What is Points Banking?

Points-Banking is the main feature of our proposed points-based economic system.

Bilateral Barter Credits

The system works on barter-credits which are claims to the goods and services offered by others. Unlike barter which requires immediate fulfillment of an exchange, barter-credits does not force an immediate fulfillment.

For example, in a barter transaction, John gives 1 kilo of potatoes, valued at $1, for a sandwich, also valued at $1, offered by Martha. This requires the potato and sandwich to be available at the same time.

In a barter-credit transaction, John gives the potatoes even if Martha doesn’t have the sandwich ready on that day. In effect, the potatoes are on credit, and the Martha has a debt payable in sandwiches.

To mitigate inflation and the time-value of money, the value is pegged to 1 kilogram of grain, such as rice or wheat.

In this case, if 1 kilogram of wheat is $1, then Martha owes whatever is the value of 1 kilogram of rice at the time she makes the payment. If Martha decides to pay 1 month from now when rice is up to $1.10 per kilogram, then she owes $1.10 worth of sandwiches instead of $1.

The advantage of this is that she can pay whenever she wants as long as it is acceptable to John. If she decides to pay 20 years from now, when rice is $2 a kilogram, then she will give $2 worth of sandiwiches.

The Advantages of Points-based Barter-Credits

As you can see, the advantages of points are:

1. A Vent for Excess Productivity

Martha might be an excellent sandwich maker able to make a lot of sandwiches that she needs to dispose of. By getting sandwiches instead of cash, John helps her get rid of her inventory while saving precious cash.

2. Inflation-Resistance

The points themselves do not suffer as much from inflation nor bear interest cost or revenue.

3. Immediate Need

Martha might need the potatoes for her restaurant right away, but has no cash available and might find financing expensive. A points system lets her get the potatoes quickly without needing such expensive financing.

4. Lack of Temptation to Steal

Points constitute a bilateral agreement and cannot be stolen by others. This is different from a money-object which is physical in nature and can be stolen or lost.

Having more points circulating will reduce the incidence of theft, since few people would want to steal random goods (potatoes or sandwiches in our example).

5. Long Term Debt

The value of the points are pegged to grains. This allows the debt to stretch for the lifetime of either party and is naturally extinguished after death.

6. Low Cost

Fancy paper bills are not needed to facilitate the tranasaction. It can be done offline with simple paper cards or a mobile app.

Points Banking for Multilateral Barter Credits (Points Transfer)

Let’s say:

• you agreed to do babysitting for a wheat farmer’s family for 30 nights in exchange for wheat.
• each kilogram of wheat is $1 as 1 point
• you charge each night $10 for a total of $300 or 300 points
• his latest harvest is 300 kilos

He decides to give you his harvest in advance to pay off his points-debt to you.

The problem is that you only consume 1 kilo per day or 30 kilos in a month. What will you do with the other 270 kilos?

In this case, you need to transfer the points to other people who can consume the wheat.

Assuming other people also want the wheat and also consume 1 kilo of wheat per day, then you can transfer the 270 points to 9 people. Instead of getting 300 kilos of wheat, you get a variety of goods and services from the variety of people that you will transfer the points to.

The transfer of points is facilitated by a points-banking system in order to prevent fraud.

Anti-Speculation and Hoarding

The main problem with the money-system is that it allows anyone to amass and leverage money. This causes monopoly, inflation, inequality, and too-big-to-fail.

This is why our points system does not allow points transfer by default. Instead, transfers must be done through points-banking which is a layer of regulation to check whether the transfer of points might lead to hoarding or speculation.

For example, you might have a friend who is exploiting you and wants to get your 270 points balance without giving anything in return. If points-transfer were allowed by default, then your friend would easily get those points, and consequently, the 270 kilos wheat that were meant for you.

But because of points-banking, those points would not all be transferred to him. This allows the points to be spread more fairly throughout society.

In the future, the transfers can be done automatically through machine learning.

A Stepping Stone Towards Clearing Funds

The points-banking system can be scaled to facilitate world trade by administering Clearing Funds . This will be explained in future posts.