What is Points Banking?July 5, 2020 by Juan
In previous posts, we explained two moneyless subsystems for a financial or monetary crisis:
- Basic Universal Revenue (BUR) for creating basic value as food
- Resource Credits (RC) for keeping companies afloat and avoiding bankruptcy
Both BUR and RC have a common denominator which is their values are pegged to rice so that BUR is in ultimately in grams of rice just as RC is in kilos of rice or wheat.
Rice or wheat is the base because we all need eat grains to survive*.
In countries that have no grains, such as Greenland, the system can use fish through an exchange-rate conversion system
Combining BUR and RC as Points banking
We then unify both system as Points Banking wherein a kilo of rice is 1 point, as an implementation of our Effort Theory of Value derived entirely from Adam Smith’s Wealth of Nations Book 1 Chapter 5.
Since BUR is for basics, it can be implemented by the following:
- the private sector as their office pantries,
- NGOS as a community pantry, and
- local governments as their town pantry (i.e. the government has the resources that everyone needs)
The key difference between points and currency is that the points are not tradeable with everyone, and therefore not legal tender. Instead, they are tradeable only to the people that a person likes.
Let’s say you babysit as part-time work.
In a money-system, you would offer your services to a family who would then pay you in currency. You could then exchange this currency with anyone for goods and services. They would never decline it since it’s legal tender.
This is extremely convenient for all parties. However, such a system requires the family to have money in the first place. They might not have that money during a financial crisis or recession.
This is where the points system comes in.
It will let the family will pay you in points which you can only exchange back for the goods and services offered by that family .
The Advantages of Points
Why would you want points instead of receiving a promise to pay in cash?
The possible reasons are:
- Core Competency or Excess Productivity
That family might have a core competency not available in the market. For example, one parent might work for Apple and get free devices or have discounts on devices. The deal might be for you to babysit in exchange for an iPhone at a cheaper rate than that offered in the market.
The points themselves do not suffer as much from inflation nor bear interest cost or revenue. This frees the family from having to pay interest for their promise to pay.
- Immediate Need
You might have an immediate need for something that the family has to offer. For example, they might be farmers and you might need food immediately. Doing a direct trade for babysitting for food saves the family from needing to have cash to avail of babysitting.
- Lack of Temptation to Steal
Receiving food regularly in exchange for babysitting services will free you from carrying money. This reduces the fear of theft or misplacing the money.
Points Banking for Points Transfer
- 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 points-laundering and speculation.
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.