Utopian Financial Infrastructure

Money Transfer: Part 1

This chapter presents the mechanism of One-Way Money Transfer between Utopian Societies. It describes the money transfer mechanism which is required to continue the discussion about foreign trade. Other aspects of money transfer are discussed in the chapter "Money Transfer: Part 2".

Overview

In current times, there are occasions to transfer money. This is a one-way transfer of money without receiving anything in return within the same transaction. A classic example is when parents give their children some "pocket money" or "allowance". Another classic example is when grandparents give their grandchildren some money as birthday gifts.

There will be a need for money transfer even in a Utopian society, and even across boundaries of such societies. Although these reasons are intuitive and widely known, for completeness of this discussion, they are documented in the section called "Purpose of Money Transfer".

Money transfers are essentially simple. Within a society, if Person1 needs to transfer 100 dollars to Person2, then the UFI has to subtract 100 from Person1's account and add 100 to Person2's account.

Similarly, international money transfers are also simple. When Person1 in SocietyA needs to transfer 100 SocietyA dollars to Person2 in SocietyB, the UFI of SocietyA subtracts 100 from Person1's account, instructs UFI of SocietyB to credit Person2's account with the equivalent of 100 SocietyA dollars using the current currency exchange rate. UFI2 follows the instructions. The operations of adding and subtracting funds in the two accounts across the border are completed as one conceptual transaction.

Of course, such a short description lacks explanations, reasons, details and nuances; and they are provided in the sections titled: "Money Transfer within Society", "Intuition of International Money Transfer", and "Money Transfer across Society Boundaries".

Purpose of Money Transfer

In Utopian societies, for survival and basic quality of life, there should be no need for anyone to depend on the charity of others. At the very least, everyone can take up some social employment to earn some money. When a person needs financial help in dealing with essentials, the Utopian Payment Model will help.

But there could be some people who may still be unable to satisfy their wants. These people may desire help from others and those others may be willing to give such help. In current times, there are mechanisms for people to ask for "donations" or "funding support". Similarly, in current times, we give physical objects, cash, or "gift cards" as gifts.

We are setting up a society for the benefit of citizens. In general, the ideas of "giving gifts" and "giving help" are considered good. In fact, "giving what we own to someone else" is a freedom. Money Transfer is the mechanism and service provided by UFI that enables this freedom. With money transfer, the present day ideas of "donations" and "cash gifts" can be implemented. Note that, just like "physical cash", the present day idea of a "gift card" is also obsolete and not implemented in Utopian societies.

With this freedom and mechanism, individuals can make their own decisions regarding whom to help and in how much quantity. When they make such decisions, they are also willing to give up some of their money so that the other person can have it.

Sometimes, for various reasons, citizens may want to or may need to send some money to a citizen in another society; perhaps the recipient is a family member or a friend in need of help. This happens today and can happen in Utopian societies. This is a one-way money transfer across society boundaries. We will refer to this as International Money Transfer. The UFIs of societies will cooperate and coordinate to enable this as well.

Money Transfer within Society

Let's examine the record changes that occur when someone transfers money to another person within the same society.

Let's consider a scenario where Citizen-1 wants to transfer 100 dollars to Citizen-2, and both citizens belong to the same society. We will engage in a conceptual discussion of the process. In such a discussion, we are thinking about only the major steps and skipping the steps required by the actual implementation (like unlocking the phone, authenticating, entering data, confirming data, authorizing, etc.)

Once Citizen-1 realizes that they need to transfer 100 dollars to Citizen-2, they contact the UFI, mention the ID of Citizen-2, and the amount that needs to be transferred to Citizen-2. The UFI knows about both citizens and has access to the account books of both citizens. Thus it can complete the transaction if authorized to do so. For this, it asks both citizens to confirm the proposed transaction. Once both citizens confirm the money transfer transaction, the UFI does the following:

  • It subtracts 100 dollars from the account book of Citizen-1.
  • It adds 100 dollars to the account book of Citizen-2.

In this transaction, the two citizens are the only two parties to the transaction. The UFI is not a party to the transaction; it merely implements it.

This money transfer transaction does not change the total amount of wealth in the society.

Intuition of International Money Transfer

The idea of money transfer is that a citizen wants to send some money to another citizen. The giver gives up some money and loses access to it. The receiver receives money of equal value to what the giver provides.

When the giver and receiver belong to different societies, their money is naturally in different currencies. However, their intent remains the same: the giver wishes to send some amount of local currency, and the receiver wishes to receive an equivalent amount in their own local currency.

To facilitate this type of money transfer, we use the exchange rate between the two societies. Using this rate, we can determine the local currency equivalent in the receiver's society based on the amount given by the giver.

To complete the transfer, the giver's account is reduced by the intended amount, while the receiver's account is increased by the equivalent amount in their local currency.

This is the essence of money transfer across societies. No physical assets, such as gold, are transferred between the two societies.

This money transfer is valid for the following reasons:

  • The giver's intent is satisfied.
  • The receiver's intent is satisfied.
  • The equivalences between the two currencies can be determined using the currency exchange rate.
  • There was never any intent to transfer a physical asset, such as gold.
  • Both societies are monetary sovereigns, meaning they can create and destroy their own money.
  • They use fiat currencies, which are not backed by physical assets.

Money Transfer across Society Boundaries

Let's examine the record changes that occur when someone transfers money to another person in another society.

Let's consider a scenario where Citizen-1 in Society-A wishes to transfer 100 local dollars to Citizen-2 in Society-B. Let's assume that the currency exchange rate from Society-A to Society-B is 1.5. That means that 100 Society-A dollars are equivalent to 150 Society-B dollars.

Once Citizen-1 realizes that they need to transfer 100 dollars to Citizen-2, they contact their society's UFI (which we will call FinInfra1), provide Citizen-2's ID, and specify the amount to be transferred. Citizen-1 confirms and authorizes their side of the transaction with FinInfra1.

FinInfra1 knows from the ID that Citizen-2 belongs to Society-B and contacts FinInfra2 and submits the proposed transaction to FinInfra2.

FinInfra2 contacts Citizen-2 and asks for confirmation and authorization.

When identification, authentication, confirmation, and authorization are complete, the two UFIs proceed to complete this transaction. Here are the record changes:

  • FinInfra1 subtracts 100 dollars from the account book of Citizen-1.
  • FinInfra2 adds 150 dollars to the account book of Citizen-2.

In effect, FinInfra1 has removed 100 Society-A dollars from Society-A, and FinInfra2 has added 150 Society-B dollars to Society-B.

In the context of international money transfer, the following points are true:

  • One society destroys some money and the other society creates an equivalent amount of money.
  • The total combined wealth of both societies remains unchanged.
  • The amount of gold within each society's boundaries remains unchanged.
  • All other physical resources in each of the two societies remain unchanged.
  • There is no promise to give or receive gold or any other physical resource in the future.

All of the above facts are sufficient to consider such transactions as "safe" from the perspective of the two societies. Additional safety measures are mentioned in various restrictions and limits on international money transfers in the "Money Transfer: Part 2" chapter.

The UFIs may record facts about international money transfer transactions somewhere else too and publish the aggregated statistics about such money transfer transactions.