I believe it was more or less a year ago that Michel Bauwens pointed me to the International Currency System Engineering Group, ICSEG (http://www.icseg.org/) which was running a discussion list about the architecture of monetary systems.
I joined the list and the discussions were of great interest. There has now been a conclusion. Just recently, a dedicated web page was put up with the currently available documents, including a proposed standard that would ensure stability of any currency.
With several p2p currencies on the drawing board, it would seem important to take a look at what may be the fatal flaw of the bank money we are using universally today, with a view of how to avoid those same pitfalls when discussing currency alternatives. The proposed standard could be used in any kind of currency, whether issued by governments, banks or of private/collective origin.
BIBO – Bounded-Input-Bounded-Output is an engineering term. In Control Systems Theory it signifies that any system, to be stable, must respond to a bounded input with a bounded output.
Bank money is not BIBO compliant, it is argued on http://bibocurrency.org/
From a rigorous control system theory stability analysis of the current world de facto standard currency system we identify a root instability in the form of the growth component of Debt associated with the money creation process. We thus establish the inherent instability of Common Lending Practices (application of interest). Then we further chart the logical consequences of said root instability as it affects the economy as a whole and we identify how it provokes a systematic divergence between debt and value attributed to wealth in past cycles with the minimum value required in current and future cycles as those incorporate past unpaid debt. i.e. systematic compounding of debt. We also identify how the only means available within the current system design for staving off inflation is through the continued contribution of collateral wealth as guaranty for the creation of new principal debt money commensurate with past debt growth. Finally, we illustrate how compounding debt inevitably leads to a point where the inability to provide new wealth to guaranty new money to keep up with past debt growth becomes chronic at which point either runaway inflation or a definitive collapse of the system inevitably ensues.
Financial System walkthrough
1. Wealth is generated by ingenuity, human effort and resources made available through past investment of units of currency.
2. Through the process of asset evaluation, a fixed amount of existing wealth is attributed a fixed collateral value in the form of a sum of units of currency.
3. The fixed collateral sum is used as the basis for the creation of new currency in the form of a second fixed value i.e. the principal sum of loans issued into circulation through current account entries. Since both the collateral and principal loan sums are fixed, they maintain a constant ratio to the wealth pledged.
4. Current account units are distributed back to wealth producers through purchasing transactions or may be saved or stored (at a compounding interest rate) or used to cancel debt thus reducing the total amount of money in circulation.
5. Total debt due is the principal sum entered as a negative number in a loan account to which interest is added such that the debt grows as a function of time.
6. Because the total debt created always exceeds the amount of money available to satisfy it, the system produces a minimum residual debt that must be refinanced in subsequent cycles thus compounding it.
There are three documents available at the bibocurrency site:
Formal Stability Analysis of common lending practices
Passive BIBO Currency Rationale
Draft Passive BIBO Currency Specification
Documents may be updated with time, so to get the latest version, check at the source: