A World or Continent with one currency i.e. Bitcoins only. Euros only. Dollars only.
The purpose of this document is to discuss a situation where only one currency is involved. This means a situation in an isolated large area without any trade or business with the outside world.
To study the 'opposite' select: A World with two currencies . It is advised to study that document after this one.
In this isolated area we use only Euro's or Dollars or Bitcoins or something else
This situation seems rather unrealistic but it gives a good indication about the meaning of money and what is involved
Money by itself in an isolated situation does not have any value. You cannot buy or sell it against other coins. The purpose of money is only to exchange goods or for services performed i.e. labor.
To get an idea if you want to buy a bar of chocolate the price of the same bar should be everywhere the same. What the price is if there is only one product is of no importance
Now what happens if you want to sell a house. In that case you have to specify how many bars of chocolate you want to receive if some one wants to buy your house. For example 10000 bars, 100000 bars or 1 million bars.
Of course this is not rather practical. It is more practical to select a currency. That means you have to specify the prices of of all the goods and services in either Euro's or Dollars or Bitcoins. The most important issue is that everyone uses the same currency.
To establish the price of a currency a much more practical concept is: a basket of household goods.
How is a currency handled?
There are two cases to consider: conventional money and crypto currency.
In reality in the case of conventional money, most of the money is handled under control of the banks and most of the exchange happens between accounts in electronic form, between customers and banks and between banks mutual. Only a small amount of money transfer is done in cash.
In the case of crypto currency all the transfers involve changes in the blockchain of a database and because there are many copies all these databases have to be updated.
- In the case of conventional money the currency exists in two forms as cash (in coins and banknotes) and in electronic form. In practice this means that each party (individual, industry, or bank) owns cash and has an account with a bank. The bank is responsible for all the accounts of its customers and all the transactions between its customers, worldwide.
- In the case of crypto currency, your account (also called a wallet) is stored electronically in a database in what is called a block chain. The block chain contains all the wallets and all the transactions between the accounts. There are many copies of all the blockchains of a full database. This guarantees safety.
How much is money is necessary.
The general answer is enough to perform all trade and business in your isolated area.
To get an idea the deficit of the USA reaches the 1 trillion dollar or 10^12 mark.
This url gives a hint:
https://money.howstuffworks.com/how-much-money-is-in-the-world.htm. That means at least a factor 10 more.
The smallest currency in bitcoins is satoshi. 1 bitcoin is 100.000.000 satoshi. That means in total there are 21*10^14 satoshi.
How is new money is created.
Also here there are two cases to consider: conventional money and crypto currency.
The issue in a one currency system is what happens if new money is created.
- In the case of conventional money there are two strategies: by the central bank and by the local banks.
- The primary means to create new money by a central bank is to print more money.
- The primary means for the local bank is to increase the amounts that companies or private parties are allowed to borrow.
- In the case of crypto currency all the individuals and all the companies have an account in bitcoins.
The total amount of bitcoins is fixed at roughly 21 million bitcoins.
In the present situation the total amount is not fixed yet, but increases slowly by a concept called mining. Mining means that you have to solve a puzzle. The reward is a number of bitcoins. This reward decreases slowly and becomes zero when the maximum number of bitcoins is reached.
The original reward was 50 bitcoins. Then it changed to 25 and now it is 12.5.
There are only local banks which can save and lend bitcoins. There is no central bank which can issue new bitcoins.
- In the case of crypto currency if you increase all the amounts with a factor 10 nothing happens.
- In the case of convential money it depents.
Generally speaking all people who have debts will benefit, the prices will increase and all pensionars will
Generally speaking it does not make a lot of difference if we all use the same coins or all the same crypto currency.
There are two problems with the crypto currency:
The biggest problem is that the crypto currency currency should be save
- the major problem is the concept of blockchain. All the blockchains together maintain all the transactions that have happened in the region that the currency is used. If you pay a piece of bread you have to pay in bitcoins. If you want to buy a car this is done in bitcoins. A house, a ship etc. All these transactions are stored and kept in the blockchain. Forever ? That can be really immense.
Created: 15 January 2018
Back to my home page Contents of This Document