The Citizens' Ledger: Digitizing Our Money, Democratizing Our Finance

211 Pages·2022·4.37 MB·English

by  Robert C. Hockett

CENTRAL BANK $
CITIZENS’
THE
LEDGER
DIGITIZING MONEY,
OUR
DEMOCRATIZING FINANCE
OUR
ROBERT C. HOCKETT
The Citizens’ Ledger
Robert C. Hockett
The Citizens’ Ledger
Digitizing Our Money, Democratizing
Our Finance
Robert C. Hockett
Cornell University
Ithaca, NY, USA
ISBN 978-3-030-99565-2 ISBN 978-3-030-99566-9 (eBook)
https://doi.org/10.1007/978-3-030-99566-9
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Prologue: Money Without “Middlemen”
Imagine that you wish to make a payment to a friend or a house-sitter who’s
looked after your home while you’ve been traveling, or to a retail store where
you’re purchasing clothing or groceries, or to a parking meter while out or a
tax authority at tax time, or to firm or other productive unit in which you
wish to invest. Imagine further that you’re owed a refund on your recent tax
payment,orareawaitingapaycheckorsomepublicbenefit,orareborrowing
from a bank or community development financial institution (“CDFI”) to
start-up a business or grow a business you already operate.
Presently these multiple transactions will likely occur over multiple “plat-
forms”or“networks,”andwillrequiremultiple“paymentmedia”toproceed.
You might pay the house-sitter in paper currency or over Venmo, say, then
use a chip card or strip card at the store, slip coins into a parking meter, and
send a check to a broker or tax authority. Your tax refund, in turn, might
itself come as a check or direct deposit into a bank account you maintain,
your wage or salary as paper, and your loan or other investment proceeds
as a cashier’s check or a new account opened for you by a commercial or
investment bank.
These “polyglot” means of paying and being paid complicate your life in
various ways. For one thing, you must carry multiple objects around with
you, and keep in mind multiple passwords and PIN numbers. For another
thing, the security—and privacy—afforded by some of these payment media
will differ significantly from what’s offered by others. And, perhaps worst of
all,insomeofthesecasesyourpaymentswon’t“clear”untilsomeappreciable
v
vi Prologue:MoneyWithout“Middlemen”
timeafterthey“post”—“settlement”ofyourtransactionswilloftenbelagged,
that’s to say, not occurring “in real time.”
But these are just the most obvious worries or inconveniences thrown up
by our “Babel” of multiple parallel payment systems. In many jurisdictions,
the U.S. conspicuous among them, most payments other than those in cash
require the maintenance of bank transaction accounts—the accounts with
which chip cards and strip cards, not to mention most payment platforms
like Zelle, Venmo and PayPal, are typically associated. Yet such accounts can
be difficult to maintain, particularly for those who aren’t wealthy and can’t
afford fees of the kinds banks and payment platform companies charge us.
The result is that some 25% of the citizenry in the wealthiest country
in the world, for example—the United States (“U.S.”)—are “unbanked” or
“underbanked.” Small businesses fare little better—the “interchange” and
related fees they must pay to facilitate electronic payments are prohibitive
for many. That’s a bit odd in a “commercial republic” like that which the
U.S. purports to be, let alone any “monetary exchange economy” like that of
most if not all “developed” countries. In such republics and their economies,
value-transfer and-storage platforms—that is, payment and savings modal-
ities—surely amount to essential commercial and financial infrastructures,
public goods that by definition ought to be freely available to all.
Yet that is not all. Thanks to the intimate link between money and
payment systems drawn out in this book, modern republics must modu-
late transaction activity—that is, “money supplies” and “money velocity”—in
order to manage “price stability” and “financial stability”—that is, “inflation”
and “deflation,” “bubbles” and “busts.” Where the payments system makes
use of intermediaries—banks, payment platform companies, and the like—
the authorities charged with this form of maintenance must work through
“middleman” institutions—commercial banks, “dealer” banks, and the like.
This brings much leakage to credit and monetary policy, diminishing its
efficacy in both inflationary booms and deflationary busts. In effect, public
action is hostage to private interest. For public infrastructure is captive to
private toll-takers.
Now imagine a simpler, more elegant, more streamlined value-storage and
-transfer architecture… Your iPhone or other “smart device” holds a digital
wallet networked horizontally to all other citizens’ and businesses’ wallets
andverticallytotherepublic’sfiscaland/ormonetaryauthorities—itsfinance
ministry (“FM”) and/or its central bank (“CB”). To make payments to
friends, employees, businesses, tax authorities, materials suppliers, or anyone
elseintheirpersonalorprofessionalcapacities,yousimplycredittheirwallets
Prologue:MoneyWithout“Middlemen” vii
whiledebitingyours.Paymentstoyouoryourbusinesstakethesameform—
creditings of your wallet and corresponding debitings of your payors’ wallets,
all “in real time.”
Yourwalletalsoservesasavalue-storagedevice—apersonaland/orprofes-
sional digital “savings account.”The fiscal or monetary authority might also
pay interest on our wallet accounts—as central banks do now on private
sectorbanks’“reserveaccounts,”andasfinanceministriesdoonthesovereign
debt instruments—treasury “bonds,” “bills,” and “notes”—that so many of
their citizens (perhaps you yourself) purchase as safe savings vehicles. These
rates then can be raised or lowered to encourage more or less saving accord-
ingly as the republic’s monetary and fiscal agencies must encourage slower
spending to lower inflation or accelerated spending to counteract deflation
(a.k.a. “recession” or “depression”). Et voila, leak-proof monetary policy.
But there is more. Because smart device ownership is far more universal
than bank account ownership—in the U.S., for example, only 5%, not
25%, of the population is “unphoned”—the problem of the “unbanked”
and“underbanked”isallbuteliminated.Paymentnetworkfeespaidbybusi-
nesses,meanwhile,disappear.Inpresently“developing”countries,relatedly,a
full banking and payments system can be had without trudging through the
decades of slow steps the “developed” world had to traverse to establish full
national “brick and mortar” banking and investment systems.
Further, communities that find that various forms of presently unremu-
nerated “care work” contribute to aggregate wealth and hence public revenue
over time—a secondary schooler tutoring primary schoolers, for example,
or a young person giving home care to an older person—can incentivize
more such work by remunerating it over smart devices.The “proof of work”
(“POW”) protocols that new digital payment technologies enable can for
their part ensure real services—value adding services—are performed for
these remunerations.
These same technologies also afford means ofcryptographically protecting
individuals’ and businesses’ digital identities and transactional privacy. The
payment architecture can be programmed to replicate the privacy advantages
now offered only by cash, while capturing the security advantages offered
onlybyelectronicnetworking.Digitization,inotherwords,canbemade“all
good,” with no offsetting “bad with the good” disadvantages or “tradeoffs.”
In effect, what we’re imagining now is a digital infrastructure that isomor-
phically mirrors the underlying credit and debit, the asset and liability,
structures of all modern productive commercial societies. Legally and insti-
tutionally speaking, all modern economies amount to massive social balance
sheets,onwhichcomprehensive“double-entrybook-keeping”wouldinclude
viii Prologue:MoneyWithout“Middlemen”
everypublicandprivateunit’sdebtsandentitlements,allinterlinkedliability
and asset structures. No actually tabulated balance sheet quite does this,
of course (though we’ll find that central bank records quite nearly do it),
but this is nevertheless the legal, monetary, and financial structure of all
commercialsocieties—includingmostofthesocietiesofmodernAfrica,Asia,
Europe, Oceania, and the Americas—established since the late medieval or
early modern eras.
Present-day payment and value-accounting practices obscure this shared
underlying structure, and in so doing enable all manner of inefficiency and
rent-extraction, as multiple for-profit entities purport to offer—for a price—
bits and pieces of a dismembered commercial and financial infrastructure
that should be—and can be—made freely available to all. The upshot is
intolerable injustice and massively scandalous waste.
It doesn’t have to be this way. While our present value-accounting, value-
storage, and value-transfer systems are understandable outgrowths of an
earlier time when the state of technology simply didn’t allow for comprehen-
sive account-keeping across whole economies, that earlier time is now past.
New modes of data-compiling, -storing, and -collating enable the construc-
tionofliteralphysicalledgers(inelectronicdigitalform)thatreplicatethede
facto ledgers that are all of our modern commercial and financial economies’
fund-stocks (“savings”) and fund-flows (“payments”).
Something much like this compiling and tracking is done by our central
banks worldwide already, for it’s the only way they can fulfill their public
money-management mandates not “in the dark,” but transparently, with full
knowledge,“inthefulllightofday.”Butwhatourpublicinstrumentalities—
our central banks and finance ministries—benefit by we the citizens should
benefit by too. Since they, our public agents, “keep” economy-wide macro
ledgers, we, their principals, ought to be able to use them—to save and to
spend, to invest and be invested in, through them.
Happily, the new savings and payments technologies discussed in this
book will enable just that. They will enable our savings and payments, and
hence also our investment, modalities to catch up with our computing and
communicationsmodalities.Thatwilleffectivelyconveytheproductivityand
efficiencygainswroughtbythelattertoourpracticesandinfrastructuresthat
make up the former.
Wemustactquickly,however.Fortherent-takingmiddlemaninstitutions
thathavebenefittedbytheoldregimeseethethreatsposedtotheiroligopoly
by the emerging regime. They are accordingly acting quite swiftly to ensure
that the public efficiencies offered by new technology remain restricted, for-
profit, and thus expensive. Too many central banks, in turn, seem to be
Prologue:MoneyWithout“Middlemen” ix
willingtolistentotheseinterestsastheynowupgradetheirnationalpayments
systems with the aforementioned technologies.
Whenyouhearreferencesto“centralbankdigitalcurrencies”or“CBDC,”
as we’re all apt to hear now, this is what’s being referenced. It is the task of
thisbooktoshowyoubothwhytokeeppayingattention,andhowtoweigh-
in. It’s about what to demand as a citizen—a citizen of a free and productive
commercial republic.
Praise for The Citizens’ Ledger
“Computer scientists, financiers, and even some economists seem often to
overlook the ways money, finance and accounting on the one hand, and
money,banking,andcentralbanksontheotherhandallinteract.Oneresult
isthattreatmentsofcentralbank-issueddigitalcurrencies(‘CBDCs’)tendto
losesightofthefullrangeofcriticalconsequences–andopportunities!–that
flow from alternative possible digital currency arrangements.
After Hockett’s treatise, no such unsystematic or incomplete ‘siloed’
thinking will be possible. In highly accessible prose supplemented by simple
intuitivediagrams,Hockettshowshowthetrillionsofcommercialandfinan-
cial transactions that occur in our economies each day can be modeled as
single national account books of millions of interlocking personal and insti-
tutionalbalancesheets–full‘Citizens’Ledgers’thatdigitaltechnologyisnow
able to replicate.
The potential this opens is far more interesting – and far more exciting –
than most current discussions of CBDC appear to appreciate. As Hockett
demonstrates, the future now available to us includes transactional privacy
andfreebankingservicesforallhouseholdsandbusinesses,leak-proofmone-
tary policy for all central banks, and a transformed financial system that is
once again geared toward production instead of mere speculation.”
—U.S. Congressman Ro Khanna, Professor of Economics and author of
Dignity in a Digital Age (2022) and Entrepreneurial Nation (2012)
xi