MIT TradeCoin Currency Proposal

One of our goals here is to look for various ideas and proposals that offer alternatives to our present monetary system. A panel of experts that I hear from on these kinds of issues will sometimes point me to new ideas or proposals that I would otherwise miss.

In this case, one expert pointed me to this proposal from MIT Labs covered in The Scientific American for a blockchain based currency they call "TradeCoin". The web site for MIT TradeCoin describes summarizes the proposal this way (I added underlines for emphasis):

The Brave New World of Blockchains and Distributed Ledgers

The modern financial system has become dangerously complex. Increasing transparency would reduce risk, but that requires modeling the monetary circuit at a level of detail beyond the capacity of current technology.

New technologies such as digital currencies are now making it possible to simulate every trade and transaction. These tools could build more efficient financial networks and decentralize the control of money. People could exchange directly with one another instead of relying on banks.

The potential for sweeping change is real, but there are many uncertainties. These digital networks will only promote equity and accountability if they are properly built and responsibly used. They could just as easily lead to extreme levels of centralized control.

Towards a More Stable Financial System.

It is clear that the invention of blockchain and distributed ledgers won’t eradicate problems like financial crashes and unhealthy inflation—at least not in the short term. But it does enable the creation of legitimate alternatives to the big, powerful players. Technology now makes it possible to form specialized global currency systems that previously would not have had sufficient scale, trust or political stability to compete. That is why a natural next step is for the little guys—such as emerging economies or large numbers of individual citizens—to band together to form alternatives to central banks.

With that possibility in mind, our lab at the Massachusetts Institute of Technology is working on creating a digital currency suitable for large-scale transactional purposes. Called Tradecoin, it will be indelibly logged on a blockchain and anchored at all times to a basket of real-world assets such as crops, energy or minerals. Doing so will help stabilize its value and make it easier for the public to trust it. The core idea is that a broadly useful currency needs both human trust and efficient trade systems.

A digital Tradecoin built on a distributed ledger can allow alliances of small nations, businesses, commercial traders, credit unions or even farmers to put together enough assets to back a large, liquid currency that would potentially be as trustworthy and at least as efficient as the national currencies used by the World Bank and the International Monetary Fund.

By design, the principles behind currencies such as Tradecoin are fundamentally different from cryptocurrencies like Bitcoin, which are not backed by real-world assets and do not involve alliances. Tradecoin can also avoid the energy-intensive process of mining.

---------------------------------------------------------------------------------------------------------------

My added comments: While this project is not on the verge of going live soon, it does illustrate very well the kinds of ideas and proposals that are out there being discussed by experts and economists. Please note how the underlined portions above emphasize that the creators of this concept see it as a needed "alternative to central banks" and as a "legitimate alternative to the big, powerful players".

They go on to say that a digital Tradecoin would allow small alliances to "put together enough assets to back a large, liquid currency that would potentially be as trustworthy" as the national currencies used by the World Bank and the IMF. This description almost seems to suggest a set of "local currencies" rather than one global reserve currency that we see touted so often.

Some might argue that a currency truly backed by "real-world assets" might end up being more trustworthy than those national currencies should they lost the public trust at some point in the future. That continues to be an ongoing topic of debate.

On this blog, we like to see various ideas and proposals put forward for discussion and debate. When anything becomes monopolized, there is a risk that innovation will stagnate and customer service will suffer. The panel of experts I hear from are constantly talking about the need for future innovation and progress with regard to the concept of money and monetary systems.

So here on this blog, we view it as a good thing for the consumer (in this case the public that uses money to transact daily business activities) for some legitimate competition or even just potential competition to arise and challenge the thinking of the status quo from time to time.

We include these various ideas and proposals on our Marketplace of Ideas for Monetary System Reform page so that anyone wanting to research various ideas and proposals can find them documented with links for further research included in the articles all on one page. As far as I know, this is the best and most comprehensive collection of such ideas gathered on one page on the internet.

---------------------------------------------------------------------------------------------------------------------
Expert Reaction: After previewing the article above, one expert I hear from offered this comment to me:

"The only thing I would add is an explanation as to why any country would rather use a different unit of account than the USD. And I think you can simply say, because it is stable in real goods, which is what many countries with balance of payment constraints would like to have. Because of the volatility of exchange rates, many countries do barter with each other when making trades. I'm still not entirely sure that the small bufferstocks that a trade coin is proposing are big enough, and it might easily turn speculative. They would have to lay claim to changing the index, just as FB (Facebook) lays claim to."

------------------------------------------------------------------------------------------------------------------------------------------------

Added note: Speaking of new monetary system proposals, some readers here may wonder if we plan to further cover the Kinesis (gold and silver backed) alternative monetary system proposal expected to launch sometime this year. We do once that system fully launches assuming the launch is successful. We were advised of this recent news release that states that Kinesis plans to partner with the Post Office in Indonesia to offer its currency across the region in that area of the world. We'll continue to monitor their progress and report on it as results from the launch are available. Here are some notable quotes from their recent press release:

"In accordance with the new regulation, Kinesis, OZL and the Indonesian Government Postal Service (PT POS) are planning to develop, build and operate an international standard vaulting facility in Jakarta.

Additional stakeholders in the project include, Jakarta Futures Exchange (JFX), government clearinghouse Kliring Berjangka Indonesia (KBI) and religious organisation – Nahdlatul Ulama (NU) who have 100+ million members."

. . . .

"POS Indonesia have indicated they will facilitate and contribute significant resources and support for the project, including the contribution of land; licenses for Free Zone/Bonded Warehouse designation, and duty-free imports; permits for expedited building, construction and utilities; as well as significant post-launch marketing and logistical support.

PT POS Indonesia is the state-owned postal service in Indonesia and third largest postal service in the world, in terms of number of offices and sales outlets (over 58,000). In addition to delivering postal services, they are also the largest non-bank financial institution in Indonesia, providing payments, cross border remittances, micro-loans and other financial services."