DIMCredits

Our financial model is in a crisis and looking for a change. Our money is in a crisis too. USD and other FIAT currencies are not properly performing two of the three functions of money:

1.- Store of value. Central banks have been printing money out of thin air massively in the last 15 years. More money into the system may cause inflation or at least, flourish risk of currency devaluation. That is why FIAT currencies do not work well as a store of value under current modern monetary policies.

2.- Unit of account. Based on money creation mentioned before, the impact on prices and how the value of things is modified is decided by economic actors who receive that new money (Cantillon effect). Markets are manipulated by them avoiding market price discovery. FIAT is not good at measuring things.

3.- Medium of exchange. With FIAT money you can buy almost everything, so it performs well as a medium of exchange. The law enforces that because taxes have to be paid in FIAT and income salaries have to be received also in FIAT (not at 100%).

A new model is required. One interesting proposal is that communities offer products or services in exchange for credits, and those credits accounting being processed with Mutual currencies. In that way, the value of those currencies is asset-backed by the products or services the communities are providing. This proposal derives in a new kind of world where many currencies are there, users easily exchange them in their wallets, and their value is established in the market by comparing products/services with one another. This is a way that may fix the unit of account function of money by moving from scalar to Vector Units of Account.

Credits “tokenized” in the form of a mutual currency that can be easily traded in exchange for other one, also can work well as a medium of exchange.

For storing value, mutual currencies related to products or services that can stay there for long could perform well.

By covering the 3 functions of money, mutual currencies can pave the way for a new model avoiding errors in the current financial system that are growing and growing. No central banks, no states are required.

Transition to this new model

In some way, this is like going to the past as credit is maybe the oldest form of money.

To transition to this model, communities exchanging products or services have to use mutual currencies. As more communities will adopt this model and work out of the current financial system, the new model will gain traction and become widely used. As easy as it sounds.

Conclusion

FIAT currencies have limitations in fulfilling the functions of money and using mutual currencies is a potential solution.