Open Money Metacurrency Systems

Eric Harris-Braun, Creator of Open Money, a social network on Ning:

The open money project aims to create the global infrastructure, tools, governance mechanisms and platforms that will give communities the capacity to create their own currencies with just a few clicks and thereby liberate their wealth potential. This will become the most important evolution for society in the coming years.

Those attending the Open Money intensive in Mexico go at their own expense. In return they receive reimbursement in "nods," the Open Money currency. ($1 = 1 nod at the current exchange rate). Now, let's say that I mow the lawn of an Open Currency community member. They pay me $100 nods. I am able to buy, let's say, three hours of web development work from an Open Currency member, or I could pay them at their going rate in dollars at $33.33 an hour. Now, my question is about taxes. Do I owe income tax on the $100 nods that I collect? Put differently, would a community that trades in nods have successfully opted out of the income tax system for transactions conducted in nods?

Comments

[Jeff Trexler]

--"would a community that trades in nods have successfully opted out of the income tax system for transactions conducted in nods?"

No. They'd owe tax--translated back into U.S. dollars, of course

Technically the government doesn't tax inflows of money but accessions to wealth. It's a principle that has surprised any number of people who set up barter exchanges.

[phil]

Right, thanks. "Income from whatever source derived." The income recipient in this case would be honor bound to report it. And it would be illegal not to report it.

[Jeff Trexler]

In my experience, I've seen any number of folks in similar enterprises who think that honor and an awareness of illegal nondisclosure are, well, worth just a nod and a wink. Or they think the virtual world & meta-economies are outside the IRS' field of vision, let alone jurisdiction.

Then they find out the hard way that the IRS, when it hears about alt-economies, sends undercover agents to monitor transactions & issues subpoenas for internal records with data on each user. And courts have all sorts of reasons for not finding such actions unconstitutional.

I freely admit that I don't know much more about OM than one could get from this post and their site, and I don't have time to do much more of an inquiry right now. But at the very least, if they're creating an alt-economy that goes beyond swapping Sim-bucks for mowing a Sim-lawn, they might want to consider lawyering up.

I'm not endorsing the law as written; just dealing with the system as it exists today.

[phil]

Any one know a good lawyer who would take the case for $300 nods an hour? (Before tax.)

[Jeff Doyle]

My understanding is that in Canada, the government takes the position that no reporting or tax is required for transactions between individuals unless the recipient of the money is 'in business' providing the good or service for which the payment is made. So I wouldn't have to report the $100 nods if I helped you fix your truck, unless I were in business as a mechanic. Can't remember where I saw that...

[phil]

Gifthub does not provide tax, legal, or financial advice, for such advice readers must always consult their own professional advisors.

[Eric Harris-Braun]

Good question Phil! To be really clear: open money is NOT a tax dodging scheme. As Jeff points out, taxes owed in a given jurisdiction are legally (and morally I would add) due whether using federal currency or an open money currency.

However, that being said, open money, as a meta-currency system, will have many different kinds of tax ramifications. Some examples:

If you are using open money to create a Time Dollar style currency well, no taxes are owed as per IRS regulations. If you are using open money to account for wealth exchange within a legal entity I'm also pretty sure no taxes are due, for example: imagine a company that charges departments for its use of a centralized copying service, or IT support service, or lawn mowing service. Such charges from one department to another aren't taxable despite the fact that one department can be seen as deriving income from another.

Further, in a given currency (just like with conventional monies), some transactions will be taxable and others not. So for example, if I were to receive nods as payment for my business services, that would be taxable, but if I were being reimbursed in nods for a federal $ expense, that wouldn't be.

Open money currency service providers will not be in the same boat as barter-exchanges because they will not be able to know whether a given exchange in a given currency is taxable or not. Sovereignty and responsibility will lie with individual account holders.

[phil]

Thanks, Eric, the final two sentences eluded me because I am not sure about the pronouns. Who will not be able to know whether a given exchange is taxable or not? The barter people or the open money transactors? Sovereignty and responsibility lie with us all all the time, in some sense. But will the IRS be comfortable with this, particularly in an age of terror, and an age when so much illegal money flows through underground networks? Hawallah, anyone?

If taxes are not an issue, if they are paid either way, what makes getting paid in nods better than in dollars? Are nods convertable to dollars in any way? Can I buy and sell nods? Is there or will there be anything like an exchange rate? Will they be pegged to the dollar or float?

Are nods really a currency or a way to keep track of favors? I know to whom I owe a good turn and who maybe owes me one. Are nods a market or chit for such social IOUs, or are you really trying to get some people to switch from dollars to nods. Would the idea be to keep the business inside a network? The money is community based, and only community members hold it, so they have a preference for doing business with each other, and so that keeps all of them afloat, whereas otherwise the dollars and the work might go to NY, China, etc?

I am not knowledgeable in this area. I am just looking for the "sizzle," if working off the books is not it.

[michael]

Let me respond to some of your questions, Phil, as Eric isn't around today.

Barter groups generally present themselves as agents and responsible in the transaction that goes through them, and the IRS expect them to provide tax information. A cc service provider is more like a pop-mail server - an automatic recording service. Users will be able to flag those transactions that have tax implications and filter them as they need for reporting.

We anticipate some reactions from some regions - the IRS is one likely - but no great problems or impediments even there.

As regards what's better about getting paid in a community currency, it's that getting paid in nods or whatever may be better than not getting paid in $. If the dollars are there, take them. If not, take what is.

As for the sizzle, you've got it - "business inside a network" - although not by switching from dollars to nods, but adding them into the mix. And also, it's less about keeping business inside and more about creating new business - nothing restrictive, just additive and enabling an added layer on the economy.

Systemically, the "sizzle" of any community currency is that spending in that economy creates increased demand for your services in that economy.

Or, more simply - the fed dollar goes away when you spend it, a cc$ goes around. This is a universal and elemental sizzle - fits all sizes and shapes.

Anyone (or any business, organization or indeed government) with the choice of (1) paying entirely in hard money, or (2) partly in hard and partly in soft should prefer (2) if only for the hard money they don't spend.

Ceteris paribus, that should close the deal, and we think it (and other similarly compelling features) progressively will.

It will be less about "why would I use it?" and more about "whyever would I not?"

[phil]

So who issues the nods? Can I create my own out of thin air? Who prints how many? Who determines how many should circulate?

[phil]

So who issues the nods? Can I create my own out of thin air? Who prints how many? Who determines how many should circulate?

[michael]

"Nods" are a special case - an interim internal accounting of contributions to a project, intended for subsequent conversion into transaction currencies, hard and soft, as the project performs. (In open money development, nods are a VERY special case).

In general, community currencies (cc) in the open money context begin with all participants at zero, and the first to spend are the first issuers. Negative account balances are fungible and transferrable promises issued by those account holders, who are then in "committment".

Whether your air is thin or thick relates to your reputation and performance.

Account holders in credit determine the volume in circulation, as they are at risk if the committed fail to honour their promises.

There are many ways this general form is applied.

The least useful is a single issuer - as in a normal commercial loyalty program - which is merely a drag and discount. The inverse case - a cc with a primary receiver credited by many other small users is a far more productive approach, at least in theory, and likely soon in practice.

In some cases - see http://openmoney.org/cw - a restricted class of issuers is established to support credibility and conversion. See the "wildfire" link at the top of the page for more on this model.

That the general case - many accounts issuing without formal limitation - is inherently stable is a proposition that appears to contradict all conventional wisdom. But the conventional wisdom of money has been 99% derived from the flat earth context of conventional money.

If you would like to explore this, http://openmoney.org/letsplay is the best route. A guided tour will shed more light than a blind run, so please let me know if you want to give it a try.

[phil]

Thanks, Michael, that helps. Issuers "buy" something with a chit that is in essence a redeemable and transferable obligation on their part to, for example, perform a service. A graphics designer might get her roof fixed in return for a chit redeemable for so many hours of graphic design assistance. If the roofer did not need those services he or she could use the chit to buy a meal in a restaurant, and the restaurant could redeem from the graphics designer? Or the chit might continue to circulate, with the restaurant owner using the chit to buy gasoline, and so on? But the starting value stems from it being redeemable in the first instance from the issuer?

[michael]

That's it - your word is your money - as far as it goes.

Generally a transaction will be part "hard" and part "soft". The restaurant can generally play at 50/50 and cover all cost of goods, but the gas station might be 90/10.

[phil]

My word is like gold? And who keeps track of the obligations? It is just a matter of holding the currency, or is the currency traced back to the original issuer, so that the person who cashes it in has to deal with the original promiser? And if the promiser has died, skipped town, lost interest, that is just part of the risk assumed in this kind of community-effort? We might for all we know we trading chits backed by dead folks or deadbeats? Is there some kind of central repository of reputation-information? I might be able to go on line and assess what a Michael-Chit is worth these days? Is that what you all are building?

[Gerry]

This is a very interesting conversation, I hope it continues. Yes, I would make it a system requirement to carry the proper tags to determine taxability as well as the equally important deductability, not for the sake of the government, but convenience in the onerous task of accounting for personal income each year. Secure and accurate records would be the personal records of the persons involved, and disclosable only under proper and specific warrants.

To be sure, clear intentions and follow through will be important in drawing critical attention only when we are prepared and positioned for resistance.

It is important to understand that the critical systems of the new currencies provide for what we have been calling holopticism, what a group of collaborators knows in common creates a holoptic field for the work they are engaged in together. What we think of as money and currencies is only the tip of the iceberg. Each exchange of a comment or blog post is a sort of currency, Kula's at GiftEcology.org are another whole set of flows. If we tried to put a value on these things in a non-exchangable appreciation currency, that might produce something interesting (or it might not).

The point is that it is almost certain that the right sort of digital tools are able to sustain (and maybe even create) the sort of shared purpose of people gathered for a shared purpose as we did in 2004 to find ways for "giving to flourish". And we didn't have anything but this blog and an experimental drupal site. We intend to purpose build tools to support holopticism, in fact to create a platform for innovation in holopticism.

If what is to emerge is to be intelligent, to posses wisdom, we need to activate these sorts of signals of quality of experience as well as the ones that relate to resource flows, etc. Although you can measure stupid things, I still say you are blind without any measures. If you think of currencies as measures, it would be silly to think you could run out of inches or kilometers, but we can run out of money, because it is artificially scarce.

[phil]

Printing more money will not make bountiful, just render it worth less. (Nods piled in wheelbarrows or used to paper walls.) Isn't the question whether alternative currencies help to create useful things and productive patterns of action? Can you think of this way: "Who owes whom what favors, gifts or recompense?" Can that be quantified, and displayed in a "currency"? And if people were credited for their good deeds, in some currency, would that encourage them to give more, and to die with huge outstanding balances of good deeds done?

[michael]

My word is like gold is like chalk is like cheese - different stuff entirely and always will be. Gold has its power, but it's nothing to do with me. One the other hand, my word is something to do with me. I'm attached to it.

And it's not about security in the same way as it inevitably is for a commodity currency, since it's not about assets but processes. You will be able to go online and check into my open money portfolio - but probably 90% of my actions will be in systems with thousands of users, in commitment or in credit, you'll generally be more interested in the properties of the cc proposed, which will be similarly accessible.

However, a repository is the proper description of what we are building, but decentralised. Users recording what they find it useful to record.

On quantity - "nods in wheelbarrows" - you're right, more is less. But while that's the case for any commodity money, and it's quite different not for community currencies, where quality determines quantity, not vice versa.

There are two basic money patterns - going, going, gone and going around. A commodity money is designed to do the first and can't do the second. Open money can do both, so it provides a wide range of patterning possibilities. Carbon currencies? An end to end tracking system?

On philanthropy, certainly, some people would be encouraged to give more by some recognition, but it would be more sustainable if they gave more because they had some clear measure of the value they were generating, and were even motivated by how they shared in it.

But even that is more about assets and retention, and what makes cc run is the process. The old adage about giving a fish or teaching to fish applies here - commodity money is to open as a fish is to fishing.

Or a nod is as good as a wink to a blind horse?

[Gerry]

Don't forget that we are talking about many currencies, some are not even tradable, the most valuable currencies are not even measurable (priceless) as you well know. Even with the classes of tradable currencies there can be many sets of rules for issue, circulation and redemption. We certainly don't have a complete or even half-formed theory, but I will posit that these are ontologically definitive of tradable currencies (issue, circulate, redeem). We were speculating here about personally issued currencies in a mutual credit system, and Michael has many years of experience with creating "LETS" systems, and can tell us a lot about what does and does not work. It turns out that these systems don't really fail so much as people might stop using them, but they can then start right up again. Like Michael writes, it is about process (spending and accepting cc's as a matter of course on our daily business). There is really no reason that large percentages of commercial and personal transaction might be done in currencies other that the kinds of fiat currencies that fills our common sense understanding of what money is. Open currencies are about exercise of sovereignty. We can do it because we can speak and communicate, and we can do it more easily with community support. Remember the "Augmented Social Networks" paper? This is really about creating that sort of thing. Nobody can force you to accept this or that currency, but any of us can freely accept, circulate and issue currencies according to any norms we collectively agree to hold.

I hope Michael will explain more about one way to issue currencies and enhance business' relationships to communities called Community Way. The way I understand it was as three groups, the businesses (1) issue the currency an allocate (give) it to community organizations (2) and such. The currency is a promise by the businesses to provide services, and the businesses can restrict the acceptance of the currencies based on hard vs. soft costs or excess capacity (flexible scheduling, etc.). Once issued and given to a charity, the currency can be circulated in the community (3), given to volunteers, used to buy services or even exchanged with the public for cash. Someone who did this would be supporting the charity, and also receiving services (possibly knowing some specific services she can buy with them).

[phil]

What percentage, Michael and Gerry, of your purchases or receipts today are in an alternative currency? Or, can you give a fictionalized account of some real person you know who lives "off the financial grid" within an alternative currency community? To follow such a person about for a week (in imagination) might be good way to connect reality to rhetoric. The rhetoric here is liberatory. But the realities don't seem too much different from coupons, air-miles, ious for hours worked, and favor trading. I can imagine a commune whose real economic wealth was a farm sufficient for the material needs of the community. They cultivate and raise what they eat, they have their own well, they have solar power, they have livestock. They trade only with each other and they have their own currency. I can see that. They would have "sovereignty." But a mixed economy built on mortgage fraud - how does adding more currencies add economic productivity? What real work, or real value is added in the mixed economy that is not added now? Friends doing business with friends - Rotary Clubs do that too.

[michael]

For me, personally and commercially, current reality in this field is presently close to nil for purchases, and around 20% for income. Over the last 25 years I've enjoyed occasional periods of 50% each way, but only in a somewhat restricted lifestyle.

However, neither "alternative" currencies, nor living "off the financial grid" were ever part of the plan, and my experiences are as indicative of a mature cc economy as the Wright brothers' experience was to modern aviation.

This graphic - http://openmoney.org/omp/brief.html#jump12 - shows how we expect internal and external currencies will reflect their form of Gresham's Law - the import/export currency applying preferentially to i/o of goods, services, energy etc not locally available or affordable, and the internals transacting progressively more of the labour, salary and profit in the local economy. This leads fairly directly to double digit % of local/regional part of GDP. In my math, at least, which I would be happy to discuss with you.

In this context, a day in the life would look pretty much exactly as it does now, but there will be more money about and more life in the economy. Wages, salaries will be higher, with progressively more larger parts paid (after tax paid in fed$) in cc. Smart cards / chips & internet will handle the processing. Life style will be generally more relaxed, job mobility, job sharing will be higher. I could go on - but as you say ..

> The rhetoric here is liberatory. But the realities don't seem too much different from coupons, air-miles, ious for hours worked, and favor trading.

If you're not getting "too much difference" we're clearly NOT making our point at all, so I'll respond to your last question from different angle. You ask ..

> .. how does adding more currencies add economic productivity? What real work, or real value is added in the mixed economy that is not added now? Friends doing business with friends - Rotary Clubs do that too.

Please review http://openmoney.org/cw/slideshow.htm and/or this 107 sec clip - http://wildfire.communitycurrency.net/RAM/CommunityWay.ram.

If the initial contribution per business is $1000cc$ per employee (as recommended) you can draw a rough p/l for each sector on one full cycle.

We say everyone in this circuit wins. Real value is added, and will continue to be added. What do you see?

Do you know any Rotary Club doing this? We don't, but if they're out there we'd very much like an introduction.

[Gerry]

Phil,

I'd like you to imaging how this might work for the main street millionaires that you sometimes write about. Gift currencies can be structured to offset profits, not operating capital. Enterprise equity currencies could be created to transfer ownership to a new generation of leaders whether they are within the family or the enterprise.

In some ways they are like coupons and air-miles, but the greater flexibility and fungibility are critically important to make the cultural leap. Remember that all transactions are freely negotiated between sovereign actors, and each will value their mix of currencies differently based on how they function, how scarce or available they are, if I am accepting, how exchangable will they be or do I intend to accumulate them.

[phil]

Let's say that 10 local businesses agreed to give $1,000 in real dollars each to a local nonprofit. In return, the nonprofit agrees to buy good and services with that $10,000 only from those 10 businesses. Leaving aside income tax issues, does this put us in about the same place as the community way proposal?

If Business A gives $1,000 of community alternative currency to a charity, and the charity uses it plus $1,000 of real money to purchase $2,000 of goods from Business A, then all that we have is a net loss to Business A of $1,000, against which they have the alternative currency of $1,000. Now, to be made whole, they need to shift the $1,000 of alternative currency to Business B or to an employee. Assume they get others to accept the alternative money. What is the net result? Isn't it just that the alternative money is not readily negotiable outside the community and so encourages local trade? Is that the ultimate appeal? It keeps the money and economic activity within a group that, in essence, agrees to trade within itself, and shows that commitment by doing deals in alternative currency rather than federal dollars?

[Gerry]

What you are missing is all the transactions that happen that might not have or would not have without the new currency (BTW, alternative isn't really the right word, community is ok). Money creates wealth by circulating, this is try of both traditional currencies and open currencies.

The way Michael puts it, money is a measure not the thing it measures. Running out of resources is one thing, but if a builder tells you he cannot continue because he is out of hours or inches or pounds then I suggest you fire him.

[Phil]

I do see that real activity is the issue. I am not so clear on how community currency has that result. I guess it would happen insofar as people are willing to accept community currency for their goods and services when the payer can't or won't pay in federal money. Seems that Michael has had more luck in working for such money than he has had in getting others to accept it for their goods and services.

[Gerry]

If you are able to spend it on what you value, you will be willing to accept it for your work. Do you agree?

[phil]

Yes, Gerry, of course. I do a lot when I can for others as a giver. Whether and how it comes back around is another question. A giving network works like that. Maybe community currency is a way to do the bookkeeping?

[Gerry]

It is exactly that and more. As you know the bookkeeping is important to the management of any enterprise or institution.

I just got back from a road trip to Freedom to Connect with Michael Linton. Almost got my company to sponsor the trip and maybe f2c2008. Cost me a lot and was well worth it, next year I think we will be a full sponsor. Lots of good stuff happening.

I also wanted to give you links to Jean-Francios in Korea. He was a designer and facilitator or the work we did on open money in Mexico.

[Gerry]

And I've been thinking about some design elements for nods. Generally these currencies are pegged to the local fiat currency (US dollars for us), though in a crisis you might have to be prepared to find a better value reference. My preference would also be to neutralize inflation from a starting date (2008 is a good candidate) even though this means the complexity of a changing fractional exchange rate.

I am also thinking that a nod is really more than a dollar, three times more. I want it to work so that when you earn a nod for work done, you get a nod to spend, a nod to save and a nod to give. Nods would have a sort of chromatics like guarks and gluons inside an atomic nucleus. Each nod would have three aspects that are expressed in different currencies that also have different rules of expression. The spending nod is easy, works just like the money we know well, only you have less of than "bottom of the bucket" problem. The savings money would be centered in ones own local community and be an expression of care for one another before and after our work lives. The systems and institutions supported with this stream could replace the dis-functional social support systems that we have (need I name them?). The money to give would be to build and maintain the commonwealth that supports our productivity.

Well, that is the beginnings of my vision for how it would work. Physically I think there will be three types as well, paper money with encryption based authenticated id's, digital tokens (I'm partial to a design with a two wire power/signal interface that looks like a coin with a hole in the center), and virtual money (on-line exchanges). I would appreciate your musings. We can take this back to WB if you cannot speak freely so close to the big house.

[Phil Cubeta]

Thanks, Gerry, blogged it. WB, here, maybe it is all the same. We speak at our own risk, whatever the venue. God sees All, and so does Candidia and her faithful servants.

[Gerry]

Yes, our biggest asset is that they continue to believe that we are insignificant. The gambit is that this situation will continue until it is too late to react.

[Phil Cubeta]

Right, I am only pretending to be insignificant. The Dumpster is a dodge. Seems to be working. So far no one recognizes me as the Messiah.

[Gerry]

Stealth is an important tactic.

[phil]

"Nakedness is the best disquise," as my mentor, Diogenes taught.

[Gerry]

Have you seen Eric in the WSJ video yet? http://online.wsj.com/video/the-coming-currency-revolution/25225F5A-B979-4609-A55D-1BAE9A1BA158.html

[Phil Cubeta]

Wow, thanks Gerry. Blogged it. The light for me is slowly dawning.