The reason your idea stinks is that it is way too complicated to explain. You need an elevator pitch that the average person can understand in 30 seconds.
My understanding of your idea is that instead of using cash as a medium of exchange people can convert their cash into shares of some type of environmental fund and then exchange those for goods and services. (If you haven't yet read http://en.wikipedia.org/wiki/Credit_theory_of_money)
In order for this whole concept to work first some sort of new legal/regulatory structure will have to be invented, then someone will have to create an exchange where people can convert their money to these new shares, then someone has to create mobile apps for exchanging the currency. Finally once this is all in place you have to get the word out and get lots of consumers and businesses to all start using this currency.
This is my thoughts as a potential user:
Positives:
This is in some vague way able to improve the environment. I'm a lot less confused and there is far less risk if I just give some money to a well established charity.
Negatives:
- The chance of any new currency being used 5 years from now is close to zero. Bitcoin is pretty much the only case I've seen so far.
- Regulatory risk: The government could shut down all the new currency exchanges. It costs $10+ million to be compliant with all money transmitter laws in the states.
- I have to trust that this whole ETF thing is not a scam. If I wanted to do my due diligence I'd probably want to make sure the whole thing is audited by a respectable company. That probably won't be the case.
- I have to trust that the exchange won't get hacked. I have to trust that my client won't get hacked. Is this a distributed cryptocurrency or is it centralized?
- What are the tax implications of this? Do these ETF shares distribute dividends? If so how? If not, then there is no value in the asset. Remember the present value of the asset is equal to the sum of all the discounted cash flows.
By comparing the positives vs negatives for using this currency, there would be no reason I would use it.
I think you need an idea that is far simpler and requires about 20 less moving parts for it to have a chance.
The post was meant to put as much information on the table as possible to solicit as much criticism as possible. Definitely not trying to sell someone on the idea right here / right now. More of enticing people to collaborate.
If I had to do an elevator pitch it would probably be along the lines of "A mobile app that allows people to trade securities for goods & services instead of cash. This lets people without disposable income for investment have a chance to participate in the market, it helps isolate people's money from risky parts of the market they dislike, it helps shift investment towards areas traditional investors may discredit but consumers advocate for, and puts something tangible behind the currency your exchanging."
Thanks for posting the Credit Theory of Money Article. I definitely agree with parts of this theory & that money is just a way to account for debts owed & credit extended. Another way I envision it is similar to PG's discussion of wealth and believe that money is just a ledger to facilitate the exchange of the wealth.
This system kind of branches off from the Credit Theory though in that the currency would not be just a representation of credits and debits, it would be backed by securities/investments in companies that have actual value. (Of course, these instruments are all just other forms of credit/debt, but at least in this case there is some form of physical / intellectual property/value at the end of the chain as opposed to fiat money).
The thinking behind the Credit Theory does seem to help explain my line of thought behind the flexibility & subjectivity of money.
For the legal/regulatory aspects, I've been researching the compliance issues. Like I said in the original post though, there are many ways to do this, but each brings with a separate set of regulatory burdens though. For example, one way that I've thought about doing it would be through a Mutual Fund where you simply exchange shares of the mutual fund. This likely creates too many tax issues for potential users. Another option would be making a company and then doing a direct public offering. This would let the company sell and advertise its own stock plus put restrictions on how it could be sold. However, there's caps on how much money you can raise, plus there's SEC guidance on what exchanges run by the company itself can actually do (pretty much all you can do is put up a buy bulletin board & a sell bulletin board). So the DPO method would require a separate company to operate the exchange, along with a separate company to act as a clearing house, plus the DPO idea would ring the bells of fraud agency in the country.
The best way I see how to do it would be to try and divorce the currency from the assets so that they are not easily classified as securities. This has the unfortunate benefit of decreasing the "this currency is backed by X asset" claim, but if done in the ways I'm working could potentially only require the company to operate according to banking / FinCen laws among other regulations but not necessarily a lot of the SEC requirements & some tax issues.
On thoughts as a potential user:
Yea, it is a way to improve the environment, by giving more leverage to consumers who do not have the ability to exercise power in financial markets. It can also attempt to right other discrepancies between them such as the general shortsightedness, or how much of the investing does not go to thinks that actually improve the "real economy."
As for donating to charity, I consider this as part of the shift to more entrepreneurial philanthropies that encourage changing environments and lives so that they become more self sustaining & can help themselves, rather than just giving them supplies. Also, in the context of climate change, donations are not going to accumulate the wealth necessary to finance what the world needs.
Will you currency support chargebacks? If so it will invite fraud, if not there will be big sob stories on how people spent their money and ended up not getting what they wanted from a merchant and having no recourse (assuming it gets popular enough that average people use it).
Right now PayPal charges merchants a 2.9% fee. I'd imagine your service would need to charge as high or higher fees since they benefit from economies of scale and experience.
If I use the service a couple times a month, the high fees are going to add up. I would be better off just taking the money I save and investing in the pro-environment ETF directly.
Apparently the break the law and ask for forgiveness approach is no longer viable due to increasing regulation and criminal penalties. See this for a very good resource:
https://news.ycombinator.com/item?id=5306988
You haven't mentioned how this project would be funded and the company organized.
Assuming you decide to try to play by the rules:
Would it be a non-for-profit? If so where will the requisite funding come from?
Would you plan on getting fund from VC? I'm not sure there is the possibility of big profits and growth to interest them.
Although you could build a cheap prototype/demo, it doesn't seem like you could make a cheap minimal viable product.
Thanks for the great input, especially the chargeback question. It seems like it should be at the top of the list but this is something I honestly didn't think of (although I was aware of general potential for fraud I wasn't dipping too heavily in the specifics).
I don't see how the company would be able to establish credibility without having some sort of chargeback policy, but right now I haven't done enough research to discuss a coherent and effective anti-fraud policy. I think it would definitely be a large upfront cost or burden. A shitty way to handle it off the top of my head would be to just issue more currency to reimburse people, but this makes the system as a whole look less credible and would also gradually weaken the currency. It may just be a way of spreading the cost of a warranty over the population of users just like insurance, but at least doing it according to that method would be terrible PR / image.
For the merchant fee, I think it could actually be less. Paypal/square etc. are just conduits to transmit standard currency from one institution to another. In this case, since the currency is always transmitted via the same institution I believe the compan could charge less. It wouldn't have to make as much from an individual transaction because the company has a monopoly over all future transaction. The exit fee on currency can also be though of as a deferred transaction fee - ie, if a company is breaking the currency out of it's self contained loop, then they suffer a penalty fee.
The fees may add up, but hopefully less so than using something like paypal. That being said it would probably be less than cash.
However, this is still more effective than directly investing in a pro-environment ETF because your committing your disposable income to the ETF & securing commitments from sellers etc. that they will continue committing the money to the ETF. It's utilizing a resource that you could not previously invest because you needed the liquidity/actual purchasing power to buy goods. I think the bigger threat of high fees adding up is that if it trades at a discount then you aren't using your money effectively. But then again if a company does vary its price based on what currency you use & doesn't accept it at face value then they are also expressing that they do not care about your values / participation in the system the currency is trying to fund. -- Compare to Berkshare, a complementary currency in the US -- if a company required Berkshare customers to pay more than they would signal that they don't really care about keeping wealth in the local economy.
Thanks for the resources, the legal issues are the area that I'm spending most of my time on, but nothing is simple in this area as that post says. I looked through the posts but haven't clicked on any of the links within the post you referenced. It'd definitely on my to do list. Now, I never planned on flagrantly ignoring laws, but sometimes because of the adversarial nature in this country you have to actually do something and cause a conflict before you get any interpretation on whether something is legal. Regulatory agencies are supposed to be more proactive with guidance etc. but that's not always the case.
Also, despite my own research I have not taken any bar exams yet and may even delay taking one based on where this idea is come November/December. Thus I will definitely need to talk to some lawyers before advancing the idea. Further, even if I was a licensed attorney already I would still likely seek outside advice.
Oddly, I'm actually working literally next to some financial crimes enforcement attorneys this summer but haven't brought up any issues with them yet. Didn't occur to me until recently to talk to them about this idea. Probably because I'm pretty confident they mostly focus on counterfitting.
By funding do you mean intitial funding or how the company is going to make money &#...
Your idea is exactly the way the economy already works. People deposit their money in a bank, they receive an evidence of deposit in return (their bank balance), and then banks then lend the deposited money out to businesses (or individuals) that can use it. When people buy something (say with a credit card), the evidence of deposit is transferred to the seller's bank account electronically, so they don't have to handle paper certificates. It is true that we have cash (dollar bills) but these are mostly used as a convenient way to transport small amounts of money between bank accounts where it will reside (very few people keep any significant fraction of their cash as physical dollar bills.)
You're essentially proposing to open a socially conscious bank that promises to only give loans to socially conscious organizations (and presumably gives them a lower than market interest rate, at the expense of either lower interest rates to depositors, or charging depositors higher fees.) That part's reasonable. I used to keep my money in a bank that worked sort of like that. They tend to be a hard sell because they don't have a lot of ATMs, they don't pay good interest rates, they don't have super slick online banking.. all the forces that have caused consolidation in retail banking work against them. Eventually I decided that I'd use the bank that best served my banking needs, and separately donate to whatever organizations I personally wanted to support, rather than trying to couple the two and thus do both of them inefficiently.
You also propose to charge people a punitive fee if they ever withdraw their money from your bank, for example to do business with someone that doesn't have an account at your bank (which will be most people, to start with.) I don't think anyone wants to deposit their money at a bank like that. I sure don't.
If you want to get people to use your bank, I think that at the end of the day, you're going to have to actually make your bank an attractive place to keep deposits. I think it's really going to be an uphill battle to get people to opt in to these anticompetitive/protectionist provisions that keep money in your bank, because the instant they do it, their dollars become less valuable. They'd do better to donate to a charity directly.
So, your idea stinks because if you want to do this, you should just open a bank and focus on lending to organizations you like, and do everything you can to attract depositors (and imposing a tax when they give money to someone not at your bank is probably going to hurt you more than it helps, in terms of attracting depositors.) And, it turns out a lot of people have already had this idea, and they're called credit unions. There is a clean regulatory framework around them, you will have deposit insurance (the credit union equivalent of the FDIC), and you might be surprised how easy they are to start (not trivial, but easier than banks for sure.)
8 comments
[ 2.6 ms ] story [ 34.5 ms ] threadMy understanding of your idea is that instead of using cash as a medium of exchange people can convert their cash into shares of some type of environmental fund and then exchange those for goods and services. (If you haven't yet read http://en.wikipedia.org/wiki/Credit_theory_of_money)
In order for this whole concept to work first some sort of new legal/regulatory structure will have to be invented, then someone will have to create an exchange where people can convert their money to these new shares, then someone has to create mobile apps for exchanging the currency. Finally once this is all in place you have to get the word out and get lots of consumers and businesses to all start using this currency.
This is my thoughts as a potential user:
Positives: This is in some vague way able to improve the environment. I'm a lot less confused and there is far less risk if I just give some money to a well established charity.
Negatives: - The chance of any new currency being used 5 years from now is close to zero. Bitcoin is pretty much the only case I've seen so far. - Regulatory risk: The government could shut down all the new currency exchanges. It costs $10+ million to be compliant with all money transmitter laws in the states. - I have to trust that this whole ETF thing is not a scam. If I wanted to do my due diligence I'd probably want to make sure the whole thing is audited by a respectable company. That probably won't be the case. - I have to trust that the exchange won't get hacked. I have to trust that my client won't get hacked. Is this a distributed cryptocurrency or is it centralized? - What are the tax implications of this? Do these ETF shares distribute dividends? If so how? If not, then there is no value in the asset. Remember the present value of the asset is equal to the sum of all the discounted cash flows.
By comparing the positives vs negatives for using this currency, there would be no reason I would use it.
I think you need an idea that is far simpler and requires about 20 less moving parts for it to have a chance.
Thanks so much for your feedback.
The post was meant to put as much information on the table as possible to solicit as much criticism as possible. Definitely not trying to sell someone on the idea right here / right now. More of enticing people to collaborate.
If I had to do an elevator pitch it would probably be along the lines of "A mobile app that allows people to trade securities for goods & services instead of cash. This lets people without disposable income for investment have a chance to participate in the market, it helps isolate people's money from risky parts of the market they dislike, it helps shift investment towards areas traditional investors may discredit but consumers advocate for, and puts something tangible behind the currency your exchanging."
Thanks for posting the Credit Theory of Money Article. I definitely agree with parts of this theory & that money is just a way to account for debts owed & credit extended. Another way I envision it is similar to PG's discussion of wealth and believe that money is just a ledger to facilitate the exchange of the wealth.
This system kind of branches off from the Credit Theory though in that the currency would not be just a representation of credits and debits, it would be backed by securities/investments in companies that have actual value. (Of course, these instruments are all just other forms of credit/debt, but at least in this case there is some form of physical / intellectual property/value at the end of the chain as opposed to fiat money).
The thinking behind the Credit Theory does seem to help explain my line of thought behind the flexibility & subjectivity of money.
For the legal/regulatory aspects, I've been researching the compliance issues. Like I said in the original post though, there are many ways to do this, but each brings with a separate set of regulatory burdens though. For example, one way that I've thought about doing it would be through a Mutual Fund where you simply exchange shares of the mutual fund. This likely creates too many tax issues for potential users. Another option would be making a company and then doing a direct public offering. This would let the company sell and advertise its own stock plus put restrictions on how it could be sold. However, there's caps on how much money you can raise, plus there's SEC guidance on what exchanges run by the company itself can actually do (pretty much all you can do is put up a buy bulletin board & a sell bulletin board). So the DPO method would require a separate company to operate the exchange, along with a separate company to act as a clearing house, plus the DPO idea would ring the bells of fraud agency in the country.
The best way I see how to do it would be to try and divorce the currency from the assets so that they are not easily classified as securities. This has the unfortunate benefit of decreasing the "this currency is backed by X asset" claim, but if done in the ways I'm working could potentially only require the company to operate according to banking / FinCen laws among other regulations but not necessarily a lot of the SEC requirements & some tax issues.
On thoughts as a potential user:
Yea, it is a way to improve the environment, by giving more leverage to consumers who do not have the ability to exercise power in financial markets. It can also attempt to right other discrepancies between them such as the general shortsightedness, or how much of the investing does not go to thinks that actually improve the "real economy."
As for donating to charity, I consider this as part of the shift to more entrepreneurial philanthropies that encourage changing environments and lives so that they become more self sustaining & can help themselves, rather than just giving them supplies. Also, in the context of climate change, donations are not going to accumulate the wealth necessary to finance what the world needs.
Will you currency support chargebacks? If so it will invite fraud, if not there will be big sob stories on how people spent their money and ended up not getting what they wanted from a merchant and having no recourse (assuming it gets popular enough that average people use it).
Right now PayPal charges merchants a 2.9% fee. I'd imagine your service would need to charge as high or higher fees since they benefit from economies of scale and experience.
If I use the service a couple times a month, the high fees are going to add up. I would be better off just taking the money I save and investing in the pro-environment ETF directly.
Apparently the break the law and ask for forgiveness approach is no longer viable due to increasing regulation and criminal penalties. See this for a very good resource: https://news.ycombinator.com/item?id=5306988
You haven't mentioned how this project would be funded and the company organized.
Assuming you decide to try to play by the rules: Would it be a non-for-profit? If so where will the requisite funding come from?
Would you plan on getting fund from VC? I'm not sure there is the possibility of big profits and growth to interest them.
Although you could build a cheap prototype/demo, it doesn't seem like you could make a cheap minimal viable product.
I don't see how the company would be able to establish credibility without having some sort of chargeback policy, but right now I haven't done enough research to discuss a coherent and effective anti-fraud policy. I think it would definitely be a large upfront cost or burden. A shitty way to handle it off the top of my head would be to just issue more currency to reimburse people, but this makes the system as a whole look less credible and would also gradually weaken the currency. It may just be a way of spreading the cost of a warranty over the population of users just like insurance, but at least doing it according to that method would be terrible PR / image.
For the merchant fee, I think it could actually be less. Paypal/square etc. are just conduits to transmit standard currency from one institution to another. In this case, since the currency is always transmitted via the same institution I believe the compan could charge less. It wouldn't have to make as much from an individual transaction because the company has a monopoly over all future transaction. The exit fee on currency can also be though of as a deferred transaction fee - ie, if a company is breaking the currency out of it's self contained loop, then they suffer a penalty fee.
The fees may add up, but hopefully less so than using something like paypal. That being said it would probably be less than cash.
However, this is still more effective than directly investing in a pro-environment ETF because your committing your disposable income to the ETF & securing commitments from sellers etc. that they will continue committing the money to the ETF. It's utilizing a resource that you could not previously invest because you needed the liquidity/actual purchasing power to buy goods. I think the bigger threat of high fees adding up is that if it trades at a discount then you aren't using your money effectively. But then again if a company does vary its price based on what currency you use & doesn't accept it at face value then they are also expressing that they do not care about your values / participation in the system the currency is trying to fund. -- Compare to Berkshare, a complementary currency in the US -- if a company required Berkshare customers to pay more than they would signal that they don't really care about keeping wealth in the local economy.
Thanks for the resources, the legal issues are the area that I'm spending most of my time on, but nothing is simple in this area as that post says. I looked through the posts but haven't clicked on any of the links within the post you referenced. It'd definitely on my to do list. Now, I never planned on flagrantly ignoring laws, but sometimes because of the adversarial nature in this country you have to actually do something and cause a conflict before you get any interpretation on whether something is legal. Regulatory agencies are supposed to be more proactive with guidance etc. but that's not always the case.
Also, despite my own research I have not taken any bar exams yet and may even delay taking one based on where this idea is come November/December. Thus I will definitely need to talk to some lawyers before advancing the idea. Further, even if I was a licensed attorney already I would still likely seek outside advice.
Oddly, I'm actually working literally next to some financial crimes enforcement attorneys this summer but haven't brought up any issues with them yet. Didn't occur to me until recently to talk to them about this idea. Probably because I'm pretty confident they mostly focus on counterfitting.
By funding do you mean intitial funding or how the company is going to make money &#...
You're essentially proposing to open a socially conscious bank that promises to only give loans to socially conscious organizations (and presumably gives them a lower than market interest rate, at the expense of either lower interest rates to depositors, or charging depositors higher fees.) That part's reasonable. I used to keep my money in a bank that worked sort of like that. They tend to be a hard sell because they don't have a lot of ATMs, they don't pay good interest rates, they don't have super slick online banking.. all the forces that have caused consolidation in retail banking work against them. Eventually I decided that I'd use the bank that best served my banking needs, and separately donate to whatever organizations I personally wanted to support, rather than trying to couple the two and thus do both of them inefficiently.
You also propose to charge people a punitive fee if they ever withdraw their money from your bank, for example to do business with someone that doesn't have an account at your bank (which will be most people, to start with.) I don't think anyone wants to deposit their money at a bank like that. I sure don't.
If you want to get people to use your bank, I think that at the end of the day, you're going to have to actually make your bank an attractive place to keep deposits. I think it's really going to be an uphill battle to get people to opt in to these anticompetitive/protectionist provisions that keep money in your bank, because the instant they do it, their dollars become less valuable. They'd do better to donate to a charity directly.
So, your idea stinks because if you want to do this, you should just open a bank and focus on lending to organizations you like, and do everything you can to attract depositors (and imposing a tax when they give money to someone not at your bank is probably going to hurt you more than it helps, in terms of attracting depositors.) And, it turns out a lot of people have already had this idea, and they're called credit unions. There is a clean regulatory framework around them, you will have deposit insurance (the credit union equivalent of the FDIC), and you might be surprised how easy they are to start (not trivial, but easier than banks for sure.)