The Capital Structure of Nat… Everyone

Excellent paper by Bolton and Huang (see here) about Nations and the role of fiat money a.k.a currency as equity of a nation. It follows the path of applying principles of micro economics to macro economics and does it well.

However the paper applies to me as an individual, too. I have income, assets and debt just like firms and nations. I have equity too: human capital, assets etc.

So I want my own currency. I will do my own ICOs (initial coing offering). My currency will be trustworthy and tradable since I go to work, earn income, I have assets to back up my coins. Holders of my currency will trade my coins to other currencies like Euro/USD/Bitcoin/Yen/whatever-you-choose-to-currency. I promise to buy back my currency, sell my assets or give my assets to those who claim. Or I can buy lender-of-last-resort services as an insurance. I need to be very careful with the issuance of my coins. Too much coins leads to collapse of the value of my currency (just like currenciens in the analog world). And all my start-ups will have their own currencies and they are tradable in algorithm-based liquid global currency markets. And so will be everyone else’s currencies.

No intermediaries are needed. I pay with my coins which value equals the economic strenght of my existence. Naturally when I work for someone else’s firm I can accept its coins as a pay-off. However I need to consider the bankruptcy and other risks (of which the analysis is provivded to me by my AI assistant) and then I trade it for food/clothes/whatever-I-choose-to-currency.

Euro (or USD for that matter) as a currency gave us scale-economies in an analog world. But in a digital world those economies of scale vanish because of full transparency and zero transaction costs.

Minimum requirements for the digital set-up to operate are the following: suffient data (check), computing power (check), market rules (not yet). Rules and oversight will be strict and fully automated. Difficult but totally doable.

Couple of years back I had a discussion with a colleague and friend. He was investigating blockchain, and was very enthusiastic already then. I was gloomier and said that virtual currencies / blockchain are not relevant because you have to change the whole financial system to make it work.

But now it happens in front my eyes. Bolton&Huang paper just gave a wording for a plausible vision for the next financial system. OMG.

 

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