One Nation, One Currency
Gopalan Ramachandran
CreaSakti is an ally of the Indian economy. Building the five-trillion-dollar economy is our focus.
“One Nation, One Currency” is the fourth in CreaSakti’s sovereign digital money (SDM) series. CreaSakti’s SDM effort has four major objectives. First, we are celebrating the golden jubilee of the death of the gold standard. The gold standard was put to a well-deserved end on August 15, 1971.
The world owes so much to President Richard M. Nixon of the United States of America (USA). He unilaterally set the US dollar (USD) free from the clutches of gold. Unilaterally, let me write that again.
Second, we are celebrating the intelligence of the central banks of other countries that chose to liberate themselves from both gold and the USD. Those that set themselves free have showcased their discernment and intelligence. This year – 2021 – is special because the central banks have proved their mettle by engaging thoughtfully with the economic impact of SARS-CoV-2 and its variants since 2020.
Third, the separation of digital payments from digital money is the result of misconceptions and illusions. The SDM articles address the gaps in the collective understanding of money, its properties, and its comprehensive and colossal utility.
Fourth, we are preparing the countries of the world and their central banks for seamlessly shifting to their sovereign digital monies. This is our principal objective. Our objectives are flexible and expandable. We would not be tardy in adding more.
Organic and unofficial
Digital technologists, reference data architects, engineers and economists constitute CreaSakti and its predecessor, BERM. We have served the securities and derivatives industry, banks, central banks, sovereign treasuries, prime brokerages, and global settlement systems in a multicurrency environment.
They are in transactions-intensive businesses. They are deeply dependent on low latency and high throughput. Our interest in digital money is, therefore, “natural”. We see the full canvas. We expect digital money to be as natural both at the personal level and the institutional level. Households, central banks, banks, businesses and governments will directly engage with one another through digital money.
SDM is CreaSakti’s voluntary initiative. It is neither sponsored nor funded by any central bank or government. We began working on the SDM project in November 2016. Our recommendations pertinent to India are summarised in this YouTube video published on March 1, 2017.
“India’s Digital Rupee: The Structure And The Roadmap”
https://www.youtube.com/watch?v=mELCyUj1yE0
Our draft report – Sovereign Digital Money – has been in circulation since February 26, 2021. The principal recommendation of SDM was published on February 26, 2021. May I urge you to read the article on LinkedIn?
What is the principal recommendation? Sovereign governments and their central banks should issue their respective digital currencies. The principles and characteristics of legal tender – not merely the principal characteristics of legal tender – point to this necessity. This is not a mere digital possibility.
Money’s properties and characteristics
Money is not a pre-existing device. It is intangible. It is similar to the ballot in an electoral process. A ballot is born when a choice is exercised, say, in an election booth.
Money is wholly similar to discount coupons, vouchers and loyalty points. Money is an “I owe you”. Money is an “IOU”. It states a claim and it states a liability. The statement could be explicit. It could be implicit. It is a statement. That is important.
Money is a contract between its issuer and its holder. This is exactly what a discount coupon and a discount voucher are. This was discussed on May 27, 2021.
https://www.dhirubhai.net/pulse/coupons-rewards-running-accounts-gopalan-ramachandran/
The holder of a coupon possesses a claim. The issuer of a coupon is liable to honour the claim. Coupons and vouchers were born in an era defined by paper and printing.
They have since moved on. They are digital now. Digital coupons live inside our smartphones. The paper has disappeared. There is no printing. However, the world of coupons and vouchers has grown big, very big.
Consider loyalty points given by airlines and hotel chains. They too are wholly digital in character and context. Loyalty points do not have an analogue existence. They do not possess any materiality. An airline or a hotel chain passes on a claim to its loyal and devoted customers.
The claim is an asset in the smartphones of customers. It is a liability in the digital books residing inside the servers and computing devices operated by airlines and hotel chains. They are likely to be in the “cloud”.
Loyalty points and running accounts together serve a useful and instructional purpose. A running account is an open, revolving credit facility offered by hotel chains such as ITC Hotels and the Taj Group.
The combination of a running account and loyalty points creates two claims and two liabilities. There is an implicit contract between ITC Hotels and its customers. Similarly, there is an implicit contract between the Taj Group and its customers. The claims can be set off against the liabilities.
Unique and bilateral
However, each pair of claims and liabilities is wholly unique and bilateral. ITC Hotels will honour its liabilities. The loyalty-point claims of customers of ITC Hotels can be set off against their running account liabilities. Any loyalty points issued by the Taj Group will not be honoured by ITC Hotels.
Taj Group will honour its liabilities. The loyalty-point claims of customers of Taj Group can be set off against their running account liabilities. Any loyalty points issued by the ITC Hotels will not be honoured by Taj Group.
ITC Hotels can regard itself as a unique and bilateral ecosystem. It can – and this is a supposition – use its gold-flake currency to record all transactions. It can use its gold-flake currency to settle all transactions.
Similarly, Taj Group can regard itself as a unique and bilateral ecosystem. It can – and this is a supposition – use its Taj-flake currency to record all transactions. It can use its Taj-flake currency to settle all transactions.
Payments to beneficiaries
We will continue with our supposition. ITC Hotels could choose to pay its vendors and employees in gold-flake units. Similarly, Taj Group could choose to pay its vendors and employees in Taj-flake units.
We will now shift to reality. Both ITC Hotels and the Taj Group have to pay direct taxes and indirect taxes to the Indian government. They have to deduct tax at source on payments made to employees. These are known as tax-deducted-at-source (TDS) payments to government. They have to pay corporate income tax. They have to pay Goods and Services Tax (GST).
First, will the Indian government accept payments from ITC Hotels in gold-flake? Second, will the Indian government accept payments from the Taj Group in Taj-flake?
Government receives and pays
The Indian government has more payments to make than ITC Hotels and the Taj Group put together. It has to make payments to its employees, vendors and, above all, to the frontline warriors in our fight against COVID-19.
Would the government accept any payments from ITC Hotels and Taj Group in their own currencies that we have imagined?
This would spawn a bizarre world where the Indian government would be receiving IOUs in gold-flake and Taj-flake. Who would honour them? How?
How would nurses and ambulance drivers pay for their groceries and clothes? What about the rents to be paid to home owners?
The impossibility and the imbecility of the situation should not be ignored. An IOU issued by ITC Hotels in gold-flake units is the result of hard work and the infinite care towards employees and customers. An IOU issued by Taj Group in Taj-flake units is the result of hard work and the infinite care towards employees and customers.
But others are not obligated to accept their payments in gold-flake and Taj-flake units. Moreover, there would be thousands of other IOUs in a hundred other flake and flaky forms.
Legal tender
To obviate and to eliminate the impossibility and the imbecility, sovereign nations and economies issue “legal tender”. It is the Indian rupee in India.
Both ITC Hotels and the Taj Group, therefore, will have to pay direct taxes and indirect taxes to the Indian government in Indian rupees. They have to deduct tax at source on payments made to employees. Their TDS payments would be in Indian rupees. What this means is that employees will be paid in Indian rupees.
ITC Hotels and Taj Group will have to pay corporate income tax in Indian rupees. What this means is that they will account for their expenses and revenues in Indian rupees. What this means is that they will incur their expenses in Indian rupees. They will incur expenses in Indian rupees.
ITC Hotels and Taj Group will have to pay Goods and Services Tax (GST) in Indian rupees. Their vendors and service providers will be paid in Indian rupees. Thus, all payments across the Indian economy would be in Indian rupees.
When employees, nurses, ambulance drivers and vendors are paid in Indian rupees, the purchases of groceries and clothes will be paid for in Indian rupees. Rents will be paid in Indian rupees.
Common and multilateral
The impossibility and the imbecility have been discarded. The common legal tender – the Indian rupee – binds everyone into a common and multilateral receipts and payments network.
The receipts and payments network operates in real time. Every part is digital. Every part can be made wholly digital.
It is a huge collection of many, many bilateral claims and liabilities. It is a huge collection of many, many payers and payees. Every part is digital. Every part can be made wholly digital.
Fees, wages and salaries are paid and received in Indian rupees. Consumables are bought and sold in Indian rupees. Restaurants and resorts make payments and accept payments in Indian rupees. All taxes are paid in Indian rupees. Savings become investments in Indian rupees.
Government of India sovereign Treasurys are bought in Indian rupees. We receive periodic interest – it is known as a coupon – in Indian rupees. The face value at redemption is received in Indian rupees.
Everyone makes payments in Indian rupees. Our counterparties accept our payments in Indian rupees because the Indian rupee is an IOU issued by the Reserve Bank of India (RBI, our central bank) and guaranteed by the central government.
What is the operative guarantee? We can pay our taxes in Indian rupees. The government will accept it.
Why? The government will accept it because the IOU – the Indian rupee – is issued by the RBI and the IOU’s guarantor is the central government.
Would the guarantor reject what it has guaranteed? No! The Indian rupee is, thus, legal tender. The Indian rupee is, thus, India’s currency.
Great India ????
3 年Super Sir