Virtual Cash

[Istvan Oszaraz von Keszi]

Eric Hughes wrote:

> >[...] but noone (as far as I've
> >seen) has come up with an "economic model" within which they could use
> >them.
> 
> Denominate digital money in dollars in a demand deposit account in a
> US bank.
> 
> Why reinvent the wheel, or, in this case, the unit of value?

Exactly, digital money must be fungible, with some other unit of
value.  But limiting it to USD, is not the way to go.
Individuals should be able to pick and choose which currency they
want their digital money to represent.  

U.S. banks are problematic.  They tend to be unstable.  I propose
the following banks which currently have a AA rating or better:

Alegemene Bank Netherland
Credit Suisse
Swiss Bank Corp
Barclays Bank
Union Bank of Switzerland
J.P. Morgan

The legal structure is also quite elementary and so is the
software. (Although I don't profess to be a software expert.)  

I'll put the software issue aside for a moment, and concentrate
on the structural part of the system.  

The appropriate structure is an "investment club" which in point
of fact is a private mutual fund.  The club has a trustee, I'd
suggest an account run by either by a trust company or by a lawyer.
The lawyer receives the funds in her trust account, and signs and
acknowledges each receipt.  She then invests the funds into
deposits at approved institutions, or in Government guaranteed
securities.  In essence, it's no different than a money market
fund. 

The fund itself is purely an international partnership, domiciled
as a Liechtensteinian Anstalt.  An anstalt has unique
characteristics in that it is both a private foundation and a
corporation, and receives unique legal treatment.  

I'll leave the discussion here, since the complexities are quite
voluminous and move on to the software.

The mm package, provides a jumping point.  Of course it's the
server module which should be used by the client.  Each client
uses the server to "create" their money.  The money is then sent
to the trustee, who upon receipt of funds in her trust account
signs each unit of money.  The coins can then be exchanged, as in
the mm package.  Now, if someone wants to redeem the coins, back
into currency, they send the coins to the trustee with a request
that funds be paid according to instructions with the signed
coins.  The trustee can then send appropriate amount of funds
wherever the instructions call for.  

Faith in the system builds as coins can either be accepted by an
individual or can be converted by the individual into what
actually backs up the system, cash.  All the trusttee has to do is
differentiate between a message which is transferring coins, and
a message which is redeeming coins.  Easy as pie.

A message which is transferring coins simply signs the new coins
and removes the old coins from the list.  A message redeeming
coins, removes the coins from the list, and sends funds to the
appropriate individual.