, an item occasionally traded although
nobody knew what they were used for.

189
 Emissions by individuals

Creative professions

Since money has to be redeemable immediately, professions which are suitable for
individual emissions of credit money are those whose products or services can be
reproduced easily and abundantly. Tese include many of the creative professions,
such as musicians, authors, programmers, journalists and photographers. Te value
reference used for a particular emission could be a part of their work which, once
produced, can be reproduced as ofen as desired: digital songs, photos, ebooks, sof
ware modules etc. In contrast, ofering their labour directly (one hours work) is
not generally suitable as the value reference of an emission because there are very
clear limits to the number of hours an individual can work in a day.
Let us consider the example of a photographer. If she sells her photos individually
as digital copies, she can emit money based on a value reference of one digital
photo, for example. Te possessor of this money would be entitled to receive one
digital photo from the photographers stock for each monetary unit, and then use
it according to the specifed conditions. A more limited issue of money could be
tied to a specifc photo collection, such as a series dedicated to exotic animals
taken during the photographers journey to Africa.
In comparison, one photography session would be much less suitable as the
value reference for an emission of money because the photographer can only carry
out a handful of sessions per day or week and could therefore only emit a small
number of monetary units with this value reference. An alternative solution would
be for her to emit the money based on 1 knot = 1 digital photo and then to set
her fees for the photo sessions in terms of these knots: e.g. 180 knots for a 2-hour
session. Tis would establish both the value of her services and the suitability of
this money.
A printed photo album would fall between these two positions. If there is high de
mand for this product, it could indeed be suitable as the value reference for an

190
emission (especially if it was also available as an ebook). Or, as above, the photo
grapher could sell her photo albums at prices set in her own digital-photo knots,
allowing her credit money to be cashed in for a wider range of her products.
Another possibility to turn individual services into the value reference of monetary
emissions would be to fnd a way to ofer consultation and similar services to more
than one recipient at the same time. Tis category includes lectures, concerts and
other similar performances of public interest, or even workshops and seminars
assuming there is a technical possibility to make them available to larger circles of
people. Te corresponding monetary unit would entitle the possessor to hear or
see this in the same way as a cinema ticket or online access code does.
Monetary units from an emission such as this could also then be bought up by a
television station, for example, in order to secure the rights to broadcast the emit
ters performance to viewers (assuming the emission conditions allow this).
Further possibilities are opened up by selling recordings of these events as digital
copies. In fact, this is almost a classical example of how to turn an individual ser
vice into the value reference of an emission of money in this system, since digital
copies can be produced in almost unlimited quantities.182

Standard contracts

Emissions by individuals will follow a diferent approach when someone is ofering

their own labour as a value reference, but according to a standardised contract.
Tis contract records all the general conditions, such as sector, weekly working
time, qualifcations, health and safety at work, vacation allowances, wages or

182 Te fear could arise that easy duplication of the value reference (here as a digital copy) might
lead to devaluation of the money tied to this. A counterargument might be that so-called pirat
ing is only worthwhile in particular instances where monopolistic pricing conditions apply.
Te monetary freedom envisioned with this new monetary system is expected to lead to a de
cline in all monopolies. Where this occurs, prices would fall to a level where the professional
ism, product range and other qualities ofered by a specialist become the key features that dis
tinguish them from other competitors, especially from non-specialists, and lend their money a
certain atraction and stability. Relevant laws prohibiting unauthorised duplication and distribu
tion would also apply.

191
salary etc. In addition, it can be customised to include individual demands such as
place of work183. Te value of each monetary unit in this type of emission should
refer to an hourly or daily rate measured in a generally accepted currency, such as
KNOTs.
Tis solution would be suitable for representatives of professions whose proced
ures exhibit a certain degree of conformity. Tis might be due to the work itself,
such as long-distance truck driving, or the way the profession is regulated, such as
we ofen see in the medical or educational sectors.
A single money emission in this category would have a very limited volume but
since it refers to a standard contract, it might be used by a larger employer or an
employment agency looking to discover and bundle sources of available labour. Ex
perience shows that an analysis of electronic data can be conducted much more
efciently than a painstaking search through applications, CVs and adverts. Of
course, this does not mean personal contact will become obsolete; it merely ofers a
quicker way to establish this personal contact between a suitable employer and
employee.
Readers might have understood that emissions of this type are only for those seek
ing work, but this is not what is meant. In fact, emissions of this type should defn
itely be used by those in work. In this case, the procedure would see an employer
buying up the necessary quantities of the monetary units their employees emit in
order to pay their wages or salaries. Where the payment recipient agrees, the com
pany could use knots from their own emission for this. If the employer is a large
department store or utility company, for example, there will certainly be a degree
of acceptance for this. Te employees would then receive the corresponding value
for their work while the employer secures future demand for their products by
means of this acceptance for their money.

183 In a way, this resembles a collective wage agreement. However, there is no obligation to sign up
to it. Generally speaking, there would be the choice of several similar contracts and even the
possibility of writing a one-of version to meet very specifc requirements. Calling this a stand
ard contract therefore only refers to its acceptance by a wider group of people and the term
groupwide contract might also be applicable.

192
Another example of how this type of emission could be applied in practice would
be the business of an employment agency which searches the whole emission data
stock according to particular criteria and then buys up the emissions of people of
fering work that fts the requirements of their clients. In this way the agency puts
together an allocation of specifc labour which it can then ofer to its clients. It
bundles the emission units from these specialists, adds a commission for its service
and sells them on the client, who then redeems them to pay the workers for the de
sired services.
Te advantage for each individual worker is that they will always be paid in a way
which suits them. Afer all, when someone approaches them with the money they
had previously emited, all this means is that this someone has work to be done
which corresponds to the qualifcations and conditions defned by the worker
themselves during their emission.

Emissions by non-banks

Qite probably, the majority of the money needed to be in circulation within the
new system will be made available by emissions from non-banks. However, it is
not possible to make a completely clear distinction between the emission by an in
dividual and that of a non-bank. So for the purposes of this section, let us agree
that we are no longer talking about an emission by an individual if the main ser
vice provided upon redemption of the money is carried out by more than one per
son and where the economic coordination between the participating service pro
fessionals is signifcantly formalised. A family emission could therefore be counted
as an individual emission, whereas that of a partnership or GbR 184 might not be, de
pending on the circumstances.

184 GbR = Gesellschaf brgerlichen Rechts in German law, a commercial partnership under civil
law.

193
Te category non-banks also includes all business participants and public admin
istration bodies that are not banks, i.e. they do not deal with money commercially.

Business participants

Te design of monetary emissions for a business enterprise will depend on

whether it sells its products mainly to end customers (B2C) or other businesses
(B2B). Te basic rule will be as follows. Te part of its production that an enter
prise takes to make it the value reference for an emission of money will be the part
which most easily fulfls the requirements of immediate redeemability (due on
presentation).
For instance, a manufacturer of consumer goods would be well advised to choose
the item that sells the most and take this as the value reference. Where there are
two top sellers, the one with the lower sales price would be beter since this
makes it easier to use it as a basis for seting the prices of other products.
Tere is no real reason not to issue diferent types of credit money based on a se
lection of easily saleable goods, but care should be taken to ensure the extra ad
ministration that this incurs does not outweigh the economic benefts.
Where an enterprise operates as a B2B supplier, the same principle applies: it
would choose the most easily tradeable item from its product range. If they choose
an extremely marketable item, this may even achieve the status of a currency
within that particular business sector; i.e. it will serve as an assessment base for
the value of other goods.
Te emissions most likely to achieve this status will be based on goods that have a
relatively low trading price and a relatively wide usage spectrum, especially if this
is spread across diferent sectors. Examples might be RFID chips, microprocessors,
memory chips and similar goods.
Other emission bases that would make the emission a good currency candidate are
undoubtedly to be found in the transport sector, especially freight transport. Te

194
sector already uses the tonne-kilometre (tkm), which is clearly defned as the ser
vice of moving one tonne of payload a distance of one kilometre. Tis would form
an ideal value reference for a freight forwarder to issue their own credit money.
One important thing that should not be forgoten is this: Regardless of whether we
choose a completely new defnition for the value reference of our emission or base
it on a value defned in terms of an existing currency, the service provided upon
redemption can only be comprised of our own services or products. Under no cir
cumstances should we promise to pay the redeemer in units of a currency unless
the value reference of that currency is our own products!
A factory that produces self-sealing stem bolts would choose the type of stem bolt
with the lowest trading price or the smallest size as the value reference of its mon
etary emission, entitling the possessor of a stem bolt knot to redeem it in return
for one of these smallest self-sealing stem bolts. Te factory could then declare its
willingness to also accept these knots as payment for stem bolts of larger sizes;
perhaps two stem bolt knots could be redeemed for one stem bolt of the second
smallest size and three for one of the next largest size, etc.
An alternative strategy for the same factory would be to carry out an emission
with the value reference Any products of our factory to the value of 10 knorks, as
per currently valid price list. Possession of a monetary unit defned this way
would not entitle the holder to demand a payout of 10 knorks from the factory
owners. Te entitlement is exactly as defned: they can demand 10 knorks worth
of products manufactured in that factory.
Tere is another alternative that strikes a balance between these two: defning the
value reference in terms of a class of goods. Just as screws and nails in a DIY or
home improvement store are priced in classes A, B, C and D etc., a factory could
sort its products into several product classes and the value reference of its monet
ary units could refer to these.
Te risk of value fuctuation is smaller with value references of the frst type; i.e.
the reference to a stem bolt of the smallest size. Tis is an important consideration
for the emiter and particularly important for the possessors of the monetary units.
Where a foreign currency such as the knork is used as the basis of an emission,
there are several factors afecting the value of the monetary units a particular par

195
ticipant may have in their possession. Firstly, the value of a knork may fuctuate
(as determined by activity at the knot exchanges), and secondly, the factory is free
to change its prices at any time. Tis could mean that a lower quantity of stem
bolts can be purchased for 10 knorks than the participant originally assumed when
he accepted the monetary units.
Economically speaking, the frst type of emission described above is harmless the
emissions of knots based on small, liquid commodities, such as the self-sealing
stem bolts in the example above, supplemented by the willingness to accept mul
tiples of these knots and redeem them for other products from the emiters own
production. It is quite safe because it involves a setlement of value-equivalents
from one and the same debtor. However, in order to be legally unimpeachable, this
willingness on the part of the emiter should be included in the emission descrip
tion. In other words, a specifc clause should be included by the emiter in their
terms and conditions for the emission if they foresee that they might also occa
sionally have replicators185 available for purchase with this money: Stem bolt
knots may be redeemed for all products of this factory, subject to the currently ap
plicable conditions and price list.
In sectors where the product range does not allow small denominations, such as
for producers of industrial printing presses, it could prove very difcult for the
emiter to fnd an appreciable number of takers for money based on these products.
Tis participant should consider whether issuing their own money really is neces
sary or advantageous, and if so, then they could base it on a value reference
defned in terms of, say, 1/10, 1/20 or 1/100 of the value of a specifc printing press.

Public administrative bodies

Te issue of public fnances is an endless story and usually does not have a happy
ending, regardless of whether we are talking about kingdoms, republics or dictat

185 In the Star Trek series, a replicator is a technological device that can duplicate or create any in
animate mater, as long as the desired molecular structure is on fle. Source: [Art.] Replicator
(Star Trek) In: Wikipedia, htp://en.wikipedia.org/wiki/Replicator_(Star_Trek), accessed
11.06.20113

196
orships or whether the story concerns great state alliances or small municipalities.
Without wanting to pass judgement on individual types of government, decision-
making in this sector does generally seem to be dominated by political considera
tions, with negative consequences for the economic aspects.
For the public sector, the transition to a new monetary system should be relatively
easy since the basic principle of borrowing as a source of fnance has a longer his
tory here than in the private sector.
Tis will, however, need to be brought into line with the requirements of the new
monetary system, where there is no way to avoid repaying the debts in contrast
to current practice.
Technically speaking, this just means that the public administration has to behave
in the same way as any other economic participant in this system. Decision makers
in a regional administrative body could consider which services their regional ad
ministration performs most ofen, in order to assess their suitability as the basis for
an emission of credit money. For instance, at district level in a country where wa
ter supply is in public hands, the supply of one cubic metre of water is a clearly
defnable service that could be used as a value reference. Tis value reference
would then serve throughout that municipality as the assessment base for all other
fees charged to its citizens, and could become a type of regional accounting unit,
known perhaps as a cubic-water knot. Local lending libraries might then set their
annual membership fee as 2 cubic-water knots; an entry in the land register
could cost 3 cubic-water knots and going to the municipal ofces to obtain ofcial
authentication of a signature or document would incur a fee charged similarly.
As long as the municipality has declared its willingness to perform all of its named
services upon redemption of these monetary units and does actually perform them,
this credit money will also beneft from high acceptance levels as money for other
payment transactions within the system. Te municipality could even pay part of
its employees salaries in this money if they agreed.
Some readers will undoubtedly be asking whether an emission of money can take
another currency as its value reference without commiting the emiter to paying
out this currency upon redemption. Te issue has already been dealt with above
and the answer here is the same: as long as the emiter is aware of the risks in

197
volved in this, they are free to do it. Afer all, only practical experience within the
new system will clearly show us which types of emissions fnd acceptance from
customers and business partners and which do not.
For those administrative bodies who feel the need to fnance military expeditions
(in the name of pre-emptive self-defence, of course), the future might have greater
diferences in store. Tey will have to fnd takers for emissions whose value is
based on services such as one person-day deployment in Afghanistan or one
Starfghter reconnaissance fight. We will just have to wait and see how they in
tend to advertise these emissions.

Bank emission

Readers might be asking what needs to be writen under this heading, since emit
ting their own money is what banks do anyway. Or, as a commonly held opinion
puts it: Banks create money out of nothing 186. In fact, this is precisely the issue this
book is addressing.
Te question we want to ask is not, How can existing banks adapt to the new con
ditions? but rather What fnancial and monetary services can be ofered by banks
or the types of enterprise that replace them? Afer all, fnancial expertise and spe
cialist solutions will still be required for a whole range of challenges, even under
the new conditions of the monetary system being proposed here.
According to the renowned German dictionary Duden, a bank is a company that
conducts business with money and credit and acts as a broker for payment transac
tions.187

186 Puting it more precisely, banks do not create money out of nothing. Rather, the banks cre
ation of money is the tangible realisation of their monopoly position, as described in the sub-
chapter Te magic triangle.
187 [Art.] Bank, Def. 1.a). In: Duden Deutsches Universalwrterbuch, p. 206-207

198
Payment transactions in the new monetary system will generally be carried out by
the transaction administrators. Tis does not mean they will become banks, but it
does mean that banks will face stif competition in one important business sector.
Account management will also change signifcantly under the new conditions.
Since the design of credit money means it does not generate interest, banks will
have to come up with other ideas to persuade customers to let them administer
their money stocks. If they have no reason to do so, participants with money will
generally not want to sacrifce the advantages of the distributed and anonymous
maintenance of money stocks foreseen by the new monetary system.
In other words: Te current monopoly on dealing with money and credit will fall.
From then on, a much larger number of companies will have access to this sector.
At present there is no way of estimating the complete extent of the efects this will
have on the other felds of activity banks are usually active in. However, the most
important change will be this: money emited by a bank without a real value refer
ence will no longer be ft for circulation. Besides, this type of money will be called
bank knots188.
In the mid-term, it will most likely be impossible to carry on business as a bank
without also operating as a transaction and/or emission administrator. Tese
would be the activities most in demand and could also form the basis of the banks
own emissions of credit money. Other related business sectors would not be signi
fcant enough for this.
We will now take a look at professional fnancial services and consider whether
they would be suitable to operate under the new system.

Changing money

Te traditional business of the money changer would gain new signifcance in the
new monetary system. Of course, changing one credit money into another would

188 Te pun works beter in German, where the words for bank note and bank knot are almost
homonym!

199
be important, but every knot exchange will do this and so this is not the most sig
nifcant aspect. Tese specialists expertise will be in highest demand when it
comes to exchanging monetary units of very high value.
Tis might be the case if an emiting company only has very large products, such
as industrial printing presses or ships. Although it would not be recommended to
make an emission with such a large value reference, in the industrial and manufac
turing sectors it might occur in certain circumstances. Perhaps a company does not
want to forego the advantages of emiting its own money, such as securing its fu
ture production and benefting from the credit provided for the period when the
money is circulating as a means of payment189.
So, if the manufacturer of printing presses fnds a supplier willing to accept print
ing-press knots as payment for goods delivered, the supplier then has the challenge
of trying to pay its invoices and workers with these units. However, the denomina
tions are unsuitable.
Tis is a classic case where a bank plays an important role. For a fee, the bank
would accept the printing-press knots and exchange them for a diferent type of
knots with a higher marketability. Tese could be knots from other emiters or the
banks own knots.
However, the crucial diference to todays practice would be the requirement in the
former case for the bank to already have all of the necessary third-party knots in
reserve, whereas today they only need to fulfl the minimum reserve requirement
of one per cent.
In the later case, the bank will also have to back up these knots from its own emis
sion with a promised service that is credible enough to be accepted by an appre
ciable number of customers.
Of course, where the same operator carries out the banking activity and transac
tion administration, they could simply use their credit money emited on the basis
of the KNOTs.

189 For the sake of completeness, the reader is reminded that these advantages are beter achieved
with an emission in small denominations.

200
Payment service providers

A much more frequent service in the fnancial sector will be that of providing pay
ment services, as described above in the chapter Overview of the technical infra
structure. Tese providers will be responsible for optimising individual payment
procedures.
As an inevitable consequence of the conditions of freedom of emission, the money
stocks of almost every participant in the system will comprise knots from a range
of diferent emiters. A client with knots of type A, B and C in their stocks might
face difculties when dealing with a seller who wants to conduct business with
them but only accepts knots of the types B, D and E.
Tis is where the payment service provider comes in. For a fee they accept knots
from the purchaser to the value of the desired business transaction, convert them
into a contingent of equal value comprising knots of the types accepted by the
seller, and then transfer this contingent to the seller. Te market will determine
whether the purchaser, seller or both are responsible for paying the fee for this.
From a technical point of view, the role of the payment service provider is an ex
tension of the role of the knot exchange. Te more payments processed by the pro
vider, the less risk they have of being lef siting on unmarketable money stocks.
Since this service is fairly standardisable, it may also serve as the value reference
of the providers own monetary emissions. In fact, this service also has the poten
tial to become a system-internal currency like the KNOT.

201
Negotiable instruments

In this section we will take a look at the service currently fulflled by bills of ex
change, promissory notes and similar instruments representing short- to mid-term
claims collateralised with the drawers capacity to produce or deliver. In other
words: Te drawer of the promissory note commits themselves to pay out a certain
amount of money in pre-determined monetary units at a particular time in the fu
ture to the holder of the promissory note. Te security here will generally be the
drawers stock of goods or products, but might also be their personal assets.
For the drawer, this instrument provides a short- to mid-term boost to their work
ing capital.
A bank normally makes money from these negotiable instruments by accepting
them and paying out to the holder before their due date, charging the holder a fee
and also interest for the time remaining until the due date 190.
Current practice always means a risk for the drawer of the promissory note since
they commit themselves to paying out monetary units which they do not possess
at the time of drawing up the claim; they then have to generate this by means of
their goods or other production processes.
To my mind, business with these typical negotiable instruments will be replaced by
other forms of fnancing when the new monetary system is put into practice.
Afer all, a successful emission of credit money assuming it is accepted and mar
ketable is itself already a short- to mid-term interest-free loan! For credit with
longer terms, the emiter can make use of other instruments such as investment
bonds191. With interest and more planning security, these ofer more advantages
than promissory notes and the like.

190 Tis category includes every sale of collateralised claims, even if they are referred to by another
(complicated) name.
191 See below in the chapter Accumulating capital and credit.

202
For traditional banks this will mean the loss of one of the main tools they used to
fll up their balance sheets with phantom entries and then issue practically unlim
ited amounts of banknotes192. In the long term, services involving negotiable in
struments will not be a very suitable option to base emissions of bank knots on.

Bundling small emissions

Considering the diversity of emissions to be expected under the new conditions,

the service of emission bundling will be very valuable to all involved.
We have already encountered this concept above, as we considered the example of
how an employment agency could put together a package of emissions from indi
viduals to create an added-value service for its clients 193. Performed by a bank, this
would be done in a diferent way but still look similar.
A regional bank could become a focal point for local emiters, buying up small-
scale emissions from individuals and suppliers, bundling them and selling them on
to larger-scale customers. Te later would include retailers or associations of re
tailers. Payment would be made using knots from these regional large-scale cus
tomers and as a supplement the banks own knots, whose value reference
could be linked to the administration necessary for these deals, perhaps in term of
one employee-hour.
One of the types of money used in this sort of solution is quite likely to achieve the
status of a regional currency, but the KNOT will certainly be involved as a measure
of value due to its international recognition and use.
Employers will be able to pay their employees wages and salaries using the credit
money from emissions by individuals. Employees who receive bank knots and the

192 See the sub-chapter A perfdious game.

193 See the section Standard contracts.

203
money emited by regional large-scale customers in return for their own emissions
would then be able to spend these units for their private purchases. So this repres
ents a technical way of achieving the aims of todays local currency schemes 194.
Te advantages ofered to all involved by an arrangement such as this would out
weigh the costs of the extra efort on the banks part. All of the emiters involved
would secure more reliable turnover of their labour or their products which is
one of the primary reasons for this type of money in the frst place. Tere would be
a meaningful closure for the cycle of economic value creation. When all the mon
ies have returned to their emiters, the promised services have been provided and
the corresponding monies have been destroyed, then the goals of every emission
involved have been reached.

Clearing

Te number and diversity of credit monies in use within the system will certainly
lead to strong eforts to simplify payment fows. Tis simplifcation will happen
naturally through the use of globally available and permanently liquid currency
monies, such as the knots issued by transaction administrators (KNOTs) based on
the standard transfer.
Other branches which can identify a similarly essential procedure, product or ser
vice will certainly also exhibit a trend towards standardising the value references
of their emissions. Just as the KNOT is based on a clearly defned service, there
will be eforts to fnd uniform defnitions for services in the transport, music or
banking sectors. Tis will then lead to a whole range of standard currencies whose
value is linked to real, available services.

194 One major diference is this: Most of the complementary and local currencies up until now have
coupled their own currencies to a ft locally prevailing fat currency. Although they may ofen
be unaware of the fact, this brings all the disadvantages of that currency into their system. An
other diference is the technical procedure for the payments; in a KNOT-based solution, these
would have a greater universality.

204
Applying standards such as these will make it easier for all participants to decide
which money types they are prepared to accept for their services or emissions.
Tere is considerable potential to streamline these procedures, in particular for
payments involving large money stocks.
Seting of larger accumulations of one money type against units of another emis
sion based on the same standards clearing is a service that will be ofered to
this end. It will enable companies to accept money issued by their competitors
without worrying about possible exchange rate diferences195.
However, every money stock will also contain signifcant amounts of knots 196
which are not recognised as a currency. In these cases, a bank or similar institution
can apply their expertise by administering money stocks for their customers who
have large, heterogeneous payment fows. Te bank would administer these stocks
in a fduciary capacity and aim to reduce the mix down to a selection of knots that
fts criteria previously agreed with the client. Tis type of service would be a nat
ural extension of the role of payment service provider and again, depending on its
scope, it might also serve as a basis for their emissions.

Summary on emission by banks

Te examples presented above have hopefully demonstrated how the services typ
ically provided by banks would be subject to changes under the new conditions.
Even the term bank itself would be transformed: an increasing number of enter
prises would begin to specialise in particular areas of monetary system (banking)
operations, such as the standard transfer or optimisation of payment fows. Tis
should result in a much higher degree of efciency than previously achieved. In
the end, it means that the business of banking would transform from being a previ
ously elitist occupation for a few monopolists to being a feld of business just like
any other.

195 Of course, this only applies as long as the competitor respects the same standards.
196 Used here simply to mean digital credit money.

205
Te principles of an emission remain the same even when their focus is on tech
nical fnancial services: an emission has to be linked to a specifc and tangible
value which can be called upon immediately, on presentation of the monetary
unit. Money that does not exhibit this characteristic will simply not be accepted,
given the wide choice of monetary units that do conform 197.
It is lef up to the inventive minds of the systems participants to decide whether
the basis of an emission is the yearly fee for a bank deposit box or portfolio admin
istration or a standardised technical accounting unit. As long as this term is con
nected to a real value, this type of emission will fnd its acceptance.
Te loan business as we previously knew it will, however, face considerable dif
culties and might even be impossible to continue. Access to short-term credit will
be available for most enterprises simply by making their own emissions. Te ways
to accumulate capital for larger investment projects will certainly also be diferent
and operate according to principles similar to money emissions but with longer-
term due dates. We will return to this issue again later in this book.
Te risks involved in current bank lending practice where short-term, low-in
terest savings in the bank are then given out as long-term, tied investment capital
with a high rate of interest have been dealt with in all sorts of media with regard
to the current fnancial crises (since 2007). Tere is no need to discuss them again
here.
One last example will be presented, in order to show how the old way of thinking
is doomed to fail under the new conditions.
If a bank decides to secure an emission of its own bank knots with the deposits of
its clients, this is not impossible but it entails great risks. Secured with third-party
monetary units, this type of bank money would not defnitely qualify as immedi
ately redeemable, on presentation by the holder. If the bank was not capable of
immediately paying out the amount of third-party monetary units being deman
ded, this would be a default on payment, strictly speaking. In order to avoid this,
the bank would have to match the value of its bank notes exactly to the value of

197 Te previously prevailing political obligation to accept (i.e. fat currencies) will also be much
harder to enforce under these new conditions.

206
the customer deposits it was holding. And this would simply mean there was no
beneft to the bank to this process at all: it would have to hold this third-party
money in its vaults for the entire validity period of its own bank knots. Tis would
efectively grant the third-party emiters an interest-free loan for that period, with
no beneft to the bank from doing so.
In contrast, no such risks are taken when the bank emits money secured on its
own capacity to deliver services.
For example, if the bank based its emission of bank knots on the value reference
Opening fee for an investment portfolio, this represents a service they can carry
out as many times as needed to redeem monetary units being presented to them.
Alternatively, they might agree to redeem the monetary units for other services,
such as accepting 90 bank knots for the annual fee of a safe deposit box, or accept
ing bank knots towards the payment of commission fees for sales of securities and
bonds, etc.
Here we can clearly see the nature of the new monetary system: the aim is not to
enable amazing profts or unbelievable returns on invested capital, but rather to
enable the full utilisation of production capacities and long-term investment secur
ity. It is also my belief that the system will indeed be able to achieve these aims
successfully.

207
 Emission management

We now come to one of the most exciting parts of the book. Once the basic issues
have been setled and put into practice, the creative phase begins. A wide range of
people, from individuals to emission managers employed by a large company, will
be confronted with regular questions regarding their active emissions. Whether to
emit? When? How much? Tese three questions summarise the issues they face.
Two important emission phases need to be distinguished: the declaration of the
emission conditions and the actual creation of the money.
Te terms and conditions for the emission contain the information which sub
sequent recipients and holders of the emited money will need to understand
what they are agreeing to do with whom when they enter into the contract that
is created when they accept this credit money as payment. Tis includes entries re
lating to the identity of the emiter, a precise defnition of the value reference, a
link to the emiters currently applicable terms and conditions of business, and rel
evant information about any term limitation the money is subject to.
Purely legal notices relevant to the emission should defnitely be included as well.
Examples here include: a statement explaining how the emiter will deal with un
redeemed knots when any term limitation expires; a notice stating whether and
under what conditions the emiter is willing to redeem the monetary units for
products or services other than the defned value reference 198.

198 See also the section Business participants.

208
Once this phase is completed satisfactorily, the emiter can assume that the next
phase will begin actually creating the money. Of course, as we have already de
scribed199, this can only occur if other economic participants consider the emission
conditions to be atractive enough and accept this emission of money.
So the process of money creation necessarily needs the frst recipient: someone
who is willing to provide something to the emiter in return for this emited
money. Tis participants wallet identifer is then entered into the units pos
sessor feld during the initial emission.
Te most natural way for an emiter to bring their money into circulation is to use
it to pay invoices for services or products they buy. Additionally, it can be sold at
auctions, knot exchanges or on platforms created by the emiter themselves. Te
emiter can decide how long and how intensely to pursue this process depending
on the way the market for their emission develops.
So when we now speak of continuing the emission, we are referring to this process
of bringing more money from this emission into circulation as described above.
And when we speak of reducing the emission, we mean reducing the number of
monetary units being generated in any of the above ways.
Accordingly, when an emiter stops issuing any more monetary units to the condi
tions of that emission, they discontinue the emission: the processes of bringing new
monetary units into circulation cease.

Emission strategies

First of all, the emiter needs to ascertain which of their services or products are
best suited to be the value reference of an emission. Generally, this will be their
fnished product: something they have specialised in, leading to them being more
productive and competitive than non-specialists.

199 See the sub-chapter First issue

209
If they have more than one fnal product, most of the time the most suitable one
will be the one they sell the highest quantity of and which can be reproduced or
duplicated in the shortest time. For services, the emiter needs to be sure they have
the capacity to deliver enough of this service.
In the sections above describing the emiter, we already saw that there are basic
ally two ways to link this fnished product to the emission: either directly, one
monetary unit = one product or via a value declaration in terms of an existing
currency, such as KNOT. In the later case, the value reference of the emission
could be one monetary unit = services or goods from the current range to the
value of 12 KNT according to the currently applicable price list.
For emissions with a value reference defned not as a single product but as an
amount specifed in another currency, it is important to clearly state that the
holder of the unit is not entitled to a payout of that currency in money but only to
a payout of services or products from the emiter (to that value).
I know this warning has appeared elsewhere in this book, but my intention is well-
meant: sometimes we need to hear something repeatedly before we really internal
ise the message. Anyway, it defnitely belongs in the terms and conditions for the
emission.
Tere is another variant which is theoretically possible but not recommendable for
economic reasons. Namely, it would be possible to emit money on the basis of an
other currency. Here the promised service upon redemption is simply to pay out
the named amount of that third-party currency the emiter could even pay in
terest200. In the initial phase of the new monetary system being proposed it may
well come to emissions of this sort; in fact, the continued existence of political ob
ligations in fnancial issues may make it impossible to avoid this type of issue com
pletely.
Where the emiter decides upon a value reference of the type one monetary unit =
one product and the units of this emission gain a sizeable popularity, the possibil

200 In fact, this is currently a completely normal occurrence since it is the typical procedure for an
issue of most sorts of bonds, including government bonds. Te fact that this occurs despite a
lack of economic sense will probably not surprise readers.

210
ity arises for other market participants to use them as a reference value. Tis devel
opment would then increase the demand for these monetary units and could be re
garded as a bonus for the emiter. Te proportion of their money circulating within
the system without returning directly for redemption is actually an interest-free
loan being provided to the emiter by those using this money. Te size of this loan
will be directly related to the suitability of an emission for use as money in this
way.

Defining aims

Te emission manager needs to be aware that the success of the emission the ex
tent to which it is accepted by the relevant public is the same as the success of
the turnover of the emiters products. Tis means that those products will have to
be delivered as soon as the money holders turn up to redeem their units. And this
insight should be sufcient to remind them to plan the emission well!
Te newly emited money does not only serve to fulfl the individual needs of the
emiter; an emission of credit money also serves to close cycles within an eco
nomy. So the aim of ensuring the highest possible degree of marketability also
needs to be kept in mind when planning the emission. Tis includes choosing a
suitable denomination and ensuring the smooth operation of the necessary sales
points for the emiter, whether online, in local branches or at knot exchanges.
Any payment defaults or even temporary problems when it comes to redeeming
the emiters monetary units for the services or goods promised will have a lasting
negative efect on the reputation of the emission and the emiter. On the other
hand, positive experiences resulting from the use of a particular type of money will
also rub of on the emiter; positive feedback and word-of-mouth are some of the
best marketing measures.
Emission administrators will routinely publish data on emissions, but emission
managers should always consider conducting their own targeted advertising cam

211
paigns. Of course, the natural link between knots and the services or products
means that an advertising campaign for the emission is also an advertising cam
paign for the products or services of the emiter.
As well as ensuring the future turnover, increases in brand awareness and im
provements in the emiters image, other factors also play a key role in an emission
managers deliberations. Tese include trying to manage demand to ensure regular
and smooth capacity utilisation and make it easier to plan the production. We will
look into this some more below.

Money supply

Te question, How much to emit? is certainly one of the frst that will be posed.
Looking at the currently prevailing fat money (another name for unsecured gov
ernment money), a really convincing answer to this question does not seem to
have been found, in spite of experiments lasting decades.
Tis is not at all surprising if we consider the paradox behaviour generally exhib
ited by this type of money: although money is being printed continuously and
since the start of the current fnancial crises in 2007 in increasing quantities, many
sectors of the economy are sufering from constant fnancial defcits while a few
others are being fooded with ever greater sums that are supposedly queuing up to
be invested.
Te remarks at the beginning of this book 201 hopefully served to help unravel this
mystery somewhat. Tis unevenness is not due to errors in distribution but rather
due to an inherent error in the money itself, since it carries with it no information
about the sector it was issued for and what capacities are available there.
In contrast, correctly emited money fows instinctively to the part of the eco
nomy where it will be most useful. Tis money was emited trusting in the future

201 In the chapter Money not as obvious as we think?

212
fulflment of a need. Te value-stable link with the emiter means there is one
place in the economy cycle where this money can be redeemed and fulfl that need,
thus fulflling the real raison dtre of any economy.
S. H. Schwenke writes:

Actually, every credit money system starts with an account balance of zero.
Then the first transfer takes place and now the recipient has money, let us say
100 doro202, and the payer has emission debts, also to the value of 100 doro.
The positive entry on the bank account of the recipient (credit) becomes
money if it can be assigned the properties of money and if this assignment
takes place. We can put it another way: The amount of credit money is always
zero because the equation is always: credit balance of 100 doros minus emis
sion debts of 100 doros equals zero. If this equation cannot be fully ex
pressed then there is an error in the accounting system, quite possibly due to
a fraud or similar affair. With the right properties, these 100 doros can then
be passed on from economic participant A as a means of payment to parti
cipant B, who can then use them to pay participant C. C could then pass them
on as payment to A, the original emitter. I n t h i s c a s e , t h e m o n e y d i s
a p p e a r s a t t h e s a m e t i m e a s t h e e m i s s i o n d e b t s . This can occur
three minutes after the emission or three months later. T h e n a t u r e o f
credit money is that of an economic good which is always
just about to disappear it dissolves itself as the final
p a r t o f i t s n o r m a l u s a g e . 203

So we can see, an economy needs no more money (and no less) than is necessary
at a particular time to ensure that all possible transactions can be conducted.

202 Te doro is a fctional currency used by S. H. Schwenke. Its value reference is given as 1 gram
of gold. In this example, it serves as the value reference of a credit money without the right of
payout.
203 S. H. Schwenke Parity theory of money (Parittstheorie des Geldes) p. 164 (no emphasis in ori
ginal).

213
But how do we fnd out whether enough money from our emission is currently in
circulation? Tere are a handful of factors ofering unequivocal information; the
frst of which is the current exchange rate.

Exchange rate monitoring

How can best use be made of the progression in the exchange rate for an emission
of knots? Te most useful approach would be to monitor the market value progres
sion compared to a reference value.
For emissions defned on the basis one monetary unit = services or goods from the
current range to the value of 12 KNT according to the currently applicable price
list, then the reference value is unambiguously defned: 12 KNOT.
However, another way of determining the reference value is needed for emissions
of the type one monetary unit = one product.
Here the reference is a desired value which the average sales price of a monetary
unit should ideally achieve. One of the frst pointers will be either the manufac
turers own recommended retail price (MSRP/RRP) or their current price list 204, de
pending on the type of product involved. So if the emiter currently lists the price
of an emission-linked product as 3 KNT, the reference value for that emission will
also be 3 KNT. For emissions based on new products without a reliable price his
tory, the initial reference value might be set at the initial exchange rates when the
emission begins. Te emission manager needs to decide which of these parameters
will be most useful during their monitoring of the emission.
Once the decision has been made, which value to take as a reference, the emission
manager can then use it to help monitor the current developments in the exchange

204 Price list here means a listing of the emiters products or services together with the real
prices they demand in other currencies when selling those products or services.

214
rates for their emissions monetary units. Deviations from the reference value
serve as indicators allowing the manager to draw their conclusions about the pro
gress of the emission and decide whether to expand it or not.
Generally speaking there are two main phenomena indicated by the exchange
rates: over-emission or under-emission.
As long as the current exchange rate using an average from several knot ex
changes would make sense exhibits only minor deviations from the reference
value, this is a sign that demand is not yet met fully and the emission can be con
tinued.
Sometimes, perhaps only rarely, particular knots will be traded at values above the
reference. Tis might be the case when a manufacturer of a particular consumer
electronics device, let us call it the P1C1, initially launches it only on the Asian
markets and designs an emission linked to this device with corresponding quantit
ies of emited units. Interest in this device might also be high in other regions,
which could lead to customers there buying up the P1C1 knots and having the
device delivered to them there205. Tis additional demand will result in P1C1 knots
being traded at levels higher than the reference value.
Te reason for the mark-up on the reference value will not always be high demand
for the emission-linked product itself. It might also be an indication that these
knots in our example, the P1C1 knots are circulating in increased quantities as
a means of payment or that they are being hoarded, perhaps as cashfow reserves.
Clarity as to the exact reason can be sought in an analysis of the developments in
the return fows of the emited knots. If demand has increased but the return fow
has not, this will be an indicator of stronger circulation of the knots as a general
means of payment.

205 For some very fashionable items this might also be observed even if the emiter does not ofer
delivery outside of a particular region. Keen fans will fnd innovative ways of geting hold of it
as soon as possible.

215
Both increased circulation and hoarding should lead the emission manager to the
same reaction: increase the scope of the emission. For example, if they previously
initiated an auction of a certain contingent of P1C1 knots every hour, they could
either increase the frequency of these auctions or the size of the contingents.
How long will it be possible to keep up this sort of expansion of an emission
volume? Te general answer is: until the exchange rate stabilises at the reference
level or just below.
Care has to be taken, nonetheless. Tis monetary system belongs to the type of
system with non-linear progressions. For a while, minor imbalances can be hidden
and some tendencies held in check by indirectly related factors such as speculation
buying. Ten, suddenly, something can trigger them, seting of larger move
ments206. Each individual case will need very careful handling a skill which will
develop out of daily practice and defne the role of emission manager.
If the exchange rate of an emission of knots falls compared to the reference value
this should initially be taken as an indicator of saturation. External factors 207 might
lead to this fall, but if they can be ruled out, the most probable cause is over-emis
sion.
Initially this shows there is no willingness on the part of the market participants to
accumulate further stocks of the corresponding knots at the old price. Tis is not
necessarily because the absolute number of emited knots available is too high. It
might also be because the general demand for that particular product has fallen. In

206 S. H. Schwenke writes: If in an extreme case it comes to agio (a markup or premium on the ex
change rate Note: O. Foertsch), the emission volume should defnitely be increased. Tis
should also happen at parity, until disagio occurs (a markdown Note: O. Foertsch). Particular
care should be taken when doing this if the emission is already very close to its probable limit.
Otherwise, a large and sudden increase in the emission volume can lead to a considerable dis
agio. As with many other measurementst, there is a problem with the disagio threshold. Te process
of measurement changes the object being measured. Using the disagio to measure the optimum
money supply has a disadvantage: if disagio is visiblet, this means the optimum money supply has
already been exceeded. Parity theory p. 167, no emphasis in original.
207 External factors can include general market turbulence and also factors such as variations in a
currencys purchasing power where the reference value is expressed in that currency. See also
the explanations at the end of this section.

216
cases where signifcant quantities of the knots concerned are circulating as a
means of payment, a fall in their exchange rate might be due to competition from
the knots of another emiter which are seen as more suited to the purpose.
What reaction should the emission manager now take to the fall in the exchange
rate of the knots compared to the reference value?
Te most immediate answer is to discontinue the emission and should indeed be
considered frst. However, it is not the only option.
Where the emission manager is alert, negative diferences to the reference value
will usually be picked up when they are quite small. Tey will still tend to
strengthen the return fow of the knots to the emiter. Te bigger the exchange rate
diference, the stronger this tendency will be.
Afer all, exchanging them on the market, a holder of these knots would not get
100% of their value back and the only way to actually gain 100% of the declared
value is to cash them in at the emiter for the promised service or product. Only
the emiter is obliged to do this; none of the other market participants have this
obligation.
Diferent approaches are now possible depending on the emiters own priorities.
Sometimes it will be sensible to simply accept the increased fow of knots being re
deemed; this would be the case for units linked to a (soon-to-be-)discontinued
product model or if the increased payouts help to clear needed space in the ware
houses, for example. Te emiter might use the opportunity to conduct an aggress
ive sales campaign, continuing the emissions at a lower exchange rate, efectively
selling their products at a lower price than their competitors in order to gain mar
ket share, perhaps.
Tis process does have its limits and the emission manager will need to pay heed
to them. Te limit for a continued emission during sinking exchange rates will be
the production costs per unit of the product. Once this level is reached, it automat
ically means the emission should not be continued, since any knots accepted afer
that would be bought up at prices that do not cover the emiters costs. Continuing
the emission under these circumstances would be akin to self-destruction.

217
Additionally, doing this would damage the reputation of an emiters knots as a
means of payment, which would cost more in the long term than they could make
from the short-term increases in sales.
An emission manager can also atempt to restore a fallen exchange rate for a par
ticular emission of knots. Where the markdown on the reference value is still relat
ively small, a temporary emission pause will generally balance supply and demand,
as long as the return fow remains approximately the same. Te exchange rate will
then recover naturally.
Another corrective action might be to launch a limited special ofer to increase the
knots return fow: Cash in two knots get three products! or Redeem your
P1C1 before <date> and claim this P1C1 accessory free! etc. Actions like these
could encourage bargain hunters to buy up additional knots or cash in circulating
knots, reducing the supply to the market and stabilising the exchange rate.
Of course, the emission manager always has to check whether the reason for an
exchange rate deviation lies with the emission itself or with external factors. If the
reference value is measured in a currency and the purchasing power of that cur
rency changes, this automatically leads to a change in an exchange rate expressed
in that currency. Where this trend persists, the best strategy may be to alter the
reference value to take into account the new value of the currency.
An emiter also needs to check whether the reasons for decreasing demand are the
reasons which would be there in any money system, such as the quality of their
goods, aging technology, old-fashioned design, or bad customer service. Applying
emission management strategies here would not work, merely resembling an at
tempt to cure symptoms without addressing the underlying cause.

218
 Return flow

Te fow of monetary units returning back to be redeemed at the emiter is one of

the new monetary systems fundamental diferences compared to the old system
based on fat money.
Teoretically, fat money also counts as credit money 208. However, since its value
is based mainly on the statutory obligation to accept it 209, there is no real reason for
the money holder to return it to the emiter and redeem it there 210. For fat money,
the statutory obligation ensures acceptance as a means of payment with the face
value stated211. For credit money with a real value reference, the face value upon
redemption is fxed by contract. Its acceptance as money will be indicated by the
return fow: monitoring this in conjunction with current market exchange rates
will serve as a sort of verifcation for that money.
Whereas fat money circulates in a more or less uncontrolled way, full-value credit
money (the knots in our book) has a clearly defned target to circulate back to. It is
this target fulflling the moneys purpose which makes everything ft into
place, since declaring a value reference alone would not make sense if it was not
regularly checked and confrmed in practice.

When we look at the return flow or return rate, which we can also think of
as the demand for the voucher money, then we are not really looking at a
constant circulation of money. Rather, it is constant new emission of money

208 See the sub-chapter Te magic triangle.

209 Compare this to S. H. Schwenke: On the banknotes in English pounds with a forced exchange
rate, the promise to pay the bearer is a promise to redeem the pound notes for pounds. Tis is
quite clearly circular reasoning. I leave the rest to the readers imagination. Parity theory,
p. 101 (own translation)
210 One exception is the handing in of damaged banknotes. Te German central bank, for example
(Deutsche Bundesbank) will accept these without charge. Afer checking them, it will credit the
holders bank account with the corresponding value. Source: Website of the Deutsche Bundes
bank: htp://www.bundesbank.de/bargeld/bargeld_beschaedigt.php, accessed 14.02.20112,
13:58 CET
211 In countries with unsecured government money, a debtor can go to court to force their creditor
to accept that government money as a means of repayment. Using another value reference such
as gold is contractually prohibited in many places, including Germany.

219
 with constant redemption. The average or overall picture is that of circula
tion, but the component units making up this flux will vary over time, as new
series with new serial numbers are emitted [and old units redeemed and taken
out of circulation]. These various types of money or emissions do not circu
late constantly or steadily; rather, if we look at them more precisely we see
they oscillate. This movement is comparable with alternating current or our
bodys circulatory system; in the latter, the blood is repeatedly freed of its
CO2 load and resupplied with oxygen. The name of the first Swedish bank
notes transport notes212 was really good, as is the term ticket money. So we
could say, every type of money has a type of circulation. For acceptance
money213 we might be better calling it oscillation. From a mathematical
point of view, the sine wave of alternating current is actually an alternative
representation for a circular movement in other words, for circulation. The
portrayal as a sine wave, however, helps us to see the concept of a zero line:
the beginning that is also the end. In terms of turnover tickets and transport
notes this is the emission and the return flow. At the circus there is a point on
the circus ring where the performers enter and also leave. During a perform
ance, the horses, for example, will pass this point many times before at some
point, they then leave via it. Acceptance money closes a circle by flowing
back to the place where it was originally emitted. It can be said to circulate in
the sense that there is a special point in the circle which is both entry and
exit.214

As far as the stability of the emited knots exchange rate is concerned, the decisive
factor is whether or not the emiter can ensure a trouble-free acceptance of the
knots in return for the declared value. Afer all, the knots are nothing other than
debt certifcates and their cycle is only closed when they fow back to the emiter
and they fulfl the contractual obligations entered into with the emission.

212 Transportsedlar
213 Synonym for full-value credit money
214 Parity theory, p. 158

220
As we have already seen, if the exchange rate of an emission of knots sinks lower
than the reference level, this generally has the efect of increasing their return
fow. Tese exchange rate fuctuations are not always due to over-emission. Under
the conditions of monetary freedom, a tendency towards lower prices will gener
ally arise from technical progress including process optimisation in the organisa
tion of the economy and logistics.
So the skills of an emission manager will also include the ability to make pro
gnoses about emission behaviour. If an emiter produces economic goods that are
subject to rapid price changes, it will ofen make sense to link their emissions to a
particular amount in a stable currency: 1 monetary unit = services or goods to the
value of N KNOT according to the currently applicable price list. Otherwise the
knots from this emiter would hardly be suitable to circulate as money because the
period they hold their value for is too short.
An increased return fow could in some cases be an indicator of the expiration of
the value reference products life. Te emission manager might assess this as a
reason to permanently discontinue the emission, but that is not all: they could also
interpret is as a sign to cease production of the linked product.
In general, the return fow will be measured as the ratio of redeemed knots to
emited knots. It might be expressed in terms of the total proportion returned so
far or as a return fow rate in units per day. Until the monetary system is in place,
it is hardly possible to make any detailed remarks about the actual numbers in
volved. S. H. Schwenke cites a value of 1% of the total emission per day as being
sufcient, referring to the experiences of the private issuing banks in 19th-century
Germany.215

215 Te private issuing banks in Germany seem to have made plans to ensure that the whole issue
of banknotes would have returned to them within 20 days if they had suddenly ceased the busi
ness of note-issuing. (Die Bewegung der neun preuischen Zetelbanken von 1857 1863, Te
Movement of the Nine Prussian Note-Banks from 1857-1863, C. Rpell, Danzig 1864). It would
therefore seem to be the case that about 1/20 of the total stock of notes fowed back to the banks
every day then, maintaining the nominal value. Ulrich von Beckerath, Berlin: Brief an Dr. E.
Frster, Wien, vom 28.8.33, mit Anmerkungen ber das Eisenbahngeld (Leter to Dr E. Frstert,
Viennat, with remarks on Railway Money) cited in Parity theory, p. 160.

221
 Period of validity and its limitation

To make it clear straight away: term limitation as used in this book has nothing
to do with the money model proposed by Silvio Gesell or any other depreciating
currency216 theories. Instead it is an essential part of the money emiters toolbox,
as we will now see.
It will not always be necessary to limit the period of validity of an emission. Emit
ters who link an emission to a product that is available almost everywhere and in
practically unlimited quantities will not need to do this; examples include pro
viders of online services and/or digital products such as ebooks or multimedia fles.
For many other cases it will be sensible or indeed necessary to apply a term limita
tion.
An individual can use term limitation to help plan the active and passive phases of
their life: ensuring the return of all knots from an emission by a certain date allows
the emiter to go on holiday, take a sabbatical or even retire afer that date, or to
devote themselves to other afairs.
Emiters whose business involves mass products such as RFID chips and washing
powder or raw materials such as gas, oil and sugar can take these as value refer
ences for their emissions with no pressing need to impose a term limitation. Emis
sions with term limitations, however will be useful to help regulate fuctuating de
mand. Just as electricity producers ofer discounted night-time tarifs to try and
even out the peaks and troughs in the electricity demand, emissions where the
period of validity is limited can help to channel demand into the times when it
would otherwise be weaker, evening out the utilisation of production machinery.
Te main demand would continue to come from emissions without term limitation.
Service industry participants such as hotel operators can also make use of this fea
ture to spread demand for their services more evenly over the entire year. Manu

216 In German, Schwundgeld, also referred to as demurrage-charged money or stamp scrip.

222
facturers of economic goods with a short life can match the validity of each emis
sion to the dates of planned model changes, enabling them to plan their production
beter.
Of course, the idea behind this feature is not geting rid of an emission in order
to escape the obligation to deliver! Instead, it is a feature which helps the
emiter/producer with their short- and mid-term planning.
Careful monitoring of the exchange rate progression for emissions with term limit
ation will provide the emission manager with indicators as to whether short- or
long-term demand is currently more prevalent.
Gestures of goodwill concerning out-of-date knots are, of course, not ruled out and
will most probably occur regularly as part of good customer relations practice.
With help of the emission manager, as part of the preparation of an emission, the
emiter should defnitely decide what will happen regarding knots which are not
redeemed at any of the applicable branches before their term end date.
Suitable terms and conditions here could be: accepting the knots at half of their
value; redeeming them only if stocks of the linked product are still available; defn
ing a limited alternative choice; for a service, ofering redemption but only upon
prior mutual agreement; etc. Upon expiry of the validity period, knots will defn
itely lose their properties as money217, but they can retain their ability to perform
their inherent function of closing the gaps in economic cycles created by their
emission subject to the conditions as just described. Teir holders still gain an ac
ceptable value from them.
Where an emiter is less obliging in these cases, there will be a more intensive re
turn fow in the period immediately before the knots term expiration. In contrast,
ofering good conditions or regular gestures of goodwill for expired knots would
be one way for an emiter to enhance their image.
At the time of writing, we obviously cannot make specifc recommendations about
the details of term limitation, since these will depend heavily on the reactions of

217 Tey no longer fulfl the requirement of being redeemable without question and immediately
or on presentation, since post-validity redemption is subject to additional terms and condi
tions.

223
concerned participants as the new monetary system develops 218. Validity periods of
between one and twelve months would appear to be realistic. Field testing will be
required to determine reliable fgures.

Area of validity

In some cases, geographical distance to the emiter could lead to their knots being
traded on some knot exchanges at a lower exchange rate. Tis might be the case,
for instance, if the emiter can only deliver their services within a particular region
but their knots are being ofered for trade on a knot exchange far from there.
Most probably these rate diferences will never become too extreme because of the
globally networked nature of the monetary system. It will be theoretically and
practically possible to bring the knots back into the hands of a holder in the local
region by means of only a few steps exchange or payment transactions.
In fact, this might become a speciality of some knot exchanges: shifing knots from
one region to another.
So even in these cases, the prevailing rule will be: supply and demand will determ
ine the current exchange rate of any particular monetary unit. Nonetheless, an
emiter ofering a geographically restricted service or product would be well re
commended to include this geographical restriction in the terms and conditions of
their emission in order to prevent any awkward misunderstandings.
Sofware for administering money stocks will also include modules designed to
bundle any knots with geographically restricted validity and sell them on.

218 In the initial phase, very short emission periods might be necessary to protect emiters from
possible persecution by existing power elites.

224
 Administering money stocks

Once knots become accepted as a means of payment, we will have to accustom

ourselves to a few diferences in the way we look afer our money. It will be neces
sary to regularly sort our money stocks according to particular criteria for two
reasons: to monitor the composition of our stocks, and as preparation for payment
processes. Te validity of their money stocks (term and area) is not the only im
portant factor to monitor: changes in the value of the stocks can also occur, as we
saw above.
At this point I want to remind the reader that this chapter is dedicated to short- to
mid-term liquidity. Longer-term considerations come in the next chapter on capital
investments.

Technical aids

Of course, looking afer money in a monetary system operated by means of digital

technology will entail the use of special sofware. So every participant needs access
to this type of sofware.
Some users might initially think they actually store their money on their own com
puter, which is not the case. Instead, their sofware merely lists an overview of
which monetary units they possess and where these are administered. Te sof
ware on their computer administers an exact copy of their monetary stocks and
the user has to be confdent that they have instant power of disposition over their
monetary units, for instance, when they wish to pay someone else and want to

225
transfer the monetary units to do this. Te monetary units they see on their screen
are in fact entries in the databases of various emission administrators; these units
never really leave those databases. Instead of transferring real entities from one
wallet to another, in this system, a money transfer represents the entering of a
new name in the possessor feld of these data records in the emission adminis
trators databases219.
Te users local copy is updated by every transaction (transfer) they initiate them
selves and by every relevant notifcation they receive from an emission adminis
trator. Where todays bank account holder calls up their latest bank balance, the
holder of a wallet ID in the new monetary system will keep track of the EAdmins
responsible for their preferred monetary units and make a database query at each
of them to check their stocks 220. Te result of a query such as this will be an elec
tronic notifcation which the user can feed into their money stock administration
sofware.
Of course, this requires a certain amount of standardisation for the format of the
notifcations. Data on the values of the respective monetary units will also be up
dated online by calling up the current exchange rates 221 as published by the Ead
mins.

219 Tis approach and their usage according to these conditions should be recorded in the emission
administrators contracts and terms and conditions of business, and accepted by every emiter.
220 In general, every user will have chosen a selection of money types from certain emiters which
they want to accept and they will know which EAdmins have been commissioned by those
emiters to administer those money types.
221 Tese could be average values for a particular type of money, as calculated over a specifed
short period of time. Depending on the intensity of the trading and other factors, these might
be updated every hour, minute or even second. Te term current exchange rate will be the
standard in a globally networked and therefore constantly active monetary trading system.
Terms such as daily rate, opening rate and closing rate will not be as useful.

226
Tere are security precautions necessary to minimise any risks arising out of this
constant exchange of signifcant amounts of data. Tese include creating a virtual
environment for the engine222 that synchronises this data and/or storing the data
on separate media such as a memory card.
Additionally, a participants sofware should be able to calculate the current value
of their money stock (in part or in total) as expressed in terms of the users pre
ferred currency, for example, KNOTs.
Te following remarks in this chapter assume the existence of sofware which im
plements the functions mentioned above. Tis should be understood as inspiration
to try and understand the scope of functionality needed from the sofware.
It might seem confusing, but in practice each user will probably restrict their
stocks to units from a comparably low number of diferent emiters plus a few cur
rencies of particular signifcance in that users international, regional or sectoral
sphere of activity. Computer-assisted data administration will make this not only
possible, but also easy. We can expect to see administering money stocks becoming
just as routine as many of todays computer-assisted activities, such as keeping a
library of digital music, photos or videos.

222 In an IT context, engine refers to the core of the sofware. It is an independent part of a com
puter program ofen responsible for carrying out complex calculations or simulations. It will of
ten run in the background without direct control from the user. [Art.] Engine. In: Wikipedia,
htp://de.wikipedia.org/wiki/Engine, accessed on 01.09.20111 (own translation)

227
 Structuring money for the payment
procedure

Te procedure for making a payment by means of knots is a litle diferent from

using government money such as euros because as well as the amount itself, the
payer also has to specify the composition of the diferent knots 223 making up the
sum to be paid.
Most payment recipients in the new system will carefully choose a selection of
knot types which they are willing to accept as payment. Of course, their customers
do the same and these two selections will not always overlap.
Te system will therefore encourage both payer and payee to maintain accept- and
reject-lists224 to allow the sofware used in the payment process to quickly seek out
suitable contingents of knots which match the requirements of both parties.
Tese lists should not be writen too restrictively, otherwise they might uninten
tionally restrict the usage of knots from newer, completely suitable emissions. One
possibility could be compiling lists where knots of various emissions are assigned a
range of priorities. Another would be specifying acceptance for any knots which
have received certain positive external assessments on the website of a particular
EAdmin, for example.
Generally this type of sofware will include an option allowing it to contact the re
cipient and ask for permission to accept a particular knot emission which is not in
the acceptance or rejection list, where this is necessary or recommended in order
to enable a payment to be made.

223 Here and in the following remarks in this chapter, knots is used as a synonym for digital
credit money from diferent emiters.
224 Instead of the controversial blacklist and whitelist, these might become known as the knot-
for-me-list and the not-for-me-list, which would of course stimulate some creative pronunci
ation in order to avoid confusion!

228
Since exchange rates will ofen fuctuate slightly, most professional retailers will be
prepared to accept payments that deviate slightly from the declared price where a
suitable contingent cannot be compiled to the exact value. Values up to 1% of the
payment sum might be both imaginable and justifable in this regard225.
Te sofware should also make it easy for the money possessor to sort their knots
list according to criteria such as emiter, emission number, term expiry dates, re
gional validity or value.
Tese and other functions will be useful to prepare money stocks for payments due
to be made soon by forming contingents that are particularly suited for individual
payments and/or enable the user to spend knots whose validity will soon expire,
for example.
Te sofware will also help to identify knots with low acceptance among the pay
ment recipients with whom the user regularly trades: it would be recommendable
to exchange these at a suitable knot exchange.
Participants who enjoy speculation will have the possibility to buy particular con
tingents of knots when the exchange rate is low and then sell them later when the
exchange rate has increased. Tey will undoubtedly use money stock administra
tion sofware with modules developed to hold and prioritise specifc money stocks
for this purpose.
For companies with a high volume of payment transactions, it might be worth con
tracting a specialist to administer their money stocks and payments. Tis could be
a bank specialising in knot administration, for example.

225 Alternatively, a payment service provider could automatically be brought in to convert the knot
contingent, since their fees will possibly be similar.

229
 Hoarding

Strictly speaking, there is no clear line to be drawn between money stock holding
and hoarding. Te later usually refers to holding on to monetary assets that are ft
for circulation, neither spending them nor using them actively to build up long-
term capital, but simply leting them remain static in ones portfolio. Te term
hoarding generally carries with it a derogatory note when the speaker considers
the sums concerned to be unreasonably high.
Reasons for hoarding have been as varied as the humans and cultures carrying it
out. For us it is merely important to know that a certain amount of money will al
ways be siting around in the possession of some participants.
However, this presents no fnancial or economic problem to our proposed system
of correctly emited credit money, since it merely expresses the fact that the
hoarder is granting the emiter an interest-free credit for the period of hoarding.
Te hoarder would in fact have been able to earn some interest on the same sum if
they had invested it longer-term, but for one reason or another they did not choose
to do this. And for the individual emiter concerned it simply means that they can
emit a larger number of knots without having a negative efect on their exchange
rate.
Where the money has been transformed into a capital investment, we no longer
speak of hoarding. And at this point, the emited units actually cease to be
money, since one of the key properties of money is to be redeemable immedi
ately.

230
 Money media

Up until now when looking at payments made using knots we have treated them
as purely electronic afairs similar to todays bank transfers. Tere are, of course,
many instances where the circumstances require a diferent procedure, such as the
situation at the till in a shop. Will our proposed money be suitable for this?
One possible solution would be for each user to print their own paper money using
their money stock administration sofware. Figure 19 illustrates what is meant
here.
A group of knots from the users stock is summarised and encoded in print. A type
of Aztec code226 could be used for this, recording information about the individual
knots in the same way this code is currently used on tickets in the transport and
other sectors. Tis code can be included in a standardised form where the user can
also record other information they want to remember such as key information
about the knots and the approximate value of each individual group.
Having a standardised form would be part of the procedures necessary to facilitate
electronic processing of this self-printed paper money at various retailers tills. Te
composition of the individual knot groups will generally be the free choice of the
user.

226 Te Aztec code was developed in 1995 by Andy Longacre at the company Welch Allyn in the
USA. It is a freely available 2D code subject to US Patent 575917956. It has been published as the
ISO/IEC 247778:2008 standard. Te name refers to the step pyramids of the advanced civilisation
of the Aztecs in the area that is now central Mexico. Viewing a step pyramid from above, one
sees a patern which is very similar to the squares forming the core of the Aztec code, with
points arranged around them. [Art.] Aztec Code. In: Wikipedia,
htp://de.wikipedia.org/wiki/Aztec-Code, accessed 01.09.20111 11:17 CEST (own translation)

231
Figure 19: Transforming stocks of digital credit money into printed paper knots of various denominations,
suitable for making purchases in a supermarket.
It will be advisable to group together knots from the same emission or same emit
ter. Otherwise it might be difcult to fnd retailers willing to accept the groups. In
this way, each user can generate their own cash and use it to make payments when
away from their own computer. Denominations might be 1, 2, 5, 10, 50, 100 KNOT
etc.
Of course, it is important to fnd a retailer who is willing to play along with this
and who has the appropriate device to recognise and accept this printed money.
Assuming this to be the case, the rest of the payment procedure is similar to the di
gital procedure already described.
Te recognition device at the till will read in the codes on the customers printed
money and extract the information about the monetary units to be transferred,
confrming that these emissions are included on the retailers accept list. Tis list
would then be sent to a transaction administrator with the request to transfer them
into the possession of the retailer. Te customer would receive the encrypted veri
fcation request from the transaction administrator directly on their smartphone or
portable ofce device, ensuring the security of the data communication.
Of course, similar groups of knots can be put together without printing anything
out. A fash drive or memory card could then perform the function of an electronic
wallet. Just as we already take our digital photos with us to print them out in a
store, we could compile knot groups and take them with us as electronic bank
notes in a range of denominations. Similarly to our current wallets, these elec
tronic wallets would contain a manageable sum of money to be used to make pay
ments quickly and without fuss.
Tis possibility is ofered here as an initial idea of how the system might develop
to deal with the relevant issues. I am reasonably sure that our collective imagina
tion will lead us to numerous other astonishing solutions in this feld.

233
 Accumulating capital and credit

Todays common defnition of capital in its economic sense is, according to the
German dictionary Duden, all fnancial and material values used in for-proft pro
duction or, more narrowly, an available sum of money suitable to bring appre
ciable proft to the possessor or benefciary if applied in an appropriate way 227.
Tis defnition has lost part of the original meaning, which can be traced back to
the Latin caput chief, head, summit, leader 228 and refers back to the times
when assets were counted in head of catle or in terms of the number of slaves,
both of which were also used as a unit of payment.
Since the beginning of the 16th century, the word capital has carried the meaning
assets, interest-bearing sum of money, loanword 229. Te loanword note is im
portant here. According to Franz Oppenheimer: Te phenomenon and the name
frst appeared in the area of money-lending. Here, capital refers to the principal
sum of the loan, as opposed to the interest. 230 He then points out how the later
usage of the word blurs the nature of the relationship which arises when money is
lent, broadening the defnition to include production plant and goods that a com
pany could purchase for its operation. In its original sense, the term capital re
ferred to a legal relationship between two people the creditor and the debtor. It is
the formers legal claim against the later that they repay the loan plus interest. 231

227 [Art.] Kapital / Def. 1a), 2. In: Duden Deutsches Universalwrterbuch, p. 810
228 Etymologisches Wrterbuch des Deutschen, p. 619
229 ibid.
230 F. Oppenheimer: System der Soziologie, Vol. I/2, p. 812 (own translation)
231 F. Oppenheimer: System der Soziologie, Vol. I/2, p. 817 (own translation)

234
Tese legal relationships are entered into by people who fnd themselves in very
diferent circumstances. We have already met two terms which Franz Oppen
heimer coined: the economic and political means of satisfying needs232. In contrast
to the economic exchange, the political exchange is always non-equivalent and is
generally carried out by means of the tool monopoly. Te following long quote
describes this state of afairs with striking clarity.

Products produced in a situation of completely free competition, known as

freely reproducible goods bring their producers in the long-term and on av
erage... no more than their costs, if we, as Schumpeter suggests, do not just
include the material expenses for raw materials etc. but also the effort of the
extra work involved on the producers part in processing these raw materi
als. In other words: These goods enable everyone to earn their wage accord
ing to their qualification but no more there is no added value. Equivalents
are exchanged.

However, where the parties to the exchange are in a long-term relationship

characterised by a unilateral urgency in the need to exchange, where one
partys need or urgency to complete the exchange is more than the other be
cause this is the condition for satisfying needs of a higher essential signific
ance (dignity), then we have a relationship we can call a monopoly. It is regu
larly the case that competitors who also produce the urgently needed goods
are not able or allowed to freely join in. Then the monopolist with stocks of
the needed goods can receive more than just recompense for material and la
bour costs involved: he receives added value. Or, and of course this is just
the same expressed in different words: His competitor, the purchaser of the
needed goods, receives less than the value of his total production costs in
cluding his labour. He receives reduced value or, he relinquishes the added
value.

232 In the sub-chapter A litle sociology.

235
 And in such a way that if he is faced with a monopolist seller of goods (sales
monopoly), he has to pay more than the price that the goods would cost if
there was free competition; and that, if faced with a monopolist purchaser of
goods (monopsony or buyers monopoly), or, what amounts to the same, a
money seller, he will receive less in money for his goods, e.g. for his perform
ance of labour, than this would bring in under conditions of free competition.

To use common imagery, the market is always like a set of scales. Where
competition is free, the scales are fair and balanced, there is an equilibrium
between two equivalent values. Where there is a monopoly, the scales are
asymmetrical: the monopolist weighs on the long arm, the competitor on the
short lever arm, so a smaller value balances a larger one there is an equi
librium between two non-equivalent values.233

Te term monopoly and its harmful efects are ofen applied to single corpora
tions or their associations, but the relation of this term to the state or the monetary
system is examined less ofen.
Nonetheless, the picture is no less drastic now than it was at the beginning of the
16th century when it comes to money-lending and the diference in the urgency
of the exchange relationship.
A monopolistic supplier of money and the system of central banks cannot be
considered as anything but this does not make their appearance as a single seller
of goods or money, where its infuence would still be harmful but at least relatively
limited; no, instead it supplies its goods to the whole economy, every single en
terprise, even those we actually label monopolies. And it pockets the added
value as it does this.
If we consider which values are being exchanged here, the equivalence of the
swap becomes even clearer. On one side entitlements arise that are produced ex

233 F. Oppenheimer: System der Soziologie, Vol. I/2, p. 813-4 (own translation)

236
clusively by means of technical fnancial tricks; these are then balanced on the
other side with real values such as real estate or production capacities. Tis leads
to a gradual expropriation of the real side.
It is perfectly clear that creating a healthy money system will change the way large
or long-term projects are fnanced. Since the state of our society has been shaped
by the old monopolies, this will change, too.

Credit money and investment credit

Current capital accumulation practice usually sees a few privileged market parti
cipants (banks) making use of the assets234 they gained in the past to create legal
relationships under unequal conditions which then help them to continue exer
cising their power in a similar way in future.
So if the new system creates the conditions of equivalent exchange, how can as
sets be built up and how will credit be granted?
If a contract is closed between equal partners, the most important consideration is
that unlike in previous or current practice, neither of them will have to relinquish
the added value to the other. So every market participant 235 will retain greater
surpluses from their own labour or production. Of course, credit contracts drawn
up under the old conditions will still have to be honoured, but new credit will be
available with very diferent business partners under very diferent and much bet
ter conditions. It is also obvious that funding needs in general will decrease in a
system where everybody has more of their own surpluses available to them. Here
we need to distinguish between short-term and long-term funding requirements.

234 Here we are not only talking about material or monetary assets, but rather the whole set of ex
isting fnance policy and statutory structures (or beter, entanglements): a synonym for power.
235 Except for the previous monopolists.

237
Short-term credit will be available to most market participants simply by emiting
their own money: the more suitable this emited money is as a means of payment,
the longer is the period236 before it returns to be cashed in at the emiter.
Financing longer-term projects will occur in a similar way, with one key diference:
the participant will not emit money but rather investment bonds which are actu
ally futures since they are not redeemable immediately or on presentation.

Investment bonds

An emiter of investment bonds will atract the type of investor who wants longer-
term claims and currently has surpluses of knots (that are due immediately and us
able as money). Tese investors could be private individuals. Tey could also be
companies who see no additional current possibilities to expand their own produc
tion and want to park short-term liquidity surpluses elsewhere.
Let us call these investment bonds long knots. Tere is a fundamental diference
between these long knot emissions and current investment practice: the long knots
represent claims that can only be setled with the emiters own products or ser
vices237 in the future.
What actually happens when someone buys investment bonds? Money that is re
deemable upon presentation is exchanged for claims which can only be cashed in
afer a specifed future date. As we know already, in the new monetary system be
ing presented here, the former (money) represents capacities which can be called
upon; the later can now be seen to represent capacities which do not exist yet but
will be available in the future. Te prices for these long knots will refect the cur
rent willingness on the part of possessors of on demand money to postpone their
consumption of these products or services until a named date in the future.

236 Within any defned period of validity.

237 In particular, it needs to be noted that long knots do not represent a fnancial interest in the pro
duction capacities, so they are not comparable to stocks and shares.

238
Of course, the long knots value reference has to be chosen in a way the potential
investors can understand and agree with. Let us consider the example of a provider
of sheltered housing. It emits accommodation knots based on a value reference of
monthly rent for one square metre of living area. In this example, these monetary
units are being traded at an exchange rate of 42 KNT. Te exchange rate for the
same emiters long knots, which only become due in 24 months time, will be
lower than that perhaps 37 KNT. Te diference in price compensates the pur
chaser for having to wait two years before their need (for accommodation) can be
fulflled. Te emiter will be willing to emit their long knots for this reduced price
because it grants them short-term liquidity without having to fulfl the related ob
ligations now.
Afer the end of the waiting period from the due date the long knots will circu
late in exactly the same way as normal knots. In other words, they automatically
transform from bonds into money, since from this date on they can be cashed in
and their promises fulflled on demand. Te emiters debt, manifested in the form
of long knots, is not repaid until those knots have been redeemed for the promised
service. Only then are the contractual claims removed from circulation.
Te guidelines for issuing investment bonds are very similar to those for the man
agement of normal monetary emissions: above all, the emiter needs to monitor the
exchange rate progression compared to pre-determined reference parameters238,
not forgeting that the current exchange rate is a function of the emission basis,
the total amount and the validity period, all fltered through the subjective percep
tion of the market participants. Te market value progression needs to be watched
to see when it reaches a particular critical value, determined by the production
costs of the value reference. Tis will indicate when the market is saturated with
this type of long knots.
Tinking in this way about investments assumes that the participant realises how
the whole economy does not exist for its own sake or to create jobs. Instead, it

238 For more on the term reference parameter or reference value see the explanations in the
sub-chapter Exchange rate monitoring. Usually the exchange rates published for most types of
money will be given in KNOT and some other frequently used currencies.

239
should serve to fulfl tangible needs in an economic way 239. A product only meets
its real purpose and the economic cycle is only closed when these fnal needs are
satisfed: someone eats the bread, the dress is worn, or a guest stays in the hotel
room.
In the absence of monopolist profts, the only sources of production surpluses re
maining are division of labour, specialisation, and subsequent combination of the
sub-products from interim steps to produce a meaningful whole. Under conditions
of equivalent exchange, the producers and individual people involved will accu
mulate surpluses to a greater extent than is currently the case. Tese surpluses will
then need to be mobilised in order to fnance larger projects.
Tis means a fundamental change regarding the implementation of capital-intens
ive projects. In future it will no longer be sufcient to maintain well-nourished lob
byists to help tap into the public purse and use the funds for mainly private pur
poses, camoufaged as public projects for the beneft of all.
Instead, it will be necessary to conduct thorough planning and match the projects
to the consumers genuine needs (including future needs) in order to ensure the
projects success. Only then can we hope to motivate them sufciently to put their
resources at the disposal of these projects by buying up the corresponding long
knots.

Financing different life stages

As we know, each of us is only economically active during a limited period of our

life; in other phases we are dependent on others to sustain us.

239 F. Oppenheimer

240
Taking the average lifespan of a person as a whole, we can say that the assets accu
mulated during the productive phase need to be enough to cover their average
needs for the whole lifespan, and to bring up their ofspring. Otherwise, human be
ings as a species will not be able to survive.
However, this observation assumes there is an answer to the problem of how the
results of labour from one (earlier) phase of life can be of use in another (later)
phase.
And this problem is not as trivial as it might appear. Engineers know very well
how hard it is to store work and economists do not have an easy solution, either, if
they approach the problem statically. It is no use trying to provide for your old age
by buying a vacuum cleaner when you are 30 and puting it aside for use when
you are 60: it will be hopelessly out-of-date and there will no longer be any re
placement bags or parts available.
Readers who believe gold to be a panacea for economic problems will undoubtedly
speak up here and claim that gold bars bought at 30 will still be gold when you are
60 and therefore still be valuable. I am sure there is an element of truth there.
However, by exclusively storing its surpluses in the form of gold, a society does not
undertake anything to ensure the expansion of production infrastructure to meet
the needs of future generations. Income from labour which is stored in gold bars
cannot be used to bring up or train the new generation or preserve culture for fu
ture generations240. Under these conditions, the size of the population and their
level of qualifcation will decrease, as will the cooperation relay the degree of
division of labour and specialisation. Te reduced productivity resulting from this
will tend to lead to higher prices, so at the age of 60 the same bar of gold will not
be able to purchase as many services or goods as was hoped at 30. Tis implies that
losses have been incurred even though the bar of gold is still a bar of gold.

240 Te current situation is as follows: In the vast majority of cases, surpluses large enough to be
stored in bars of gold can only be generated by non-equivalent exchanges, i.e. by monopolists.
Tis stored income appears at another place in society as reduced value received for services
or products. So the result is the same.

241
Te problem of fnancing diferent life stages is defnitely not new. It has confron
ted human society right from the beginning and solutions have, of course, always
been found, including the family, private savings or pensions, and the welfare
state.
It is not within the scope of this book to explain why each of these examples is en
dangered by the conditions of modern socio-political order. I am confdent readers
will be able to think of numerous reasons and will restrict myself to the major
point.
Most states organise their policies regarding taxes and other deductions and em
ployment in such a way that the surpluses generated by the labour of individuals is
creamed of in the name of social security, leaving them with a barely sufcient
minimum241. So with these conditions, most people hardly even need to ask them
selves what they want to do with their surpluses, resulting for the majority of the
population in dependency on state welfare during the family phase or in old age.
In this book we are actually considering what will happen when the state can no
longer force its citizens to hand over deductions to pay for these monopolistic
provisions, so we should concentrate on that now.
In their active life phase, each person generates appreciable surpluses. If they are
not forcibly taken away (see above), this person then needs to consider how to in
vest these surpluses in a way to even out the peaks and troughs in their fnancial
needs during their various life stages.

241 See here my article Hinter der Fassade (Behind the Faade), htp://www.kabatinte.net/2010-04-
Klartext/Hinter-der-Fassade.shtml and Von Lfeln, Nssen und Schrauben (On Spoons, Nuts
and Bolts), htp://www.kabatinte.net/Klartext/2010-07-Von-Loef
feln-Nuessen-und-Schrauben.shtml

242
 Purchasing investment bonds

One suitable possibility is the long knot. Long knots refers to all claims against
an emiter which are not redeemable immediately but only afer a specifed due
date.
For the emiter, these present a chance to fnance their long-term investments in a
way compatible with the future needs of their customers. For a person earning
more income than they can spend, the long knot is a chance to store these pur
chasing power surpluses and call upon them in the future at a time when their in
come is lower. So the long knots bring together two economic participants with
matching needs.
Te emiting company takes in short-term money and uses it to build up their ca
pacities, which should enable them to meet their future obligations writen into the
base values promised by the emissions of the investment bonds. By purchasing the
companys long knots, the buyer ensures that they will be able to meet their need
for that product (or a value equivalent) even in the future. Te beauty of this ar
rangement is the fact that when the credit is due to be paid back by the company,
all it actually has to do is deliver the product or service which it ofers anyway. In
this way, the company benefts from both credit and increased security in its long-
term planning, since these issued long knots will return as future demand for its
products.
Te fundamental diference to todays normal investment practice is the real, tan
gible value which the creditor receives at the end in exchange for their credit as
compared to the units of monopolistic money whose purchasing power at the date
of repayment can only be guessed at in the face of permanent infation.

243
Figure 20: Liquidity lent out as long-term long knots flows into the economic cycles as current demand
Te currently widespread practice of buying stocks with the promise of a share in
the companys profts will probably completely disappear as a type of investment,
replaced by this long-knot alternative. In a societal situation without monopolies
above all, without the money monopoly the distribution of income will no longer
occur according to power but rather according to individual qualifcation 242.
Te benefts of buying long knots will not be measured as much in a sum of
money, however this is expressed, but rather in the fact that a market participant
can redirect surpluses available now to a point in the future where they predict or
expect the greatest need for them. Tis in turn results in the possibility of a higher
degree of specialisation in these areas, which can then be seen in decreasing prices
per unit. Prices which in the end are nothing other than the expression of the la
bour efort necessary for an individual to buy a unit such as this.
Lower prices lead to increases in potential buyers, which then make it possible for
the producer to make a proft even when prices are decreasing. For the buyer,
lower prices enable them to meet a wide range of their needs with the same or
even lower efort.
Tis development will be considered and fnd expression within the normal market
exchange rates for an emission of long knots. Te supply of capital will be directly
correlated to an increase in productivity. In fact, since this capital will not be
creamed of by the monopolists under these new conditions, there will hardly be
any choice other than fnding ways to put it to use or build it up. Small and me
dium-sized investments will be able to be realised directly in this way.
It needs to be noted that interest rates will be correspondingly low where there is a
rich supply of available short-term liquidity.

242 See the quote from F. Oppenheimer at the beginning of the chapter Accumulating capital and
credit.

245
 Issuing private bonds

Te term private bonds, meaning bonds issued by private individuals, is almost

unknown today. Current fnancial practice only really has two solutions to ofer
when personal fnancial needs cannot be met: reducing ones consumption; or tak
ing out a credit in monopolistic money from a bank.
Te risks and side efects of promising to pay back currency money in the future
without being certain how this money can be acquired have been described more
than once already in this book. Tis practice is actually highly speculative in
nature. Additionally, the level of interest one has to pay in these arrangements is
the direct expression of the monopolist relationships within the world of fnance
and therefore always involves paying a monopoly surcharge.
Te scope of this book is not sufcient to describe the causes of this current state
of afairs since we want to concentrate on the possibilities to develop beter solu
tions ofered by the new monetary system.
So what can someone do when they fnd themselves in a phase of their life with
low income? At frst readers may fnd the following suggestions unusual, but the
longer the new monetary system is used, the more acceptance they will fnd.
A person who has already established themselves professionally but currently has
no product or service to ofer (or insufcient capacity) can issue long knots in the
same way as a larger company does. Tis assumes that the person can realistically
expect to have a saleable result at a certain time in the future, perhaps afer fnan
cing a development project.
An example here could be anybody in a creative profession who needs a certain
amount of time to produce their work, such as a book, a music album, a flm or a
photo gallery. In a similar way, scientists or engineers could fnance a period of in
tensive training or a long stay in a particular research centre.243

243 Employees whose employers fnance these measures will not need this facility of private bonds,
but I am convinced that these new editions will lead to a proliferation of freelance specialists,
and these will surely be able to use this type of fnance to realise their plans.

246
For young people still to decide upon their occupational path, emiting long knots
as training bonds would be an opportunity to fnance a period of training, com
miting themselves to accept these long knots back at the end of their training and
deliver the appropriate labour which they have now been trained to perform. 244
Of course, this does not mean that everybody has to use this possibility to fund
their training. In the future as today, the costs of training and further education
will ofen be covered by parents. Employers can also ofer free vocational training
places under the condition that the trainee works for a particular length of time in
the company aferwards. However, for those who do not want to or cannot use
these possibilities, training bonds ofer a practical way to gain the desired qualifc
ation.
Employers will be potential purchasers of these bonds since they present a way to
encourage the next generation to acquire the skills and qualifcations they need.
Additional purchasers could include friends and relatives wishing to support the
trainee.
Te diference to todays training credits would be the moderate levels of interest
charged, thanks to the ready availability of capital on the market. Te interest pay
able will be even less if friends and relations purchase some of the emission. Te
main advantage of this method of funding, however, will be the fact that repay
ment takes place by means of ones own labour in the chosen profession.
One possible scenario could be this: a grandmother purchases the training bonds
emited by her grandson. Later, when he is established in this profession, she sells
these bonds on the free market to an employer or an employment agency. 245 Partic
ularly good grades might lead to these bonds being sold for a beter price and a
pleasant litle windfall for the grandmother.

244 I hardly need to mention that the qualifcation, conditions of working and even acceptable loca
tions of work or other restrictions need to be detailed in the terms and conditions for the emis
sion.
245 Of course, in a few cases, she might simply donate them back to her grandson as a present.

247
Tis form of funding would not only enable grandparents to play a bigger role in
the life of their family members, it could also facilitate a change in the way we
think about the various phases of human life where income is lower or non-exist
ent.246
All long knots from emissions of private individuals will become due at a particu
lar future date, just like the long knots from companies, and afer this date they
will behave just as the usual knots emited by the emiter. In other words, they be
come ordinary credit money.
Teir exchange rates will certainly fuctuate within a certain range but on average
it will justify the expense of the purchase. Of course, here we should not forget
that the investment in long knots will not be made purely for reasons of monetary
proft, but instead to optimise economic cycles.
Just as with every form of investment, the best strategies will only develop afer it
has been put into practice for a while. Te new monetary system will surely also
ofer forms of insurance to provide extra security where a risk is foreseen.

Insurance

Te term insurance is used in such a variety of ways today so before we can go

into details on this topic, we frst need to precisely agree upon what we are talking
about.
Insurance as used here refers to companies whose service consists of evaluating
the probability of particular events and entering into a type of bet with their cus
tomers as to whether these events will afect the customer within an agreed time
span or not. Depending on the type of bet (insurance policy) the customer pays

246 Te fact that the majority in our society seem to consider bringing up children as being an un
productive phase of life is a sign of our modern culture, and not a good one. Te change of val
ues which we can expect to arise from a healthy monetary system will probably make it pos
sible and even common in future to emit bonds to fnance the time spent bringing up children as
well.

248
either a one-of stake or a monthly stake (premium). Te insurance company com
mits itself to pay the customer an agreed compensation in the case where the event
in question occurs (the risk insured). Tis compensation is calculated to cover the
predicted losses of the customer.
Te advantage for the customer is the feeling of security that any possible losses
will be covered if the event occurs. Te sum total of their stakes is the price they
have to pay in order to enjoy this advantage. An insurance company calculates the
premiums they charge in such a way as to ensure that enough fnancial means are
always available to cover the occasional compensation they have to pay out, the
administration and their desired proft.
Where an insurance company only deals with risks that afect a very small number
of people, such as plane crashes, house fres, meteorite falls or even car accidents,
their business within the new monetary system will resemble their business today.
Tey simply have to agree with the customer upon the choice of currency used for
the premium and the compensation.
A clear distinction needs to be made between the type of insurance just described
and another type which is euphemistically called social insurance and is specifc
ally targeted towards those periods of a persons life with reduced income.
Te chief problem with the later is the obligation to pay contributions into these
types of insurance found in many countries 247.
Fundamentally speaking there is nothing wrong with economic participants bet
ting against each other, even if these bets concern serious issues such as illness,
death or ageing. It only becomes a problem when they are forced to do it: compuls
ory insurance is the correct term, ofen called statutory insurance.
From an economic point of view, what is compulsory insurance? It is the obliga
tion to buy a service at the price determined by the monopoly. With other mono
polies, the consumer at least has the possibility to refrain from using the product
or service if they think the price is too high, but this is not possible in the case of

247 Including Germany, the authors country of residence.

249
the compulsory insurance. So, to put it more precisely, it is a tax collected by the
state for the beneft of a selected sector of the economy. Tis is then packaged and
sold as protection for the citizen and praised as societal achievement. 248
Practices such as these would, of course, not be possible in a truly free market con
sisting of contracts signed by equal partners. Today they are possible because the
authority of the state is used to declare deductions paid to particular sectors as ob
ligatory.
So what will change for this type of insurance with the usage of this new money?
Compulsory insurance is a spin-of from the prevailing monopolies and as such it
will almost certainly disappear. It will be replaced with solutions able to bring to
gether the customers need for security with the opportunities ofered by the new
monetary system.
Health or pension insurance on a purely voluntary basis is conceivable it would
function as a type of fund. Premiums paid in by its customers would be trans
formed into long knots issued by diferent emiters on the basis of hospital beds,
care services or square metres of sheltered housing, depending on the type of in
surance.
Having large sums of money available, the insurance company would be able to ac
quire these long knots at a good price, holding them for redemption later as they
mature in order to use the services for the beneft of their customers who need the
relevant services at that time.
However, at the time of writing there is no guarantee that this model will be sus
tainable and it is completely possible that much more efcient solutions will be de
veloped for these sectors in the future. Tis model is merely a suggestion which
closely resembles todays practice and therefore serves as an example of a way to
solve old problems with the new resources.

248 Source: Article by the author, Hinter der Fassade (Behind the Faade),
htp://www.kabatinte.net/Klartext/2010-04-Hinter-der-Fassade.shtml

250
 About power

We have almost come to the end of the book. Everything important has been de
scribed and anything that is missing can only be discovered and added in the
course of time and it certainly will be. One question which has not been
answered yet is: When will this new monetary system idea become reality?
Tis is not a technical issue, since everything I have described is within current
technical possibilities. Te task at hand may be daunting but it is achievable.
Whether or not the implementation will be pursued intensely is a question of how
urgent society perceives it to be. By this I mean the issue of when our collective
sensibility decides that the disadvantages of the current money monopoly out
weigh its advantages.
But not only that.
Te current (2012) fnancial crisis leaves us with the impression that the fnancial
sector is a parasite which has been helped by the monetary monopoly to infect all
areas of the economy. However, it has suddenly discovered that its host has be
come too weak to support it anymore. For the fnancial sector to grow as it has
previously done and according to the previous rules all other sectors would
have to keep giving up added value and sacrifcing part of the resources they need
to maintain their own substance. It is quite possible that not all of the participants
are aware of this fact, especially those who form the host. Tis does not, however,
make the situation any less dramatic.
Political eforts to expand the basis of the debts, such as the euro-crisis or the in
duced liberation movements in Northern Africa, can be judged as a manifestation
of the eforts of the fnancial sector to solve just this problem. According to the old
Scotish saying, Many a litle makes a mickle, but it appears that small debtors

251
today are not making enough litle debts to keep the mickle or monopolistic
monetary system alive. Whole alliances of nations or parts of continents would be
needed to satisfy the current demand for the creation of new debts.
As far as todays decision makers in the fnancial sector are concerned, the values
they represent surely do not allow for any solution that does not involve continued
usage of monopolistic money. Expecting them to allow this would be the same as
expecting a tiger to respond to good arguments as to why it should become veget
arian.
If there is no success with current eforts to deepen (euro-bonds) or expand (North
African debt space) the basis of debt, more rebellions will be initiated and wars
conducted until the desired success is achieved. An accompanying measure will
then change the rules one by one not just those concerning balance sheets but
also the political rules. We only have to remember how nations within the euro
zone gave up voting rights and therefore sovereignty. In the meantime, this is
talked about openly and is now actually being called into play see the conditions
atached to emergency credits for countries such as Greece and Ireland.
All of these changes are very likely to happen if there is no alternative to the cur
rent money system. Te age-old game will continue to be played as long as it bene
fts the powers-that-be in the form of a surplus, however small, or the maintenance
of their position. Destruction, human sacrifce and cultural decay will be tolerated
as the price we have to pay.
Te question is whether our collective awareness will eventually perceive this de
velopment to be negative enough? Only then will it dare to atempt to establish a
new monetary system.
Here, as ever, we are dealing with the equilibrium of diferent groups interests. So
ciety as a whole cannot aford to continue to allow one group to prevail over the
others if this then begins to endanger society itself. Te subordinate groups also
only play the game if they receive sufcient beneft from the actions of their rulers.
Te resulting equilibrium is currently extremely unstable and could easily be
changed by an innovation such as a monetary system based on knots.

252
Te group that is being called upon to bring in this innovation is not one particular
class in a single state. Tis group consists of individuals and companies in diferent
countries who are groaning under the weight of the prevailing monetary mono
poly.249
Since the internet allows its members to be connected with each other, this group
is truly global and has the intellectual potential and the existential interest to
make use of existing social tensions in a creative way and divert these congested
energies towards the creation of new structures, as part of the systems eforts to
fnd its new point of equilibrium.
Te basic principle of knots as presented in this book is actually a form of mutual
credit. Tis principle is very simple and goes back a very long time in human his
tory. Giving form to this principle by organising it using modern technology will
then allow it to stand up against the pressure of the monopoly.
Form might not be exactly the right word here: a worldwide, networked group of
actors coordinating their actions to protect the interests which they recognise as
having in common does not actually have a physical form. And for this reason, it is
hard to atack. Traditional power structures with tanks, ground forces and missiles
are actually powerless against something that does not have a fxed base or a fxed
physical form: although it actually only exists as an idea, this something can mani
fest itself at any time and any place. It presents a totally diferent level of resist
ance. Wasps cannot be atacked with a bulldozer: perhaps the bulldozer can actu
ally destroy some wasp nests, but the litle beasts will simply fy away and setle
somewhere else. Tis is indeed a form of true power.
In fact, the issue at hand is not combating monopolistic money. Instead, the task is
to establish the new monetary system parallel to the old one, allowing all parti
cipants the opportunity to adjust to the new conditions without abandoning or
damaging existing important supply structures.

249 Tis is the logical consequence of a way of ruling being taken to its extreme. Te very proper
ties of the monetary monopoly are enough to ensure that its own further progress leads to con
tinual growth of the group who will eventually turn against it.

253
Greshams law, commonly stated as Bad money drives out good, only applies
when both forms of money are required by legal tender laws to be accepted. If the
local rulers use threats of violence to enforce equal purchasing power for worn-
out, degraded coins compared to new full-value ones, people will be happy to pass
on the old ones and keep hold of the shiny new ones. So the old bad money is
used for transactions and remains in circulation. However, under conditions of
monetary freedom, good money will suppress bad money simply because it is more
suitable for fulflling its function as money.
Rulers can only be as strong as the society they are using to support themselves.
We only need to consider the example of the chief of a primitive tribe, who has a
certain power and authority in his sphere of infuence. His resources, however,
hardly compare to the resources available to a mere average member of a diferent,
highly civilised society.
A society will enjoy a higher level of wealth if it has developed a higher level of di
vision of labour with the appropriate cooperation. A monetary system that ob
structs a society in its atempts to bring together the results of this specialised, di
vided labour will actually obstruct the wealth of the society. Tis is happening
now. And it is only happening in order to enable and preserve the wealth of a few
of its members.
Te so-called income gap, which is widening from year to year, actually describes
the condition of existing power diferences being used to skim of surpluses being
produced within a society for the beneft of a few. Te monetary monopoly has
long ceased to be an economic instrument: it is, above all, an instrument of polit
ical power.
A small number of participants in the system have the power of disposition over
sums of money so enormous they would never ever actually be able to make use of
the corresponding purchasing power. Te root source of these enormous sums of
money are primarily the grotesque levels of debt held by many nations. Tese are
diverted away from ordinary citizens and the satisfaction of their needs into the
greedy paws of huge corporations by means of subventions, public sector con
tracts, military interventions, and compulsory insurances.

254
Tis all happens in order to fulfl one main need: everything should remain as it is
with the mountains of debt certifcates that have been issued never having to re
turn to their source, since if this actually happened it would blow the lid on the
fact that there is nothing lef to pay them back.
Te ordinary citizen or the consumer, since in the end they are the same loses
almost all of their economic power: the opportunity to choose how to spend their
money in order to set real priorities according to how they see their needs devel
oping. Tey just receive the bill: the national debt. And to pay it they have to give
up the majority of the added value they have helped to create, paying in the form
of taxes, social insurances and other contracts they are forced to close because of
the unilateral urgency in the need to exchange.
Te faith that many people have in the state leads them to identify not only with
their national football team but also with any fscal needs that are deemed to serve
the national interest. Te leap of consciousness which needs to be taken in this
regard is that of recognising that the ordinary taxpayer does not have to be in
cluded every time someone uses the word we. So we need to ask who exactly this
we is whenever a government spokesperson says, We have to take care of..., re
gardless of whether the subject at hand is renewable energies, social justice, the
development of the labour market, international interests of the state, European
cohesion, saving the euro or the dollar, protecting democracy in developing coun
tries or anything else. If this question is asked, it might reveal that a couple of en
ergy or pharmaceutical corporations were in need of a fnancial injection or a few
cheap workers and hired some lobbyists to instigate the current campaign. In this
case, the we obviously means the politicians who have been addressed by these
lobbyists and now identify with the cause so strongly that they announce it pub
licly.
It is understandable that a state makes certain eforts to maintain the feeling of
we necessary to hold a society together and then seeks to expand this feeling
onto all of its interests, since this helps to legitimate the part of its activities that
are not really being carried out in the interest of its citizens. It is indeed not easy
for each individual to make a clear distinction between the necessary coordination
of public interests and the activities that exceed this and become exploitation. At

255
some point however it is clear that the line has been overstepped, when the fact
can no longer be hidden that diferent laws are being applied for diferent groups
within a society. Te discrepancy between the so-called rescue measures an
nounced by politicians during the current fnancial crisis and the real needs of the
population does now help to open more peoples eyes to the true nature of the
state.
Te state is not the we. Te state is an institution designed to guarantee and per
petuate the economic exploitation of its subjects for the beneft of the ruling class.
Te habit we have of calling the form of government currently prevailing in many
countries democracy should not conceal the facts: the people are not in control
monopolistic capital is.
A community that does not have to give up the majority of its surpluses to the rul
ing class will always be able to organise public duties such as law and order or the
administration of communal resources more efciently than happens in many
places today.
Te market mechanism that brings together and harmonises the public interest and
private gain is not actually lacking. It works to some degree even when hindered
by signifcant obstructions such as a monopoly.
Some readers may share common misgivings when it comes to privatisation of im
portant parts of our life. But these misgivings actually arise because privatisation
is usually equated with monopolisation. Te fact that these two ofen end up
looking the same does not mean that they actually mean the same thing, at least
this will not be the case under the conditions of monetary freedom.
Monopolisation in many areas of life today is a direct consequence of the design of
our monetary system; and the monetary system should be considered as the spring
from which the life of our economy fows. An economy has innumerable aspects,
but if all of these can only make use of one source of money (or a few very similar
sources) it is unavoidable that producers who adapt themselves best to the rules of
this monetary monopolist game will dominate and cluster together: they will use
this type of money to create structures whose character is also monopolistic. If we
want to remain with the metaphor of the spring of life, we could say that the

256
money arising out of this one single well is polluted: it is not bringing life to the
economy but rather sucking the economy dry of life. It was created in a criminal
way and spreads this criminality throughout the whole society.
In contrast, a monetary system based on knots would allow sources of new money
to spring up everywhere. Tey would give rise to fertile fows of money directed to
satisfying needs in a real way.
A true wealth is not the hoarding of commodities but rather the preservation of an
infrastructure which enables real opportunities to satisfy ones needs at the right
time and to the right extent. Real social security is not covered by the theories of
wealth distribution: it is the knowledge that we are living in a society where we
depend upon one another. Being aware of this creates a stability and certainty for
each participant, who then know they can take part for their beneft and the bene
ft of others.
When will this new monetary system idea become reality? Te answer ought to be
clear: when our society deems it necessary to introduce this change. As far as I can
see at present, it is impossible to predict whether this happens as quickly as it can
(perhaps three or four years to develop the technical implementation) or whether
we will spend the next 30 years repeatedly rescuing the euro, various dollars or
even the renminbi. Only the community itself has the power to decide these things.
Nonetheless, I hope to have contributed one of the most necessary impulses to
wards bringing about this change as quickly as possible.

257
 A little science fiction

Measured in terms of the economic potential it will set free in society, seting up a
sensible monetary system one that really deserves its name is perhaps compar
able with the invention of the warp drive 250 for space travel. It would unleash slum
bering reserves to a previously inconceivable extent.
In the Star Trek series, the maturity of a society can be measured according to its
ability to overcome the warp barriers: it is not possible for an individual to do this
alone. A way of organising societys division of labour and economic cooperation
that truly mobilises all opportunities 251 is the essential prerequisite to actually be
able to fy to the stars at some time.
At this point, as I hinted in the books title, appeal to all readers who found these
ideas interesting to join in and take part in a project which could truly change the
conditions in our society for the beter. We can do it together.
At the beginning it will probably be a litle bit chaotic, but in this regard I prefer to
remember the words of Captain James T Kirk: in situations like this he liked to say,
Sounds like fun!

250 Te warp drive is a fctional propulsion technology faster ships making it possible to travel
faster than light. Tis science fction technology was a literary device used by the American sci
ence-fction author Gene Roddenberry for his television series Star Trek in order to make it pos
sible to plausibly described travels across great distances to other star systems without contra
dicting the laws of relativity theory. [Art.] Warp drive. In: Wikipedia,
htp://de.wikipedia.org/wiki/Warp-Antrieb, accessed 01.09.20111 13:40 CEST
251 We only need to think about many developing countries, where people spend their whole life
simply meeting their basic needs.

258
 Appendix

Te details of encrypted communication are not everyones cup of tea, so I have

taken out the most technical part of my concept description and put in this ap
pendix to make the main part of the book easier to read.
In this part I would now like to provide a detailed presentation of the most plaus
ible logical and technical procedures within the system, as best I can at this stage.
Te contents of the appendix overlap partly with the sub-chapter Ill wire you the
money... the standard transfer in detail. In fact, that chapter was writen as a
short version of this text.
Even the descriptions in this appendix can in no way be understood as fnal. In
stead, please read them as ideas and inspiration to encourage readers to come up
with their own creative solutions. Since I am not a cryptography expert, there are
certainly many improvements which can still be made to the efciency of parts of
the process.
Te following schematic description is primarily designed to illustrate the logic
needed by the system and to prove that this systems foreseen transactions are in
deed possible with an appropriate degree of security. Any reader qualifed to sug
gest potential for optimisation is invited to do so!

259
 The standard transfer: step by step

When one participant in the new monetary system, Bob, wants to transfer a sum
of money to another participant, Alice, he frst has to decide which TAdmin to em
ploy to do this for him. Bob is initiating this transfer and is therefore responsible
for paying for the transaction, so if Bob currently holds credit money from a par
ticular TAdmin, he will generally choose them to carry out the service. Let us as
sume for the following example that Bob chooses a TAdmin called Kwik Transfer.
Te communication between Kwik Transfer and Bob takes place via a secure inter
net connection252, which Kwik Transfer provides as part of its service. Te security
of the connection should, however, not be the only provision made to ensure se
cure data transfer253. Te following fgures illustrate what a typical data transfer
could look like, using this example of a money transfer from Bob to Alice. For this
example we will assume that both Bob and Alice wish to remain anonymous and
therefore identify themselves within the system only by means of their public
keys. In this case, each public key is also the identifer for their wallet 254 and is
comparable to the bank account number used in the monetary system common
place today.

252 Examples include OpenSSL, GnuTSL or IPSec.

253 Regardless of the transfer protocols and cryptographic systems actually used, the information
exchange can never be perfectly secure. Nonetheless, for a specifc practical purpose the level of
security can be considered suitable if the cost or efort needed to break through the security
precautions would be greater than the potential beneft or reward from doing so. In the business
sector, it is always this cost:beneft ratio which sets a limit to the implementation of technolo
gical possibilities.
254 See also the complete defnition of the term wallet in the Glossary.

260
Step 1

In the frst step, Bob provides Kwik Transfer with a list of the monetary units
which he wants to transfer to Alice, plus Alices public key. Tis later ID is also
her wallet ID and will serve as the new possessor ID afer the transfer is com
pleted. Bob encrypts this message to Kwik Transfer with Kwik Transfers public
key to ensure that the recipient can only read it if they have their corresponding
private key which means they are very likely to indeed be the person they are
claiming to be.

Figure 21: Standard transfer: Steps 1 and 2

261
Step 2

Kwik Transfer then decrypts Bobs message, checks the list of monetary units and
discovers that the list is not homogeneous: one half was emited by an airline, the
other by a telecommunications company. Tey consult a dedicated database 255 to
fnd out the contact details of the emission administrators for these two emiters:
for the airline emission this is Treasure Chest and for the telecommunications
company the responsible administrator is Your Money.

Step 3

In this way, Kwik Transfer obtains the public keys of both emission administrat
ors256 and sends each of them an encrypted message about the transaction to be
carried out. Treasure Chest receives the list of monetary units emited by the air
line and currently held by Bob. Your Money receives the list of units emited by the
telecommunications company. Both messages also contain Alices public key as the
wallet ID for the recipient of the money transfer.
Kwik Transfer also sets up a secure communications channel for the ensuing ex
change of messages. Tis can be used by all parties to the transaction for its dura
tion.

255 Te database containing the correspondences between monetary units and the responsible
emissions administrators and/or emiters can and should be operated in a distributed and
mirrored manner. Te most common solution would foresee each emission administrator enter
ing the appropriate details into one or more of these databases, which then regularly compare,
exchange and mirror data between themselves.
256 See the explanations about the data feld Identifer of emission administrator.

262
Figure 22: Standard transfer: Step 3

263
Step 4

Te company Your Money decrypts the message from Kwik Transfer using their
private key, extracts the list of monetary units and checks in their database to see
which public key these units have in their possessor feld at the current time.
Using this possessor ID (the possessors public key), the company generates an en
crypted message for the possessor which also includes a randomly generated
unique digit sequence a type of one-of transaction number (TAN).
If Bob really is the possessor of the monetary units that have been proposed for
transfer, he will be able to decrypt this message using his private key and be able
to read the TAN. Te message also includes the list of monetary units administered
by Your Money which are to be included in the forthcoming transaction as well as
the companys public key. Bob needs to use the later to encrypt his answer.
Tese encrypted answer messages are actually sent via Kwik Transfer, since this is
the only participant who maintains a connection to Bobs computer for the dura
tion of the transaction.
Alices public key remains in the hands of Your Money, since at the end of the
transaction (when all checks have been successfully carried out), they will be re
sponsible for entering this into the possessor feld of the units in their database.
Should any of the checks fail, the transaction will be cancelled.
Te database entries for the monetary units to be transferred are locked for the
duration of Your Moneys transaction, preventing any other actions. Tey are only
unlocked once the transaction has been successfully completed or if it is cancelled.
Te company Treasure Chest deals with the query from Kwik Transfer in the
same manner.

264
Figure 23: Standard transfer: Steps 4 and 5
Step 5

Kwik Transfer waits for answers from all the emission administrators they contac
ted with regard to Bobs commission to conduct a transfer. If any EAdmin does not
answer within a reasonable time, Kwik Transfer has to decide whether to repeat
the query or interrupt the whole transaction with an error message.
If the answers from Your Money and Treasure Chest are received as expected,
Kwik Transfer bundles them together and forwards them on to Bob, who then has
to check the details and authorise the transaction.
Te content of the answers sent from the emission administrator to Bob remains
invisible to Kwik Transfer; their tasks are only to facilitate the contacts, bundle the
answers and manage the overall process of the transaction.

Step 6

Bob receives a message from Kwik Transfer containing the encrypted answers
from Your Money and Treasure Chest. He decrypts these by means of his private
key and in this way receives one or more TAN 257, which he can use to provide au
thorisation to the respective emission administrators to carry out the transaction.
In our example, Bob receives two TANs: one each from Your Money and Treasure
Chest.
He then signs these transaction numbers with his private key; if more than one
wallet ID is involved, he needs to make sure that he uses the private key in each
case which is the right correspondent key for the public key which the emission
administrator holds. Ten Bob encrypts each TAN with the public key of the re
sponsible EAdmin and addresses each message appropriately.

257 For the case where Bob administers his money holdings using more than one wallet ID, he will
need more than one private key to decrypt the messages and will also receive more than one
TAN: one for each key used at each emission administrator.

266
Figure 24: Standard transfer: Step 6

All of this is put in a package which Bob sends back to Kwik Transfer, together
with the confrmation that they should complete the transaction by forwarding
Bobs encrypted messages together with the TANs to Your Money and Treasure
Chest for authorisation. Tis whole package is encrypted using Kwik Transfers
public key before sending it to them, to make sure that no external parties can gain
access to the information within it.

267
Step 7

Kwik Transfer now takes the encrypted authorisation messages from Bob and adds
the information necessary to complete the transaction, such as its own ID and the
timestamp for the transaction. Ten it encrypts all this with the public key of the
respective recipient and forwards it to Your Money and Treasure Chest.

Figure 25: Standard transfer: Step 7

268
Step 8

Your Money receives Bobs authorisation message from Kwik Transfer, encrypted
with their own (Your Moneys) private key. Tey read in the transaction data sent
by Kwik Transfer (timestamp, TAdmin ID etc.) and compare the TAN sent by Bob
with the one they originally generated. If they are the same, Your Money can now
regard the requested transfer of possession as being sufciently authorised and
enters Alices public key into the possessor feld of the monetary units included
in the transaction. Additionally, entries are made in each monetary units data
felds to record the TAdmin ID and timestamp for this transaction.
Te data sets remain locked to prevent the monetary units being involved in fur
ther transactions until Kwik Transfer has received a notifcation that the transfer
of possession has been confrmed by all participating emission administrators. In
formation indicating the previous possessor (Bobs public key) remains intact right
up until this fnal confrmation is received by Your Money. Should the transaction
fail, it would then be necessary to cancel the whole transaction and restore the pre
vious state for all units involved.
Afer this, Your Money informs Kwik Transfer that the authorisation was success
ful and that possession has been provisionally transferred. Tey request a confrm
ation for the successful completion of the whole transaction.
Should the TAN sent by Bob not be the same as the original one, Your Money
sends Kwik Transfer a notifcation that the authorisation has failed.
Treasure Chest carries out the same procedures with the authorisation message
from Bob.

269
Figure 26: Standard transfer: Step 8
Step 9

Kwik Transfer waits for confrmations from Your Money and Treasure Chest that
the possession of the appropriate monetary units has been provisionally trans
ferred. As soon as these are received, Kwik Transfer sends a confrmation notifca
tion to all participating emission administrators.
If one of the previous phases has not been completed successfully, Kwik Transfer
has to decide whether to carry out the enquiries again or to cancel the whole
transaction with the appropriate error notifcation. A decisive factor for this de
cision will be the duration allocated to the transaction (timeout).
If one of the confrmations necessary does not arrive for any reason within the al
located time258, it will be treated as not granted and this will lead to the transac
tion being cancelled.

258 For example, a dispatch or other technical problem.

271
Figure 27: Standard transfer: Step 9

272
Step 10

Afer receiving the notifcation from Kwik Transfer about the successful provi
sional transfer of possession for all of the units in the whole transaction, Your
Money and Treasure Chest unlock the relevant data sets and inform Kwik Transfer
of the end of the transaction.
If the confrmation from Kwik Transfer does not take place within a predetermined
period of time, the last changes to the data sets are undone and the original state of
afairs is restored.

Step 11

As soon as Kwik Transfer receives confrmations of the fnal transfer of possession

from all of the participating EAdmins, it sends a message to Bob to confrm that
the transaction has been completed successfully.
In this case, Bob will also receive notifcations from each of the participating emis
sion administrators (via the TAdmin) to confrm the change of possession that has
taken place for his monetary holdings. Tis notifcation is also to be understood as
confrmation that the recipient (Alice) has received the payment.
Now the TAdmin has completed their tasks.
Alice receives no specifc notifcation with regard to this transaction: she will fnd
out about the changes in her monetary holdings as soon as she carries out a data
base query for her wallet ID at the relevant emission administrators. Since this
wallet ID is also the public part of a digital key pair, the emission administrator can
also use it to check whether Alice is actually entitled to order this query.
Bob and Alice identify themselves to the system only in terms of their public key.
Teir true identity remains unknown to the system.

273
Figure 28: Standard transfer: Steps 10 and 11

274
Concluding remarks on the standard
transfer

Te procedure for a standard transfer detailed here is designed for a system that
can use a range of wallet IDs to administer the sum of money belonging to the ini
tiating participant (Bob) at the time of the transfer. Tese diferent IDs all belong to
Bob, but to various virtual identities which he has. However, it does not detail the
procedure where more than one wallet identifer for the recipient is being used.
Tis limitation was chosen to avoid overly complicating the explanation of the lo
gic involved.
In principle, however, the recipient can also use multiple wallet IDs. Tis would,
however, make the implementation of the transfer somewhat complicated.
As far as I can currently foresee, it will make sense to defne the standard transfer
in terms of a transfer to one single recipient wallet ID. Of course, it is perfectly pos
sible to do the programming for transfers to multiple recipient IDs, but this service
should no longer be called a standard transfer.

275
 Glossary

Asymmetric cry ptographic system a cryptographic procedure where

each of the communicating parties has a pair of digital keys. Each pair is made up
of one secret part (private key) and one non-secret part (public key). Te public key
makes it possible for anyone to encrypt data in such a way that it can only be read
by the holder of the private key. Te public key also enables anyone to check the
digital signature of the owner of the private key and to authenticate him/her. Te
holder of the private key can decrypt data that has been encrypted using their pub
lic key, create digital signatures and authenticate themselves. In contrast to sys
tems that use symmetric key algorithms, the parties communicating with each
other do not both need knowledge of a common secret key. Asymmetric crypto
graphic systems are also ofen referred to as a public-key procedure. [Art.]
Asymmetric cryptographic system. In: Wikipedia,
htp://de.wikipedia.org/wiki/Asymmetrisches_Kryptosystem, accessed 24.11.20111
Authorisation in its widest sense means approval, in particular the granting
of rights to someone else. With regards to information technology, authorisation
generally refers to access control: the granting and verifying of access rights to
system users for information and services in that system. Authorisation generally
requires successful authentication. [Art.] Authorisation. In: Wikipedia,
htp://de.wikipedia.org/wiki/Autorisierung, accessed 24.11.20111, 11:10 CET
Authentication (from Greek: ; real or genuine, from au
thentes; author) is the act of confrming (verifying) the asserted atribute of a
datum or entity such as a person, document, device or sofware program. In Ger

276
man a distinction is sometimes made between the action of the entity seeking au
thentication (Authentisierung) and that of the entity granting the authentic (Au
thentifzierung). Tis syntactic distinction is not made in English. Te process of
authorization is distinct from that of authentication. Whereas authentication is the
process of verifying that you are who you say you are, authorization is the pro
cess of verifying that you are permited to do what you are trying to do. Author
ization thus presupposes authentication. [Art.] Authentication. In: Wikipedia,
htp://de.wikipedia.org/wiki/Authentisierung, accessed 24.11.20111, 11:17 CET

Figure 29: Authentication

Azte c code was developed in 1995 by Andy Longacre at the company Welch
Allyn in the USA. It is a freely available 2D code subject to US Patent 575917956. It
has been published as the ISO/IEC 247778:2008 standard. Te name refers to the
step pyramids of the advanced civilisation of the Aztecs in the area that is now
central Mexico. Viewing a step pyramid from above, one sees a patern which is
very similar to the squares forming the core of the Aztec code, with points ar
ranged around them. [Art.] Aztec Code. In: Wikipedia,
htp://de.wikipedia.org/wiki/Aztec-Code, accessed 01.09.20111 11:17 CEST

277
B

Bank an enterprise that carries out business involving money and credit and/or
carries out the procedures involved in the making of payments. [Art.] Bank, Def.
1.a). In: Duden Deutsches Universalwrterbuch, p. 206-207
Bankers order a writen order to a bank from the drawer (issuer) ordering
the bank to take money from the available funds of the drawer held at the bank
and make a payment to the person named on the order or the bearer of the order.
Synonym for cheque.
Banknote originally a certifcate that any bank could issue as a form of receipt
for the deposit of coinage. With this certifcate, the bank promised to hand the
bearer upon demand a particular amount of precious metal (or other agreed com
modity). Tis promise facilitated the acceptance of these certifcates as a means of
payment equivalent in value to the commodity money in general use (usually pre
cious metal in the form of coinage). As political and fnancial methods developed
further, these certifcates were issued on the basis of other collateral than just coin
age, such as bills of exchange or stocks and shares. In the end, the issuing of bank
notes was monopolised in all countries, which led to banknotes losing many of the
properties they originally had. Eventually, voluntary acceptance had to be replaced
by statutory obligation.
Bill of exchange / promissory note an obligation signed by the debtor to
pay a particular amount of money to the bearer of the bill / note (creditor) at a fu
ture point of time.
Bitcoins are basically just numbers that have been calculated according to
strict criteria and stored in a global, virtual database. Each bitcoin is assigned a
specifc virtual address. Knowledge of this address together with its corresponding
digital key enables a transaction to be made using this bitcoin. For example, it can
be transferred to a new possessor: this is represented by linking it to another vir
tual address and a new digital key. Te possibility of using them as a type of di
gital gold has led to bitcoins assuming the function of an alternative means of
payment.

278
Brac te ate (from Latin bractea, a thin piece of metal) is a term used for particu
lar coins produced in central Europe during the early Middle Ages. Bracteates were
the main type of coin minted in German-speaking areas from the middle of the
12th century through to the 14th century (with the exception of the Rhineland,
Westphalia and the Middle Rhine region). Te term bracteate, however, is a later
invention, frst being used for this type of coin in the 17th century. In some regions
the bracteates were called back regularly (in Magdeburg in the 12th century twice
a year) and had to be exchanged for new coins of lesser value; For example, 3 new
coins were given in exchange for four old ones. Te proceeds obtained by retaining
coins in this way were ofen used instead of taxes to provide income for the mint
masters (renovatio monetae). [Art.] Bracteate. In: Wikipedia, htp://de.wikipedi
a.org/wiki/Brakteaten, accessed 18.08.20111 17:42 CEST

Che que See Bankers order.

Claim (here) the demand for a payment due which results from a delivery of
goods or services. [Art.] Forderung, Def. 1 c). In: Duden Deutsches Universalwr
terbuch, p. 525
Commodity money a type of money whose value is inherent in its medium.
Examples include cowries in some traditional cultures and cigaretes in post-war
Germany or POW camps as well as pieces (or coins) of precious metal.
Cre dit linguistically related to the Latin credere to trust, entrust, believe, the
commercial sense was the original one in English (creditor is mid-15c.)
[htp://www.etymonline.com/index.php?term=credit accessed 30.01.20113]. In short,
credit encompasses any form of deferred payment. [Art.] Credit (fnance). In:
Wikipedia, htp://en.wikipedia.org/wiki/Credit_(fnance), accessed 30.01.20113 15:20
CET
Currency (from Middle English curraunt / Latin currere run, later fow, circu
late) is a pre-determined standard that serves as a reference value for the measure
ment of payments. Te signifcance of a currency for the economy is similar to that
of the metre or kilogram for science and technology: it allows us to measure.

279
Where there is no government enforcing an obligation to choose a particular cur
rency, the choice of currency simply refects a common agreement among the par
ticipants to use a specifc reference value as a unit of measurement for their busi
ness transactions.
Currency-linked money a type of money that is emited with a value refer
ence defned in terms of a currency.

Data mirroring reproducing a collection of data by means of a mirror

server. Tese mirror servers each host an exact copy of that particular data collec
tion: they create a 1:1 reproduction of the data to be mirrored and make this avail
able for access. It cannot always be guaranteed that the mirror copy is completely
up-to-date, compared with the original server, since there will generally be a delay
before any changes are recorded on all the mirror servers. Source: [Art] Data mir
roring. In: Wikipedia, htp://de.wikipedia.org/wiki/Datenspiegelung, accessed
25.08.20111 13:54 CEST
Deferment to defer, put of, delay, postpone; e.g. to defer making a payment.
[Art.] Deferment. In: htp://dictionary.reference.com/browse/defer accessed
30.01.20113 CET
Denominations the issuing of coupons or certifcates (including banknotes
and other payment slips) in a variety of values, including smaller ones. Tis en
ables combinations of these certifcates to be used to balance out values (make a
payment) of any amount.
Digital certif cate a digital record that confrms specifc properties of a per
son or object. Te authenticity and integrity of this certifcate can be verifed using
a cryptographic procedure. In particular, the digital certifcate has to contain the
information needed for its verifcation. A common way to do this is to include the
public key which can confrm the identity of the certifcate owner and other prop
erties. Source: [Art.] Digital certifcate. In: Wikipedia,
htp://de.wikipedia.org/wiki/Digitales_Zertifkat, accessed 16.11.20111, 12:01 CET

280
Discounting the original meaning: to pay out the amount due on a promissory
note with already existing full-value money before the due date. Understandably,
this ofen involved the deduction of an appropriate fee and interest. Te new pos
sessor of the promissory note could then wait until the due date and cash it in for
the full amount from the debtor. With the later invention of the banknote, the term
received a new meaning: to buy out the promissory note with new, additionally is
sued banknotes from the (central) bank. In this case, new credit money is brought
into circulation during the procedure of discounting.
Distribution a compilation of sofware that is handed out as a complete pack
age. Tere can be many reasons for doing this. One typical example is to put to
gether sofware components that can only be used meaningfully if they are in
stalled together with other sofware. Or because one programme depends on the
operation of other programmes before it can be started. It is also ofen the case that
a distributor of the compilation adds a few specialities of their own which are not
available elsewhere in that form. Free sofware is a feld where this concept is par
ticularly common. Tere are many Linux distributions, BSD distributions and also
distributions of free DOS versions. Te distributor enjoys the advantage of being
able to customise the open-source sofware almost as much as they want. Tis can
lead to a range of diferent distributions for the same sofware. Although these are
all based on the same source code, they will each have their own specifc charac
teristics in the installation, such as their look and feel, the detailed selection of
sofware (components), the design, etc. [Art.] Distribution (Sofware): In: Wikipe
dia, htp://de.wikipedia.org/wiki/Distribution_%28Sofware%29, accessed
22.08.20111 17:41 CEST
Due date (also: maturity date) contractually determined point of time at which
a debt is to be paid back.

Emission used in this book with the same meaning as Money emission See
that entry.

281
Emission admin istrator ( EAdmin) is the term used in the framework of
the monetary system described in this book to designate the service provider that
provides the emiter with the technical infrastructure they need for their emission
of money. Te services provided by the emission administrator are mainly con
cerned with publicising the details of the emission, generating the monetary units
on behalf of the emiter, administering the transfers of possession of the money
stocks, and making statistics relating to these emissions available to the public. Ad
ditionally, an emission administrator provides information as to whether (and how
much) money belonging to a particular wallet ID is to be found within their data
bases. Since the wallet ID is the public part of an asymmetric digital key pair, this
information can only be provided to someone who is in possession of the corres
ponding private key.
Emission manager a term used in this book to mean the decision-maker in
all concerns relating to the emission, on the side of the emiter. Although the term
manager is ofen very similar to administrator, the two terms are used in this
book to mean specifcally diferent roles. Te role of emission manager could be
carried out by an individual or a department within an emiting company. It might
even be a service company commissioned by the emiter. Te role is that of decid
ing whether and when it would make sense for each emiter to enact a new emis
sion and how these emissions should be designed. In contrast, the emission admin
istrator (EAdmin) does not take these decisions. Instead, they provide the neces
sary technical infrastructure for making and administering the emissions. Te fact
that the responsibilities and activities of the two roles are closely related to each
other and are both closely tied to the emission itself does make it difcult to
choose two terms that distinguish precisely between the roles. Emissions ofcer,
emissions director, emissions service department or similar titles might fnd
their supporters, but since the crucial diference is that one role is the de
cision-maker and the other is not, it would appear that manager vs. adminis
trator is a suitable choice.
Exchange rate (in the context of this book) the market price of securities and
foreign currencies etc. [Art.] Kurs / Def. 4. In: Duden Deutsches Universalwrter
buch, p. 914

282
F

Fiat money money that has no obligation to be redeemed (e.g. for gold, silver
or commodity money) by the emiter/issuer (e.g. a central bank). Instead, its ac
ceptance (and value) is derived from government regulation or law, such as when it
is declared by a government to be legal tender. Todays central bank money, such
as the euro or US dollar, is fat money. [Art.] Fiat money. In: Wikipedia,
htp://de.wikipedia.org/wiki/Fiat_money, accessed 24.11.20111, 11:33 CET
Fingerprint in the context of using digital keys, a fngerprint is a unique sign
that can be used alongside the key ID to identify a digital key. Generally speaking,
it is a number derived by a special procedure and much shorter than the key itself.
Tis makes it easier to transmit, particularly in personal communication such as a
telephone call. Te fngerprint can also be generated in the form of an Aztec or
similar code, which can then be read by a scanner or similar optical device.
Front end the terms front end and back end are used in IT to refer to difer
ent layers. Typically, the front end is closer to the user and the back end closer
to the system. Although this interpretation is not always applicable, it is generally
the case that the front end is closer to the entry and back end closer to the pro
cessing and/or output. [Art.] Front end and back end. In: Wikipedia,
htp://de.wikipedia.org/wiki/Frontend, accessed 24.11.20111, 11:37 CET
Futures claim (or forward claim) a claim with a due date on a particular date
in the future.

GP L GNU General Public License (GNU GPL or GPL) is the most widely used
free sofware license, which guarantees end users (individuals, organizations, com
panies) the freedoms to use, study, share (copy), and modify the sofware. Sofware
that ensures that these rights are retained is called free sofware. Te license was
originally writen by Richard Stallman of the Free Sofware Foundation (FSF) for
the GNU project. [Art.] GNU General Public License. In: Wikipedia, htp://en
.wikipedia.org/wiki/GNU_General_Public_License, accessed 14.03.20111

283
GPG GNU Privacy Guard (GnuPG or GPG) is a GPL Licensed alternative to the
PGP suite of cryptographic sofware. [Art.] GNU Privacy Guard. In: Wikipedia,
htp://en.wikipedia.org/wiki/GNU_Privacy_Guard, accessed 24.03.20111
Inherent-value money See Commodity money.

Key server ofers access to public keys that are used in the asymmetric en
cryption procedures to send a person encrypted messages (for example, by e-mail).
Many of these servers are publicly accessible since the information they host rep
resents the public components of the respective key pairs. Te information hosted
on these servers makes it possible to encrypt messages so that they can only be de
crypted and read by one particular recipient the possessor of the corresponding
secret key. A key server assumes the function of a public key fle. [Art.] Key
server. In: Wikipedia, htp://de.wikipedia.org/wiki/Schl%C3%BCsselserver, accessed
24.11.20111, 11:58 CET
Knork a term used in this book for the credit money emited by a fctitious
company named Knork. Its value reference is defned as 1 knork = 1 download,
referring to the download of individual music fles ofered for sale by the company.
K NOT the name of the currency as proposed by the monetary system described
in this book. Its value reference is defned as 1 KNOT = 1 standard transfer. Te
ISO code to designate this currency could be KNT. Te name is a recursive ac
ronym which stands for Knots Not Ordinary Treasuries. [In the same way as
the related recursive acronym GNU is pronounced with a non-silent g, it might
be useful to pronounce this currency name with a non-silent k so as to avoid con
fusion with the English negative not.]
Knot exchange a trading venue ofering the opportunity to buy and sell mon
etary stocks from various emiters (knots).
Knots 1. Money used as a currency with the value reference of a standard trans
fer, which defnes the currency KNOT; 2. General term for the digital credit money
emited as part of the monetary system described in this book.

284
L

Long knots a term to denote futures within the monetary system presented
in this book. Tey resemble ordinary knots in all but one aspect: at the time of
emission they do not have the property of being money because the point in time
at which they can be cashed in (for the goods or service promised during their
emission) lies in the future. Tis means that long knots are comparable to loans
until their due date is reached. Only then is it possible to cash them in with their
emiter. At the time they mature, long knots automatically transform into ordinary
knots and can then be used directly as money.

Marketable readily saleable, appeals to the market [Art.] Marketable. In:

Duden Online, htp://www.duden.de/rechtschreibung/marktgaengig, accessed
23.11.20111, 10:03 CET
Monetary stock (in this book) refers to a total stock or holding of already ex
isting monetary units (knots). Tis may be the stock owned by a natural or legal
person. It may be the stock held in the data collection of an emission administrator.
Or it may be the total debt of an emiter. Tese holdings all need to be treated as
carefully as any other possession: they need to be kept in shape in order to main
tain their value.
Monetary system the way in which a society organises the supply of money
to the participants in its economy.
Money an economic good which is suitable to be used for closing a circular
fow of economic activity. Where a direct exchange of goods (barter) between two
parties is not easy, desired or possible, an interim step where one of the parties ac
quires a medium of exchange then makes it possible to close the cycle by com
pleting the business between those two parties. Particular properties make an eco
nomic good suitable for this function. A minimum requirement is the fulflment of
the following three criteria. To fnd takers, it should be highly marketable. It

285
should also be of immediate value (an early or convenient date of maturity) yet ex
hibit a certain stability of value (since there might be a delay between the interim
step and the closing of the contract).
Money emission the process of creating money and bringing it into economic
circulation for the frst time.
Money supply (in this book generally referred to as the amount of money in
circulation) a rather theoretical term referring to the sum total of all the economic
goods (nominal goods) in an economic system that have the function of money. A
more detailed consideration depends heavily on the prevailing political situation.

Payment (in this book) the procedure of transferring the right of disposition for
a pre-determined allocation of knots from the one possessor to the next. Te pay
ment procedure is completed when for each unit of money in the allocation the di
gital signature of the new possessor has replaced that of the previous possessor in
the database of the responsible emission administrator. In this procedure, the di
gital signature functions as the wallet identifer for the possessor. See also stand
ard transfer.
PGP Prety Good Privacy (PGP) is a data encryption and decryption computer
program that provides cryptographic privacy and authentication for data commu
nication. PGP is ofen used for signing, encrypting, and decrypting texts, e-mails,
fles, directories, and whole disk partitions to increase the security of e-mail com
munications. It was created by Phil Zimmermann in 1991. [Art.] Prety Good Pri
vacy. In: Wikipedia, htp://en.wikipedia.org/wiki/Prety_Good_Privacy, accessed
30.09.20113, 13:07 CEST
Private key See Asymmetric cryptographic system in this Glossary.
Proprietar y sof ware In the feld of information and communications tech
nology, the term proprietary designates sofware that is tied to its producer. Tis
generally means that the source code is not accessible to the user. Te producer
may also place restrictions on the usage of the sofware; for example, it may be re

286
stricted to use with hardware or sofware components from the same producer or
from a limited selection of other producers. In most cases, a payment has to be
made in order to use this sofware. Blocking access to the source code removes the
possibility of customising the sofware to the needs of individual users.
Public key See Asymmetric cryptographic system in this Glossary.

Re c ursive ac ronym is an acronym (an abbreviation made up of initial leters)

which refers to itself in the expression for which it stands. One of the best-known
examples is GNU, referring to itself in the breakdown of the acronym: GNU is Not
UNIX.

Source code the text of a computer program in a form readable to humans,

writen in a programming language. Tis program cannot be carried out by a com
puter until it is converted into machine code. Tese instructions can be carried out
by the processor but can no longer be read or changed in a meaningful way by a
human. Source: [Art.] Source code. In: Wikipedia,
htp://de.wikipedia.org/wiki/Qellcode; [Art.] Machine code. In: Wikipedia,
htp://de.wikipedia.org/wiki/Maschinencode, both accessed 25.08.20111 11:27 CEST
Standard transfer the basic process that defnes a transfer of a sum of money
within the framework of the monetary system described in this book.

Tally stick (or tally, spec. split tally) a counting device used from very early
in human history right through to the Middle Ages and beyond. One of their main
uses was to document debts between two parties in a way that could not be
tampered with. A suitable long board or stick was marked with notches in an ap

287
propriate way to record the numbers involved. Te board or stick was then split
along its length. One half was given to the debtor, the other to the creditor. Since
the notches reached from one half to the other, by puting the two halves together
it could clearly be seen if they were from the same stick. And if one half had been
tampered with, the notches would not match up. Te arrangement between the
two parties was usually such that they would agree a date upon which the split tal
lies would be reunited and the debt setled. [Art.] Tally stick. In: Wikipedia,
htp://de.wikipedia.org/wiki/Kerbholz, accessed 18.08.20111 17:03 CEST
Transaction administrator (TAdmin) is the term used in the framework
of the monetary system described in this book to designate a service provider that
coordinates the technical aspects of the transfer of sums of money between pos
sessors.
Turnover (here) the total value (within a particular period of time) of goods
sold and/or services performed. [Art.] Turnover, Def. 1. In: Duden Deutsches
Universalwrterbuch, p. 1591

Wallet (as used in this book) the monetary stock or holding of a participant
which is administered under a single participant ID (also known as a wallet identi
fer) by one or more emission administrators. In other words, the total contents of
a particular wallet. In general, these contents will be distributed among the data
bases of more than one emission administrator.
Wallet identif er / wallet I D the public part of a digital key pair serving as
an identifer for the registration of a participant within a monetary system as de
scribed in this book. Tis public key is entered into the feld possessor of particu
lar monetary units when a sum of money is transferred into the possession of that
participant. From this time onwards, the power of disposition for these monetary
units can only be exercised by the possessor of the corresponding private key.

288
 References

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