The Overall Approach
This chapter deals with the generalities of the Utopian Financial Infrastructure. It starts with motivations, treats the motivations as requirements and develops the overall approach to achieving the various goals indicated by the motivations. Each such generality is discussed in a separate section; there are many general aspects to discuss; and we will keep the discussion about each such generality as short as possible.
The motivations are discussed in the first three sections: The Utopian Motivations, The Automation Motivation and Safety and Security Motivation.
The section Better Alternatives for Current Paradigms discusses that we should have better alternatives and paradigms for the following: Borrowing, Lending, Investing, Employment related infrastructure, Transaction Processing Infrastructure.
The section It is Mostly Record Keeping elaborates on the idea that what we desire from our financial infrastructure is mostly record keeping.
The section Cashless Society discusses that our financial infrastructure will eliminate the physical currency; that is cash. Ownership of money and other things will be a digital record.
The section We Will Use Plenty of Technology can be considered to be stating the obvious. But, really it is saying "The expectation changes from following certain laws to using the technological system".
The section Society Owns Financial Infrastructure places the ownership of the financial infrastructure in the hands of the society. This is vastly different from the current situation.
The section Open Design and Open Source provides the reasons for making our financial infrastructure open design and open source.
The section Financial Infrastructure is Tax Funded highlights the "common good" nature of financial infrastructure to justify that it should be tax funded.
The section Financial Infrastructure is a Monopoly highlights that financial infrastructure is a monopoly and not a competition between competing financial institutions. It is very much like the defense, the police and the judiciary of present day countries. It also discusses the ramifications of its being a monopoly.
The section Operations of Financial Infrastructure discusses that the operations of the financial infrastructure are a joint effort of many people who do not all have to be employed by the government of the society. There is scope for private-sector service provider organizations and there is scope for social employment.
The section Branch Offices of Financial Infrastructure discusses that financial infrastructure will have significant physical presence within the society, just like Banks have in current times.
The final section Financial Infrastructure is Almost Free to Use elaborates that just because financial infrastructure is tax funded does not mean it is absolutely free. It is free of charge for all "normal" uses and there are charges for "above normal" usage.
The Utopian Motivations
Once we accept that we need to implement wealth redistribution and wealth-based taxes, we need a means to accurately know the wealth of each citizen so that each citizen can contribute their share of wealth towards wealth redistribution and taxes.
Once we desire that in our society it should be nearly impossible for anyone to avoid their financial responsibility towards society, we will simplify and make the tax obligations fair for everyone. We will also need the financial infrastructure to be able to take the taxes; not just make paying the taxes as legally mandatory.
Once we accept that we would like to minimize the work associated with fulfilling our financial obligations to society, we will want a significant level of automation.
Once we accept that we need to implement the Utopian Payment Model so that the society can help everyone in a financially fair way, we will need a payment system that is well integrated with the accounting of wealth.
Once we accept that inflation and deflation are both undesirable, we will conclude that the monetary policy mentioned in Building Utopia needs to be implemented. That means that the financial infrastructure needs to be well integrated with accounting for wealth (both the liquid kind and the not-so-liquid kind) and be in a position to take appropriate actions to ensure that the amount of wealth is maintained almost constant.
Once we accept that it is best to conduct foreign trade and transactions in units of gold, we will need the financial infrastructure to deal with gold (and possibly other precious metals). We would want the financial infrastructure to make it super easy to receive and pay in units of gold for our export and import needs.
Once we accept social employment is better than the current strategies to mitigate unemployment adversities, we will need the financial infrastructure to be well integrated in the employment landscape of our society. We would still desire to maximize regular employment and that means that the financial infrastructure also needs to deal with regular employment; not just social employment.
While our current financial system has many good features, it is not suited for these purposes. There is nothing in our current financial system that can accurately tell us the wealth of every citizen on a daily basis. It cannot accurately answer the question "who owns what"; at least once a day. Many proposals in Building Utopia depend upon accurately knowing the wealth of every individual. More than just accurately knowing the wealth of each individual, we need the financial infrastructure to actually implement the proposals in Building Utopia.
The Automation Motivation
One of the points mentioned in "The Utopian Motivations" was regarding minimizing the work of citizens in fulfilling their financial obligations to the society by using a significant amount of automation.
What is the real purpose of all this automation that minimizes work for us?
It is to liberate citizens from mandatory performance of mundane obligations and tasks. This frees up time and brain power of all citizens so that they can do things that are more important. With availability of more time and brain power, we can participate in deciding what we should do collectively; not just be a passive participant by choosing our representative using our one vote.
As we start having more time to think about what we want our society to do for us, we realize that a society should behave like a parent to its citizens. Starting from the time a child is born, the society should start fulfilling its mission to make this child an independent and self-sufficient citizen.
Once the child becomes an independent and self-sufficient citizen, the parent stops giving the help. But if a child needs this help again, society as a parent is forever ready and willing to give help again.
Why independent and self-sufficient? Until such time that we are not even independent and self-sufficient, we are struggling. Once we achieve independence and self-sufficiency, we have risen above the struggle, we have managed to tame the basic adversity of life. With that accomplished, we will have the time to think about what a good life should be. And that will eventually lead us to a better realization about what is a good life.
That sort of thinking cannot be done by the abstract concept that we name as society. It has to be done by us humans, the individual citizens of our society. Many citizens will find answers to many aspects of this good life and we can put together all these pieces and construct a clearer picture. We can do all that kind of thinking if we relieve ourselves of the mundane tasks and hence the need for automation.
What we can do for our society and what our society can do for us are two sides of the same coin. Thinking about one and ignoring the other will not help in building a Utopia.
Safety and Security Motivation
Another category of motivation is the desire to prevent bad stuff from happening with our money and wealth. There are many ways in which the safety and security of our money is compromised in the current financial system. We will see a few of these in this section and use those instances as the basis for this particular motivation.
Banks are supposed to keep our money safe. But we occasionally hear about "Run on a Bank". We hear about "Failed Banks". We hear about people losing their money that they thought was safe in banks.
When we deposit our money in a bank, we may think it is safe, but in fact, it is not fully safe and we are taking a risk. Banks mitigate, not eliminate, the risk by having insurance for their customer's deposits. The cost of this insurance is indirectly paid by the customers of the banks. This insurance covers the risks up to some limits. So, in effect we are risking at least some part of our money that we place in a bank and if the risks materialize, then we may lose some part of our money.
Why is the institution, where we keep our money because we think it is safe to do so, in reality unsafe? That is because banks are for-profit organizations and to make a profit they take risks with the money that is deposited with them. Sometimes they take undue risk to boost profits or get better salaries; an instance of excessive risk taking. Sometimes they are unaware of the risks; an instance of incompetence. Sometimes they ignore the risk; an instance of irresponsible professional conduct and at times bordering on fraud.
We need a 100% safe place to keep our money.
In our current society we see instances of financial fraud and theft. We have instances of people being misled into transferring their money to other people. The presence of "cash" makes stealing too easy. Our wealth is at risk from the unscrupulous activities of such people.
The presence of "cash" also enables illegal activities involving money; like selling illegal drugs. Some individual's desire to "make money" can put our health at risk and our current system has nothing to prevent such risks.
We have occurrences of ransomware attacks. A ransomware attack is essentially a software attack on an organization's computer systems with the intent of disabling their systems, succeeding in actually disabling their systems, and then asking for ransom money in exchange for restoring their systems back to their original functioning state. Most organizations are helpless and pay the ransom. Such paid ransom usually cannot be traced back to the perpetrator of this crime. They are incognito, untraceable and free to find their next victim.
It is not just our wealth, health and systems that are at risk in the current financial system, even our identity can be stolen!
Currently, there are too many avenues in which people can engage in activities that the society generally disapproves of. Many of these disapproved activities are also illegal. And yet we find that some people engage in such activities and there are many victims and many times the perpetrators of these crimes are untraceable.
Currently, when a person (or even an organization) realizes that they have been a victim of financial fraud or theft, there are no easy mechanisms of identifying the perpetrators and of recovering the money stolen or transferred on false pretenses.
So, what is the root cause of all these safety and security issues related to our money and wealth?
Society does not just allow private ownership, society expects all citizens to respect the private ownership concept and also expects all citizens to not violate it. In simple English: we make laws like "no stealing", "no trespassing" and "no vandalism".
Society does not merely expect citizens to respect ownership, society is also willing to protect ownership. To protect ownership, a society may employ a variety of "means". Defense, Policing and Judiciary are a few of these means.
Of these means, "defense" protects the citizens of a country from outside aggressors, looters and pilferers. All spending on defense is preemptive in nature. Defense spending is not a remedy for a bad situation. Defense spending is an attempt to avoid a bad situation.
Our Policing and Judiciary attempt to remedy a bad situation. They swing in action once someone has reported a bad situation and they attempt to "bring to justice" those who are accused of violating expectations of good behavior. They attempt to "give justice" to the victims of financial fraud and theft. They do not attempt to prevent bad situations.
Our current system is set up in such a way that even with all that Policing and Judiciary, we cannot fully reverse the adverse effects of financial fraud and theft.
The number of measures that societies have designed to preempt financial fraud, theft and disasters are minimal. Our societies do very little to avoid bad situations related to wealth. This is a pathetic state of affairs.
The real issue is that we write laws and expect people to be law-abiding citizens.
We have not done enough to make it difficult or impossible to actually violate laws. We have not done enough to detect violation of laws and trace it to the violators. This is true in many aspects of life and financial aspects are no exception.
It would be really nice if the new financial infrastructure can prevent frauds, abuses and theft. It would be really nice if people do not even need to demand justice; because they cannot be victimized so easily. For that we need a system in which people cannot commit frauds and violate laws as easily as they can today.
Prevention is better than cure. We need a financial infrastructure that is several times better at preventing financial fraud and theft. We ought to provide ourselves a secure financial infrastructure and that in turn will significantly reduce our obligations to providing justice to the victims of fraud and theft.
In short, we need our financial infrastructure to have significantly higher levels of safety and security regarding money and wealth; we need a financial infrastructure that makes it much harder to commit financial frauds. Our requirement is not just about detecting financial frauds and compensating victims; it is about eliminating the possibility of such frauds.
Better Alternatives for Current Paradigms
Paying taxes is a small part of all that we do as citizens of a society. The desire that it be based on our wealth and that it should be automated means that we will make significant changes to our existing financial system. Thus, the new financial infrastructure should consider and address every important aspect of what we do as citizens when we lead our lives.
So, what do we really do?
We are producers and consumers. We are borrowers, lenders and investors.
To the extent that we work, we produce something of value; we create what could be considered as assets. We either are employed in producing these assets or we own the means of production of those assets. So, either we earn a salary or we earn a profit. In both these cases, when we produce something, we are increasing something that we value. This involves either employment or investing. Investing can be thought of as: using our money to do something and make some profit without losing any part of our original money; that profit is how we make money by investing. Employment could be thought of as: using our time to make some money; our salary. Thus we need to address the needs of investing and employment.
As consumers, we consume what is being produced; in fact, it is being produced because we implicitly express a desire to consume it. When we consume something, we are depleting our assets. If the thing that was consumed was some food item, then we have immediately depleted assets worth the cost of the food. When we buy something that lasts a few years (like a TV, computer, smart-phone, car, house, etc.), we are depleting our assets over some amount of time (perhaps only a few years or perhaps a few decades). Either way, when we possess any asset, most likely they are depreciating as time goes by. They depreciate faster or slower; but depreciation is continuously changing the value of our net wealth. All this depreciation needs to be accounted for accurately so that we can accurately determine our current wealth at all times so that we can pay taxes accurately.
The idea that citizens should be independent and self-sufficient, implies that usually citizens would consume within their means. The idea of self-sufficiency is broad and intended over large swathes of time. But the idea of self-sufficiency cannot be strictly ensured at every point in time. There could be times when we may need or want to consume something without having the wealth to support such consumption. The Utopian Payment Model addresses these needs regarding our essential needs. What about our wants? Some of our wants are, from amount of money perspective, relatively small (like I will get my paycheck in 3 days, I have no money in my account, but I want to go and watch a movie) and some are relatively large (like I would like to own my home and I am pretty much a normal citizen, with normal wealth and young).
Currently, we have the concept of credit cards. That is borrowing by us, and lending by some unknown parties. We would like to have this concept of borrowing for a short-term. Currently, we have the concept of a mortgage. A mortgage is borrowing by us, and lending by some unknown lender, but usually there is some intermediary that gives us the loan and we mortgage our home to this lender. We would like to have some form of such long term borrowing and hopefully it is a borrowing system that is much better than what we currently have.
The flip-side of borrowing is lending. Can this lending be made fully secure and yet fetch a much better rate of interest? If this is possible, will it adversely impact the borrowers? This is a legitimate question because we are those lenders and we also are those borrowers. Can this lending and borrowing be made optimal for both parties?
Finally, all this means that we are continually buying something and selling something (either our time when we are employees or the products that we manufactured when we are the investors). This buying and selling needs a transaction processing infrastructure and clearly we need such an infrastructure, ideally much better than what we have right now.
Thus whatever we are looking at changing, that new proposal should contain better alternatives and paradigms for the following: Borrowing, Lending, Investing, Employment related infrastructure, Transaction Processing Infrastructure.
It is Mostly Record Keeping
Most important implication of all these motivations and resulting requirements is the desire and need to know "who owns what and what is its worth". That is we need to keep a record of people, assets and the ownership of assets by people. Thus keeping records is a basic requirement of such an infrastructure. Record keeping is not a new concept; it has been implemented for a long time using whatever technology was available.
In order to protect ownership and at the same time enable transfer of ownership from one to another, society needs a means to enable this transfer of assets from one to another and hence it also needs a means to keep record of all these transfers so that we all can know that the things that we own are gotten by us legitimately.
Society has evolved and society is not just populated by citizens; society enables the creation of organizations and these organizations have an existence independent of any citizens. Moreover organizations can own things and engage in transfer of ownership of things. Hence organizations also need this infrastructure.
Society is not just citizens and their organizations. Society also includes visitors and residents who are not citizens. Since these visitors and non-citizen residents are also humans, and since our society is intended for the well-being of all humans, we need to provide the same infrastructure to these humans as well. Each society should take care of its citizens and its organizations. A society should cooperate with other societies about information about their citizens when these citizens visit those other societies or reside in them.
Thus, any society that desires to enable private ownership, protect private ownership and enable transfer of ownership of things from one to another will need the following in its financial infrastructure:
- Identification of individuals (citizens and visitors) and organizations.
- Establishing what constitutes "property". This includes money, real assets, intellectual property and more recently even the digital property.
- Establishing the association between citizens (and organizations) and what they own.
- Establishing legal means of transferring ownership of "property" from one to another. This includes pretty much everything that has monetary value. For example it will include buying products and services, making investments, owning property and giving gifts. It will include payment systems for purchases and trading systems for investments.
Further, in any transaction involving money or asset (wealth in general), the identity of the parties involved in that transaction should be knowable. This ability to detect "who did what" is the tool to dissuade citizens from violating laws. No one should be able to conduct a financial transaction and stay incognito. That is the only way to dissuade the less ethical humans from engaging in unethical and illegal activities. Even after knowing that "all parties to any transaction are fully known", if this knowledge is not enough to dissuade some and someone engages in such illegal activities, then we can very simply identify these perpetrators of financial crimes and bring them to justice.
Cashless Society
The concepts of money and cash and their implementations have been a great help in achieving social, economic and technological progress over the millennia. Money is the abstract concept and cash is the physical embodiment of the abstract concept.
Metal coins as a physical form of cash have been around for a long time. Metals like iron, silver, bronze, copper and gold have all been used in making of coins; there may also be other metals like nickel, zinc, etc.
Paper money was introduced much later and over the centuries it has undergone several enhancements to prevent illegal printing of paper money. More recently, plastics have started getting used to make what we usually consider as paper money. These plastic-based notes have a much longer life than paper-based notes. These plastic-based notes also have a higher level of difficulty for someone to illegally print them; because the technology is more advanced than paper.
However, there are several problems with Cash.
The first problem with cash is that it is intrinsically insecure because "possession indicates ownership". The presence of cash enables stealing of cash and because possession indicates ownership it is undetectable without the aid of other means (like a video of the theft or serial numbers on notes). Presence of cash enables people to steal goods and sell them and obtain the value of those goods in the form of cash. This enables the thief to go undetected as long as someone is willing to buy the stolen goods and pay in cash. Presence of cash enables both the thief and the buyer of stolen goods.
The second problem with cash is that the presence of cash enables illegal activities in society. With the presence of cash people can buy and sell products and services that the society deems illegal. One obvious example is that drug dealers can sell illegal drugs and get paid in cash. With the presence of cash the buying and selling of illegal drugs never needs to be recorded. Had such a buy and sell of illegal drugs been recorded, then we could quickly find those who are producing and selling such illegal drugs and easily put an end to the illegal activity. With the presence of cash, all illegal activities that involve transfer of money from one to another can easily stay hidden. Thus the presence of cash can and does support illegal activities.
The third problem with cash is that it is "unrecorded". Thus it is not clear "who possesses the cash" as it can be freely exchanged among members of the society and hence it is not clear "whom to charge the wealth tax" associated with the wealth represented by the cash. Presence of cash is a practical difficulty in implementing a fully automated taxation system.
The fourth problem with cash, because it is inherently unrecorded, is that it tempts people to hold all their assets in the form of cash in hopes of not paying taxes on the cash. Presence of cash enables unethical individuals to evade taxes.
The fifth problem with cash is that it can be easily misplaced or lost. Since possession is ownership, simply misplacing it or accidentally losing it makes one lose ownership of one's own asset.
Going Cashless is the Solution.
If we eliminate cash and replace it with digital money where possession of money and transfer of money is always recorded, then we can easily eliminate all the problems associated with cash. We need our society to go cashless in order to solve these problems.
In short, "going cashless" means that the ownership of all assets (including money) will be recorded in digital form and also any transaction involving an asset or money will also be recorded (and that includes the identities of the parties involved as well). This cashless system should be safe, secure and robust enough to make circumventing it impossible.
Going cashless is the same as "going digital". Going digital for all assets (including money) means that the wealth of every individual is completely known at any point in time and this enables implementing wealth redistribution, wealth based taxes, the Utopian Payment System, etc.
Going cashless means that there is an identification system (for all entities and all assets) and all transactions are recorded. This makes it impossible for anyone to misplace one's money or accidentally lose it. Every person can be uniquely identified and hence their assets can also be identified and if necessary traced.
Going cashless also implies that there will be no "cash cards" and "gift cards" as they also suffer from the same problems of cash.
Going cashless makes it impossible to steal anything without getting noticed.
Going cashless means that when assets are inappropriately (mistakenly or fraudulently) transferred, there is a trail of the transfer of assets which can eventually be noted, investigated and reversed.
Going cashless eliminates the ability of a minuscule minority of unscrupulous individuals to sell illegal things and obtain payment for such things in cash. If they receive money, there is always a trail for it and it can be investigated and illegal activity detected and dealt with.
Going cashless eliminates the possibility that people will try to evade taxes by holding their wealth in cash.
Going Cashless is not a Giant Leap.
At least in developed countries of the world, most of the money transactions are cashless. When we go to any kind of retail organization, we can pay using either debit cards or credit cards or using some sort of reward points. Cash is accepted by many such organizations only as a means of convenience for those who have not yet transitioned away from cash onto electronic means of paying.
Even when money has to be given by one person to another, it is possible to do so using digital means. The technology exists. All that needs to happen for one person to transfer money to another person is for the receiver to tell the giver an account number and the giver can transfer the money. People fear giving their account number, because it is "their" account number and money can be taken out of their account. There is a way to eliminate this possibility and hence the fear.
In short, physical currency (that is cash), has several problems and these problems are a hindrance in achieving Utopia. The solution to these problems lies in eliminating the physical form of money (that is cash) and exclusively using the digital form.
Thus, the financial infrastructure will eliminate physical currency; that is cash. There will be no physical representation of currency in the financial infrastructure.
Society will be Cashless. Ownership of money and other things will be an electronic/digital record and handled using computers.
We Will Use Plenty of Technology
The main requirements can be stated as "knowing who owns what" and "eliminate physical cash". All other requirements are an offshoot of working with these main requirements.
To implement all these requirements, we will use plenty of technology; both hardware and software. There is no other way to do it. Technology is also required to automate things.
Financial Infrastructure is a technological system that we would build to support our quest for a much better society. This system will have plenty of features, capabilities and standards. The use of technology will be far greater than what we see in use today.
One of the ideas behind this proposed financial infrastructure is that we will favor building systems over creating laws.
There is a distinction between Laws and Systems. Laws tell us what to do and what not to do. Systems actually do the things that should be done or prevent the things that should be never done.
Currently we make laws that place larger and larger responsibilities on ourselves and then as an afterthought we build systems to provide us with some relief from these laws. By building appropriate systems we should be relieving ourselves of various responsibilities.
We want the systems to reduce our burden of work; we want to put in less effort. We want to eliminate the deficiencies in our competency to do something by replacing "us required to do it" with a system that is competent in doing it.
As far as money matters are concerned, the time is ripe to let technology take on several additional responsibilities of doing the right things and preventing the wrongs.
This way we can reduce the laws and regulations and eliminate the expectation that humans should follow those laws. The expectation changes from following certain laws to using the technological system.
Society Owns Financial Infrastructure
Currently, most of our financial infrastructure is owned and operated by private enterprises; not the society.
Private ownership of these financial systems implies an absence of social control over the current financial infrastructure. Sure, we make regulations for these private organizations that operate our financial system, but there is always a strife between society and the interests of owners of these private enterprises; and these interests are backed with lots of money and they tend to weaken, subvert and eliminate important rules and regulations.
This absence of social control places severe limits on what the society can do for the well-being of its citizens in financial terms. With our current financial infrastructure, none of the Utopian needs can be satisfied and that is a sufficiently strong reason to look for solutions appropriate for the needs.
So, society should take over the ultimate control and hence the responsibility for the financial infrastructure. That is, society should own the financial infrastructure.
In the above discussion, if we replace the term "society" with "country", we will get a better crystallization of what a citizen can expect from one's own country and also from other countries as long as those other countries are set up on a basis similar to one's own country.
Countries all over the world have similar interests in many things that we consider important. This shared interest among countries implies that the underlying systems that countries would desire would also have the same kinds of functionality. Thus we can discuss the infrastructure for one country and be reasonably sure that the discussion would apply to most countries.
Countries routinely cooperate with other countries. This kind of cooperation between countries is easily noticeable in the idea of passports and its underlying infrastructure that the world has adopted.
Financial infrastructure is the natural progression of this idea of cooperation when applied within individual countries. There will be aspects of cross-border cooperation between the financial infrastructures of countries.
Open Design and Open Source
We should want to build a fully automated financial infrastructure to save humans from doing the mundane effort of keeping accounts and paying taxes.
We should want to build a fully automated financial infrastructure to make it error free and quick when compared to us humans doing it. Computers and automation can be error free and fast.
Technology and automation solves the effort and competency issues.
We should want to build a robust financial infrastructure that is extremely difficult to "cheat" and "steal from". That needs absence of loop-holes, presence of identification, authentication and authorization and also a presence of audit trail. Simplifying reduces loop-holes. We now have capabilities for technological identification, authentication and authorization; so it can be done. Audit trails can be built in any information system that we build. See the chapter Logins and Transactions for details. For this discussion, we will assume their presence.
But, how can we trust it? We should want to build a trustworthy financial infrastructure. Clearly, building and maintaining a technological infrastructure will be done only by a small number of humans; and we all will collectively own it. So, from the perspective of the rest of us who are not directly involved in the building and maintaining of financial infrastructure, we need an answer to the question: "how can we trust it?"
In order for us to trust anything, we will need the following:
- We should have access to the knowledge of its parts, their working and interrelationships. That requires openness and transparency.
- The number of parts of the proposal should not be so vast that it would be infeasible for an individual to grasp all of it.
- It should be simple enough to be within the intellectual reach of a significant majority of us.
Since we would own our financial infrastructure, we can mandate that its underlying design and implementation be made "open" so that anyone can examine it and point out the potential flaws and shortcomings in it. When we test this infrastructure, all these tests, test setup and test results should be made public; so that anyone can take a critical look at what is being tested and determine if all possible test cases have been considered and tested.
Thus we will need our financial infrastructure to have an "open design" and be "open source".
The term open design refers to the features and capabilities that the financial infrastructure provides. The term open design also refers to the laws that allow or prevent certain kinds of behaviors. Most of the contents of this book are in this category. Most citizens are more interested in this design. All these features and capabilities and most of the laws will be implemented by a technological system under the purview of the financial infrastructure.
The term open source refers to the technological architecture, design and implementation. Very few things in this book discuss these physical implementation aspects.
Most of us need to be sure that the design of the financial infrastructure is good. There are plenty of capable people among us who can implement it when we choose to implement it. That implementation should be open source so that any one who has doubts can examine the implementation details. This is the path to trusting the financial infrastructure that we collectively build.
In short, we want the technological systems in our financial infrastructure to be trustworthy; trust is a major requirement. The trust requirement implies that the working of our systems should be public knowledge so that those who are competent in noticing any flaws in it, can notice them and can point them out and we can collectively fix them. In other words, financial infrastructure will be open design and open source.
This book provides the conceptual design and outlines some of the implementation details (at conceptual level) about the desired financial infrastructure. Anyone can read it, understand it, evaluate the various kinds of qualities that we may want to consider and arrive at our own conclusions about its goodness.
Whether we implement it depends on how many people read it and also consider it good. When we implement it, its detailed design and entire implementation should also be "open" for everyone to see and point out flaws and suggest remedies for those flaws.
Financial Infrastructure is Tax Funded
When a society wants to do something for the common good, it does so by funding the spending on that common good through taxes.
For example, currently many countries manufacture their coins and paper currency. The cost of this manufacturing is borne by citizens, through taxes, because it is the common good. Similarly, many countries partly finance their operations by borrowing money; these are the financial deficits. It costs to borrow money; the cost is the interest paid on the borrowed money; eventually the citizens pay this interest through taxes. Yet another example is when countries operate their central banks and whatever these banks do is considered as common good and thus these are ultimately funded by citizens.
Other normal examples of common good that societies all over the world undertake are their spending on defense, roads and highways, primary and secondary education, etc. All these spending needs are considered as common good and paid for by the citizens through taxes.
When we decide to implement wealth redistribution, wealth-based taxes, Utopian Payment Model, and other ideas mentioned in Building Utopia, we will do so because we consider doing all that as common good. Implementing those proposals needs a financial infrastructure that supports all those things. That makes the financial infrastructure also a common good.
Hence all costs associated with establishing, operating and maintaining the financial infrastructure should be paid through taxes; just like every other work done by the society for the common good.
Thus, Financial infrastructure is tax funded. More specifically, it is funded through wealth-based taxes.
Financial Infrastructure is a Monopoly
Currently, we treat obtaining financial services as a choice rather than a necessity. Moreover, we generally treat offering financial services as falling within the realm of a for-profit business; not a public service offered by the society itself.
Financial Infrastructure changes both those treatments of financial services.
Citizens are not the customers of the financial infrastructure; they are the owners. Citizens decide what the financial infrastructure accomplishes. Most of the things that we currently consider as a financial service will be offered as features and facilities by the financial infrastructure. Within a country, the financial infrastructure is a monopoly of the country. This is similar to the defense, police and judiciary of a country being a monopoly of the country.
There will be no multitude of private-sector organizations that together provide the financial infrastructure. There will be no competing banks, brokerage firms and such organizations rendering services to their customers. There will be no offices of competing banks. There will be no call centers of competing banks and brokerage firms. There will be no "apps" of competing banks and brokerage firms.
There will be some financial services that are excluded from the financial infrastructure; like purchasing some kind of insurance on a voluntary basis. These services can be offered by competing private-sector organizations. Private-sector organizations can provide products and services directly to citizens as long as those products and services are outside the purview of the financial infrastructure.
We are eliminating competition in the direct delivery of services of the financial infrastructure. Competition is not our goal. Our ultimate goal is the well-being of all citizens. Collaboration, cooperation, coordination and better management are the means of achieving the goal of well-being of all citizens. Ideas, innovations and inventions are in the products and services offered under the financial infrastructure. Individuals can be in the race to come up with better ideas, innovate and invent because the financial infrastructure itself will need to use products and services.
One of the consequences of eliminating competition for all aspects of financial infrastructure is that private-sector enterprises cannot base their profits directly on providing services in competition with the financial infrastructure. However, private sector enterprises can still compete with each other and make their profit by providing products and services to the financial infrastructure.
This situation is similar to our current situation where private-sector enterprises provide products and services to various government functions where the private sector is not allowed to operate; for example, the defense forces, police, judiciary, etc.
For individuals who seek employment, eliminating competition for all aspects of financial infrastructure does not eliminate the need to do the work and hence does not eliminate the employment opportunities. Compared to the current financial system, it will reduce employment opportunities to the extent that it eliminates the current redundant work because of the presence of competition.
For individuals who seek to invest in private-sector enterprises and obtain profits from such investments, financial infrastructure will not be a direct source of profit. However it can still be an indirect source of profit by investing in private-sector enterprises that provide products and services to the financial infrastructure.
Operations of Financial Infrastructure
As is the usual method, any work done by the society for its common good is coordinated by its government. Of course, organizations don't do work, people do. We organize the actual doing of this work by setting up departments in our government and appointing employees to do the work.
The actual work gets done by a combination of efforts of the government employees and employees of some private-sector organization. This is because the organization called the government cannot do everything; for instance it cannot manufacture the computers, monitors, cables, printers, etc.
This is the normal way in which society funds and operates the police, judiciary, defense forces, etc. In operating these, the government invariably utilizes the products and services provided by the private sector.
Similarly, the financial infrastructure is operated by the society; that is its government. Most of the work required to operate the financial infrastructure will be done by people who are employed to do it. The financial infrastructure may avail of some products and services offered by private-sector organizations. When a private-sector organization is involved in the operation of the financial infrastructure, it does so by providing products and services that contribute to the operations.
Thus, people operate the workings of the financial infrastructure. They are either directly employed by the society or they contribute to it indirectly as employees of some private-sector enterprise. Thus, the financial infrastructure is a joint operation of the society and the private enterprises in the society.
Some citizens may employ themselves through social employment and contribute their efforts to the operations of financial infrastructure. The concept of social employment was introduced in Building Utopia.
It is possible that some citizens may volunteer their time, knowledge and skills as social employees for the overall improvement of our financial infrastructure.
Once we notice that certain citizens are contributing well as social employees, we should recognize these contributions and convert them to regular employees and pay them commensurately higher wages.
Branch Offices of Financial Infrastructure
Citizens will avail the services provided by the financial infrastructure either by using some sort of phone or computer based software or by physically visiting one of the branch offices of financial infrastructure.
Since we are already in the digital age, it is natural to have some software that allows us to interface with the financial infrastructure. Even though we are in the digital age, some aspects of the financial infrastructure are such that there is a need for in-person interaction between citizens and employees of the financial infrastructure. Thus, the financial infrastructure will have a physical presence in the society as branch offices. These branches will be somewhat similar to the present day branches of various banks.
This is similar to what happens even today (with banks). The big difference is that a single branch office will be able to deal with almost all aspects of the financial infrastructure (not just banking). This is not the case currently because the organizations that provide some financial service are all fragmented in their offerings and hence currently we cannot visit just a single branch office and avail all the functions that the financial infrastructure would provide under a single organization.
Since a large part of what the financial infrastructure does is record keeping, everything that is a matter of digital record would be accessible from any branch office.
Creation of some kinds of digital records may not be possible from every branch because some of these digital records will require very specialized physical equipment (some kinds of machines) that are so expensive that society can only afford to place this physical infrastructure at only a few branch offices. After all, resources are not free and we will have to make some trade-offs. These specific kinds of digital records are discussed in the next chapter.
With competition between various present-day financial institutions eliminated, we will also have eliminated redundancies associated with that competition and that would, overall, make more resources available. So, in effect, we should be able to afford to do more in the same amount of resources.
Financial Infrastructure is Almost Free to Use
Since the financial infrastructure is tax funded, it would be reasonable to assume that all products and services offered by the financial infrastructure would be completely free. That assumption is valid for all normal cases and those normal cases cover more than 95% of the population.
There are two qualifications for this idea of "completely free". The first is: since there is no such thing as "free lunch", in reality, everyone pays for the services provided by the financial infrastructure through taxes. The second is: there are no charges for all "normal" uses of this financial infrastructure. The word "normal" here, is based on some quantitative measure of the individual's use of the financial infrastructure. For example, one such quantitative measure could be the number of times someone accesses the financial infrastructure; another example could be the number of transactions; yet another could be the dollar amount of the transactions; still another could be the number of API calls made. Being able to quantify and measure the usage makes it an objective, not subjective, measurement of the "normal" usage.
Objectively, most individuals do not pay to obtain services; and the objectivity here is that the amount of services used are below a statistically chosen threshold which is considered as "normal". This threshold is chosen such that the usage levels of at least 95% of individuals is below the threshold.
Any usage above the normal usage threshold will incur charges. That is the whole point of setting a threshold. Once we choose and set a threshold, we should respect it. If we don't like where the threshold is, we can change it. Thus, excusing a once-off or temporary breach of such usage thresholds and waiving off the associated charges is not a possibility.
Since we are considering financial infrastructure, there will be accounts and there will be transactions. In the most general context, the word "transaction" means "any interaction with the financial infrastructure".
For individuals, there are no per-account fees. This is because every individual needs to have at least one account with the financial infrastructure. Actually, an individual has an entire accounting book in the financial infrastructure and loosely speaking we call it an account. In fact, an individual will have more than one account with the financial infrastructure to segregate some financial aspects. The point is: for individuals, there are no per-account fees.
For most individuals, there are no per-transaction fees. Most individuals (that is more than 95% of the individuals) would use the financial infrastructure within limits that are considered as normal annual usage for citizens.
There will be some individuals who will use the financial infrastructure beyond the threshold of normal annual usage. These individuals will have to pay for all their excess usage beyond the threshold for normal annual usage. The rate at which they will have to pay will be exactly at the cost per transaction that the financial infrastructure actually incurs on a per transaction basis. Note that different kinds of transactions have different costs and different thresholds for the annual normal usage.
These transaction costs for transactions in excess of normal usage are charged only to dissuade wasteful usage. The charges are not intended to be punitive and hence should not be interpreted as "fines". They are just usage fees.
The quantity of normal usage per individual is the benchmark for normal usage for all other legal entities. All legal entities (this includes organizations, trusts, etc.) who use at or below this normal usage also avail the financial infrastructure "free of charge".
Larger organizations will use the financial infrastructure significantly above the normal usage. These organizations will pay for all these additional transactions at the actual average cost of a transaction.
The discussion above indicates the intent. The chapter on "Investments" elaborates this intent in the context of investments and that kind of elaboration of intent applies to all aspects of financial infrastructure.