"Perry E. Metzger" says:
Not a cryptography message -- sorry but I thought I had to discuss it...
But it is, if digital cash is your interest. There may be more than one way to think about money.
Peter Baumbach says:
Isn't a finite source of backing a problem since it rewards those who hoard it?
No. It punishes those who hoard it -- they don't get interest on their money.
Where does this interest come from. If you have a 100% backed currency with a finite supply, those who hoard it can't lose. If there is a total of 20,000 tons of gold in the world, and you own 1 ton, then don't you own 1/20,000 of the worlds wealth. As long as the total wealth of the world increases, doesn't your wealth increase along with it?
If neither Alice or Bob have a backed currency, does that mean they cannot trade?
Depends if they consider what the other has to be of value. Its all up to them.
If Alice needs her street cleaned and Bob can do it, and if Bob needs some food prepared and Alice can prepare it, a currency is unneeded for their trade.
Has anyone invented a workable "barter currency"?
I don't see what the point would be. Why not just deal in a medium of exchange?
Continuing with Alice and Bob, let's add Carl. If Carl needs his freezer repaired and Bob can repair it, and Bob wants some vegetables and Carl can supply them, a currency is still unneeded. Suppose, however, Alice wants the vegetables, but has nothing to offer Carl, a "barter currency" would solve her need. Alice pays Carl for the vegetables. Carl pays Bob for repairing his freezer. Alice pays Bob for cleaning her street. Bob pays Alice once for the vegetables, and once for her to prepare them to his liking. A small economy becomes facilitated. Useful stuff has been done without dealing with any outside parties. Why should some of these people own gold before their economy can function? If Alice kicks over a stone and finds a nugget of gold, why should she be any richer. She hasn't done anything for anyone, except maybe devalue the gold that everyone else already owns. Gold makes a good currency because it be can't be created by those who have done nothing of value for anyone else. (A government ;-) Gold makes a poor currency when it prevents the economy I describe above from existing since none of the participants have any. What medium of exchange can Alice, Bob, and Carl use? The answer to that, I would call a "barter currency"
Can I.O.U.'s be created such that they work like money?
Sure. Thats what banknotes are.
Your method requires another participant to the transaction. Everyone must trust that the bank doesn't print more banknotes than it can honor. Also, what is the banknote an I.O.U. for? Gold? An I.O.U. for particular services or goods are hard to use as a currency since you may wish to trade with someone who does not know the person whos name is on the I.O.U.. Carl might give Bob an I.O.U. for fixing his freezer: "I Carl owe the holder of this I.O.U. two bushels of carrots." It would be hard to give this in payment to someone who does not know the quality of the carrots or the trustworthyness of Carl.
Perry
I have just been learning about call and put options on stocks. If I sell a call option, I am agreeing to sell a certain amount of stock at a certain price at any time in the future until the option expires. These options behave something like the "barter currency" that I wish to have invented. People trade these options instead of trading in the stocks. Now if only my broker would accept an I.O.U. for two bushels of carrots in payment for ... Peter Baumbach baumbach@atmel.com