QUESTIONS AND ANSWERS
The Conceptual Essence of Contractual Money, Constraints and Implications
What is contractual money?
Contractual money is the result of an exchange where the balance is disclosed with a figure attached to a visible or implied monetary unit ($, £, €, etc.). To have this monetary qualification, the balance figure should be accepted by a sufficient number of market participants not necessarily party to such a transaction.
Why are balance sheets the receivers of these contracts?
Because of standardization, laws and regulated standards to set these financial statements, balances or total of balances by category (clients, vendors, banks or instruments, etc.) are currently, or potentially, of monetary nature.
How does the contractual approach of money fit into the social, economic and legal environment?
Contractual money is not antagonistic to laws and regulations; indeed, it results from them. It triggers further regulations to sanction breaches in complying with accounting and prudential standards. It was seen to be associated with liberty as opposed to central bank monies. It is just the opposite. Social commitments are to be posted (retirement benefits for instance), while central banks don't for the public. Its functioning is as much the development of market economy as regulation. It cannot prosper without regulation, in order to have financial statements of market participants and counterparts or individuals comparable.
What is the ultimate issue of contractual money if it is private money?
The question of the stamping right of the currency unit and the currency definition is at stake. This question is that of the currency chosen by the original participant in the transaction.
What are the remaining requirements with contractual money to have it functioning and adopted over the monetary unit standard and the accounting standards?
The monetary unit used still has to be stable. Otherwise, financial statements cannot be deciphered and the system collapses, no transaction being operated with an obscure balance sheet. Balance sheet acceptance implicates guarantees.
What is the nature of the guarantees that exist?
The nature of the instrument itself and attached leans. If legally protected, the quality of the issuer, for instance, their balance sheet and profits, the depository of the instrument and the market guarantees if tradable, the liquidity of the instrument.
Why is liquidity important, like speed, for mass attraction in physics?
Speed will give an instrument's holder a better capacity to exchange it, making it independent of the issuer.
What are the two ultimate results of this monetary set-up?
The first, due to reciprocity of balances, is that exchangeable money can go from one point in the world to any other one. The variables will be prices for the monetary unit and interest rates working as traditional pricing models, with the interference of taxes (for instance no withholding taxes on public debts and favourable treatment of employees' retirement benefit entities). We call it “The final trap”. It explains the need for coherence inside monetary zones, and also the low interest rates on what the financial traders paid to protect assets – called “safe assets”.
The second is the seignorage right, now being shared by government as well as tax collectors and debt issuers with underwriters and structured finance specialists. With commissions, the latter with a monopoly to post the balances on the balance sheets, they control seignorage on new money.
What about transferability or exchangeability?
Transferability or exchangeability are now synonyms, since current money is no longer claimable in raw material or precious metals with a monopoly for the central bank to hold such metals.
What has replaced the monetary unit for stamping?
The reciprocity and balancing of post figures for the parties to a transaction.
What are the consequences?
The audit trail is this balancing of figures sentencing the fair value appearance on the books that may not be reciprocal. Trust arises from this reciprocity. A condition of the transferability is that the original debtor will satisfy, at term, the number and the government will satisfy the stability of the sampling unit. As numbers are arithmetical and unified by essence, modelling is possible.
What about reserves and bubbles?
Money, having changed in consistency and nature, and being relative in its need regarding speed, the question of determining the most appropriate volume for a flowing economy is still there. How to determine the appropriate volume of necessary money and who should be entitled to do such determination is one question. What is a necessary reserve for redistribution and what in case of excess amounts is a bubble showing in prices and the posted money as a result is the second resulting question. These questions lead to the need for sensible measurements and classification of instruments.
What is the ultimate question about speed?
Things being what they are, speed will affect density, values and prices. The entire wind ball air pressure shown in books and records may either flatten or burst, contagion being intrinsic to accounting rules. Determining when instability starts is the key, and supports the idea of full data collection with M5 and M6.