Welcome to the Zavgion currency network presentation.
This website has been created to help improve the design of the Zavgion Currency (ZC). The initiative extends beyond seeking a simple improvement in how present day monetized transactions take place in Greece. The design parameters are such that a multitude of key issues are addressed, currently perpetuated by a monetary framework no longer in sync with present conditions.
For the evaluation of the design elements presented herein, although a thorough understanding of Economics and / or Finance is desirable, it must be stressed that incorporating qualitative aspects that belong in the sphere of sociology, philosophy, psychology is of equal if not greater importance. Not to mention input from those familiar with banking legislation both within Greece and the European Union.
The initial blueprint of the Zavgion currency draws heavily on the principles of New Economics and unofficial currencies currently in operation around the globe.
The main design parameters are presented below in a non-sequential order insofar as their introduction to the network is concerned. As Leander Bindewald, researcher at the New Economics Foundation think tank pointed out, certain design inputs can be introduced concurrently so as to accelerate adoption of the Zavgion currency.
I would like to thank Charles Eisenstein, professor Bernard Lietaer, Nikos Stamos, Thomas H. Greco Jr., Jock Millenson, Dr. Igor Nikolic, Dr. Irene Sotiropoulou, Sophie Lamprou from the Athens Impact Hub Network, and the Volos TEM for their direct and indirect inputs and the time they set aside to correspond, discuss or meet with me that contributed (perhaps unbeknownst to them) to the development and refinement of this currency design and wiki. Furthermore, the development of the model in its present form would not have been possible without being directly exposed to the narrative of thousands of smaller and larger business owners, professionals, private company and public sector employees over a period exceeding a decade.
Jason Ghionis
The Zavgion currency's characteristics and its objective is a unit of exchange that:
1) Provides sufficient liquidity
2) Significantly reduces if not eradicates [undesired] unemployment
3) Significantly reduces the creatively-unproductive time spent in any given profession or vocation dealing with the sourcing of operating capital
4) Maintains a 1 to 1 link to the productive process so by definition, does not create inflation or deflation
5) Is sufficiently resilient i.e. strikes a proper balance between throughput and resilience
6) Increases the rate at which currency changes hands i.e. the velocity of money
7) Aligns long term environmental objectives with business activity – in other words it functions as a non-expansive loop to iterate an incredibly large number of times within the confines of a finite framework
8) Uses a reindexable constant as a point of reference to assign value
9) Creates the conditions necessary for all to seek and attain self-actualization*, without compromising the integrity or degrading the natural organic. This constitutes the model's philosophical core.
Following this line of reasoning and to expand upon it, the notion of self-actualization is to be used interchangeably with the term "entelechy"[1]. As such, in categorizing the proposed monetary framework the term Entelechism is to be used.
How is Zavgion Currency issued by an existing business in the services industry?
Zavgion Currency (ZC) is issued in proportion to the average revenue generated by a business over the past 3 years divided into 2 and then into 12 for a monthly quota. For instance, a business that generates 120,000 per year, can self issue credit of up to 5,000 per month. Certain safeguards must be put in place, i.e. apart from revenue determining the amount of self-issued credit, a business must not persistently operate at a loss. It would be naïve to allow a business averaging 120k per annum that has an expense base of 150k to self-issue a large amount of credit. So a declining scale could be applied depending on profit margin. However, as it is obvious that many companies are in the red and one of the main reasons for introducing this network is to help reverse the situation, the granting of credit to businesses operating at a loss will also be examined, provided they have auspicious long term prospects for a continuation in offering their services. The latter, however, always to be examined in conjunction with the network's ability to absorb potential losses.
For businesses engaging in the sale of goods, ZC can be backed by inventory. Whether or not ZC is issued at the face value of the inventory or at a proportion of face value depends on the goods in question. For goods that rapidly depreciate in value (e.g. electronics) or fluctuate considerably in value (e.g. commodities) ZC will be issued in proportion to a predefined prescribed fraction of face value.
ZC can be backed by unpaid invoices denominated in ZC. This way, companies can expand without being solely tied to past performance and new entrants can be given breathing space. Counterparty track records (the payer primarily) determine the extent to which additional credit can be issued in such cases. For new entrants ZC issuance limits will apply against invoices, further increased as track records are established. Additionally, new entrants can hold debit balances provided that they are endorsed by at least 4 existing network members willing to undertake their obligations if they fail to fulfill them.
Businesses issuing ZC, may use the currency to purchase goods and services from suppliers and / or pay a proportion of employee wages. As with anything, benefits also generate obligations. Hence, as soon as a business has generated a negative balance by issuing ZC, it will also be obliged to offer goods or services in exchange for ZC. The mechanism whereby this will be ensured is covered in the "Technological Platform" section.
Demurrage (negative interest or decay) applies to the ZC, with daily application. This way there is no crowding effect prior to say a month-end demurrage application date. If a business holds a negative balance, then demurrage does not apply. This creates an incentive to return to a positive balance as soon as possible.
One of the reasons negative interest is used is because all investment evaluation models reverse. From a financial perspective, preserving the environment becomes more advantageous than draining it. Demurrage in effect ensures that expansion levels off when added value is no longer present since long term viability takes precedence over short term expediency. A second reason is that, negative interest leads to quicker adoption of the ZC since participants with a declining savings balance have a greater incentive to get people outside the network to accept ZC. A third reason is that negative interest increases the rate at which currency flows within the network (velocity of money).
Negative interest of 5% per annum could be charged as follows: If we assume the balance of an account is X Zavgions, in that particular 24 hour period, X/365*0.05 units will be deducted from the account. For instance, if the initial [positive] balance is 1,000 units, within the first 24 hours, 0.137 units (1,000/365*0.05) will be deducted from the account. On the second 24 hour period, 999.863/365*0.05 units will be deducted. As such, after one full year, if we assume that the account remains completely inactive other than the negative interest charged, the balance will stand at 951.23 Zavgions.
Note: Demurrage or negative interest rates are currently a hot topic of debate. Although the underlying rationale for negative interest rates is to increase the velocity of money, stimulate the productive process while at the same time favouring long term sustainability vis-à-vis short term profitabiliy, when applied in an environment where countless alternatives exist bearing positive interest, the effects of it in all probability, are nullified. The velocity of money increases only when all forms of money (cash, deposits, highly liquid “risk-free” debt securities) carry a negative interest charge. Either that or the network is isolated from the mainstream i.e. is not freely convertible into conventional currency.
ZC is pegged to a productive constant. Most alternative currencies are pegged to fiat currencies which one could argue is flawed. Currencies can fluctuate and depreciate considerably if in oversupply (or consider the possibility of a mainstream currency collapse) undermining the ZC in turn. So a constant can be a “commoditized” service, something standardized like data entry. One Zavgion could be equivalent to 10 minutes of data entry (roughly equivalent to 1EUR at present) by someone that types “flawlessly” at 50wpm. It is preferable to a national currency or to a commodity that can also be affected by supply and demand. Data entry on the other hand (or perhaps another service equivalent) is very stable over time and demand for it would not be affected by linking it to currency (whereas a commodity linked to currency ends up becoming an end in itself with demand for it increasing considerably). Furthermore, you cannot hoard a service as opposed to something physical. So you have a currency that is backed by actual productivity and pegged to a productive “constant” (one could argue that constants are an illusion but we must select the best possible approximation). Changes in technology could affect this constant (speech to text for instance) but in this case, the currency could be “re-indexed” (e.g.. to 20 minutes of speech to text).
This system could work on a B2B basis but what about private individuals, retirees in particular? This is where demurrage proceeds kick in. And taxes for that matter. Taxes in particular will generate more revenue given the increased velocity of circulation.
Demurrage (currency decay) proceeds are used to cover exchange system costs (potentially alongside a small annual membership fee in conventional currency), potential default (i.e. covering counterparty risk within certain boundaries), provide a safety net in the form of a social dividend and taxes further contribute to the social dividend. Social dividends are distributed in varying scales. A subsistence dividend would apply to everyone* and retirees would earn in excess of that depending on years in employment, nature of employment and so forth. By offering a social dividend to both the employed and the unemployed, there is no real incentive to collect the welfare equivalent in lieu of working for minimum wage.
As such, private individuals can participate in the network, entitled to a social dividend solely by virtue of their participation. Although private individuals will not qualify for holding negative balances, they will be entitled to earn Zavgion units by offering services. Furthermore, businesses can transfer Zavgions to private individuals, either in the form of wages or as [non-tax-deductible] gifts.
* Possible issues regarding the social dividend: A very high level of activity (transaction volume) in the ZC would be required to generate a subsistence social dividend. What mechanism would ensure this objective is met?
For any complementary currency to be adopted, it is crucial that the currency is accepted for payment of taxes. This could work at the municipal level if ZC were accepted for payment of municipal taxes. The municipalities could in turn pay wages in ZC in direct proportion to the taxes levied and retained (minus the social dividend).
Within the system, each participating member can disclose past transactions to generate referrals on mutually agreed disclosure between the counterparties. Perhaps it would be best to avoid using a rating system or a commenting system because more often than not, when such information goes public, it is bound to create grounds for public profile manipulation. So discretionary transparency is desirable, yet not too much of it to the point that embellishing one’s public profile becomes an end in itself.
Another issue that needs to be addressed is whether or not transaction limits need be set. Perhaps at the early stages, absolute limits can be set and as time progresses, a percentage of total transaction volume limits set for individual exchanges and per participant. On this point in particular, complexity theory modelling could offer valuable insight.
Ultimately, transactions ought to take place through a decentralized, resilient, peer to peer network. However, due to the high level of complexity associated with the development of such a network, at the initial stages at least, a client-server platform will be opted.
Another point [linked to online application development] is that in order to ensure that companies holding negative balances subsequently offer goods and services in exchange for Zavgions, an online store application could be offered, displaying the % of the sales price accepted in parallel currency. This proportion could be determined in sector specific terms, thus ensuring that a business does not take in parallel currency at a proportion exceeding its cost base in conventional currency. Moreover, well promoted online storefronts can serve as a sales medium creating an additional incentive for businesses to make product inventory and services available through this online application. Alternatively, an online application could publish the % of the total price that the business will take in in Zavgions. For example, a business holding a negative balance, will always appear as willing to accept X % in Zavgions in sector specific terms (e.g. an electronics retailer may accept 5%, a hotelier 40%). A business holding a positive balance on the other hand, will be able to set this percentage manually, automatically overridden as soon as their balance goes negative. It must be stated that the latter solution (publication of a sales price accepted in parallel currency as opposed to an online store) is much easier to implement.
As opposed to having all Zavgion accounts on one central network, subnets could be developed separately in various municipalities and greater regions (depending on population density). Each network can be administered through a local business association, municipal authority or other civic organization with a separate entity in charge of auditing each subnet. A "bridge" can be formed in the process whereby the subnets are interconnected, facilitating trade between one another. This architecture would ensure that network administration overhead is distributed among many different parties, making the task of administering smaller subnets more manageable than having one large all-inclusive network.
Ideally this model or a subsequent version of it will be simulated via uncalibrated complexity theory computer modelling. As Dr. Nikolic of Delft University of Technology has pointed out, a calibrated simulation would require approximately 2 years to complete whereas an uncalibrated simulation could be completed within six months.
Engendering trust in the network. Which mode of governance will be acceptable and practical at the same time.
Perceived similarity with the mainstream currency system.
Abstract [and mundane] nature of reference value. Difficulty in associating value given the unit of reference.
The fear associated with anything that cannot be fully understood [including the conspiracy theory bias].
Well-intended participation and use of the system – required safeguards.
Potential legal hurdles with respect to the credit function the network will serve.
Whether the network will develop quickly enough and encompass a large enough scale of economic activity to address the rapid disintegration of the Greek economy which could at any point enter into a state of freefall.
The perception associated with complementary currencies which almost invariably are treated as a second rate option created strictly through necessity. The issue of pride in other words.
Subjecting the currency design to rigorous testing via complexity theory modelling.
Funding the initiative. Much can be accomplished with little or no cost. However, if the model were to be simulated (theoretical testing), approximately 50-100,000EUR would be required for a 6 month run.
For the development of a trial version of the network and for the initial stages of introduction, the cyclos.org exchange platform could be used at no cost other than the cost of hosting the application and content and the development of the visual aesthetic (Graphics, custom layout). As the network grows, however, certain costs (e.g. bandwidth, more advanced hosting options and advanced application development) may become considerable. Hence, a small annual fee in conventional currency would probably be required (10-20EUR).
Whether the currency will be freely convertible into conventional currencies. Again this raises issues with respect to banking legislation. A possible workaround could be to invite domestic subsidiaries of multinationals to participate in the network. This would enable the Zavgion to scale globally without the risks associated with outright currency exchange. By way of illustration, consider an Internet Services company in Greece paying a computer programming freelancer in India in Zavgion, who in turn purchases software from a multinational in Zavgion. Perhaps effective global scaling is predicated upon enough multinationals accepting the parallel currency, those providing staple products in particular. In this scenario, however, an additional set of rules would be required to maintain the integrity of the network's core principles.*
* In defense of this argument, ecosystems include large and small entities alike and are sustainable as long as flows are bidirectional and balanced. Anything else can only be likened to a positive feedback loop (think of the exponential growth imperative) which causes system instability and eventual collapse.
In the event that the currency is not convertible into conventional currency, what measures can be taken to avoid the development of a black market?
Safeguards to prevent fictitious exchanges from entering the system.
Which mechanism could be introduced whereby the network can be connected to other parallel currency networks? This will enable exchange networks to be interconnected, expanding the range of goods and services offered throughout, minimizing the risk of fragmentation, caused by the creation of countless competing networks, each unable to attain the critical mass required for meaningful functioning.
Should a provision be made for positive interest? In other words, exercise foresight so that if in the future certain conditions necessitate a positive interest charge, this can be applied. The idea being that technological changes may facilitate an organic expansion of the economic realm. The operative term is "organic". If such a provision is made, this cannot form grounds for introduction of positive interest where justification is not compelling. Operating in sync with the environment ought to take precedence over everything else. A potential corollary for those scientifically inclined could be derived from string theory. This theory argues that strands of energy at the subatomic level vibrate at certain frequencies which in turn is what shapes reality on the tangible, observable level. If our actions are in persistent dissonance with these vibrations, more so as our technology becomes increasingly potent, the effects would be analogous to an out of tune symphonic orchestra. For an example of what this sounds like, listen to this.
Managing network expectations, especially during the early stages of broader participation.
Assigning more degrees of freedom / "self regulation" features to the design creating a more flexible structure
1. Entelechy etymology and meaning
Entelechy is an Aristotelian term (derived from the [Greek] words εντελής [complete, perfect, that which has been fully realized] + έχω [have], "that which has an "end", purpose within itself, so that it is "complete") which describes the fully realized energy and fully realized form in relation to the matter which has the "potential" to create form. p.605, Λεξικό της Νέας Ελληνικής Γλώσσας Γ. Μπαμπινιώτη, Β' Έκδοση, Κέντρο Λεξικολογίας Ε.Π.Ε., 2002
The vital energy native to every being which directs each and every one of its actions towards the realization of complete perfection. p.616, Λεξικό της Νέας Ελληνικής Γλώσσας Γ. Μπαμπινιώτη, Β' Έκδοση, Κέντρο Λεξικολογίας Ε.Π.Ε., 2002
In Aristotle's use: The condition in which a potentiality has become an actuality. A monad in the system of Leibniz. p.616, The Shorter Oxford English Dictionary, Third Edition, Oxford at the Clarendon Press, 1970