The other are two possible scenarios when the price is too low:
* Someone with a deep pocket decides to buy as much as possible at a high discount, say 1 cent per dollar, and wait 30 days and get a 100x gain in a month. (There are some funds that specialize in this kind of operations with bond from developing countries. Usually it takes more than a month to get the money, but sooner or later the country has to pay, because whatever is in the land is essentially a collateral. (Hi from Argentina!))
* Nobody in their right mind would buy the money, no merchant, no exchange, no other user because all of them think that the value will continue to decrease. So the only option is to save them in a drawer and wait 30 days, and after 30 days they are convertible to dollars. (At the 29th day, you can choose to sell it to someone that will have to wait 30 days or exchange it for a few cents, or wait 24 hours and get a whole dollar.)
These are important points. Thanks for bringing them up.
* Someone with a deep pocket decides to buy as much as possible at a high discount, say 1 cent per dollar, and wait 30 days and get a 100x gain in a month. *
We've addressed this concern in a very specific way through something I call the "activation cap" on GD, which limits the pace at which GD can convert to USD. The activation cap doesn't apply to merchants who have signed merchant contracts with us. But if you're a merchant partner, your contract stipulates that you have to maintain par 1-to-1 pricing between GD and USD, so merchant partners can't set separate prices or do this kind of arbitrage.
When GD is added to an account, its lifetime begins counting down immediately. Starter and basic accounts (i.e. accounts with no merchant contract) are subject to the activation cap. The activation cap is is a limit to the amount of GD that can activate (i.e. begin counting down) in a period of time. GD countdowns remain suspended until there's room for them to activate without violating the cap. This helps prevent large hoards of GD from quickly expiring.
For example, let's say the activation cap is $20/day. In other words, at most $20 GD will activate per day. If an account's only income consisted of a single lump sum of $60, that GD would then activate continuously over the course of three days, and hence would later expire continuously over the course of three days.
The activation cap does not affect users whose total GD income remains below the cap. We will set the activation cap higher than (e.g. double) the basic income so that those who only receive the basic income remain unaffected by the activation cap.
This is a form of capital control, to be sure. But since there are always merchants who will accept GD at par, I'm confident that the market value of GD won't deviate too far from USD.
* Hi from Argentina! *
Hi! I'm in the U.S., but I actually came up with the idea for Gresham Dollar when I was contemplating Greece's possible exit from the Eurozone and how they might smoothly transition to a new currency if their euro reserves were limited. My hope is to extend Gresham Dollar to international markets.
* Nobody in their right mind would buy the money, no merchant, no exchange, no other user because all of them think that the value will continue to decrease. *
That's fine. Initially, Gresham Dollar will be 100% backed by USD, and we'll be putting GD in the hands of people who otherwise won't have any money to spend, so I'm confident that we will convince some merchants to accept it Gresham Dollars. If people don't want to spend it, they can sit on it and allow it to convert to USD.
* So the only option is to save them in a drawer and wait 30 days, and after 30 days they are convertible to dollars. (At the 29th day, you can choose to sell it to someone that will have to wait 30 days or exchange it for a few cents, or wait 24 hours and get a whole dollar.) *
Yes. That makes sense. Usually, my "tomorrow dollar" is worth more to me than a "dollar in 30 days" is worth to you, so why would you give me fair value for it?
The merchant partners are contracted to accept GD at par. You'll always be able to get your full dollar's worth, with a caveat being that the number of merchants who accept GD at par will initially be fairly small.
But maybe I'm in a situation where I'm out of USD and I need to make a certain payment in USD. In that case, I may be willing to pay a premium to get that liquidity from you at 95 cents on the dollar, or whatever the market exchange rate happens to be.
I like the analogy from Argentina. Bank runs equivalent is the major weakness - or people who profit from runs will attack it to make it happen. See Soros.
GD, if it's meant to create distrust and runs, almost by definition must over time lose its value compared to USD.
It might start off 1:1 with us US dollar, but it must drop for the simple fact because it's supply will exceed USD. There are more complex issues I'm skipping, like the mass psychology of perception of value could actually create a panic where none might be warranted.
If it keeps dropping, the what it can buy with it will also drop.
What's the point of basic income then if eventually tens of thousands of GD is required to buy bread and basic income is only several thousand (point is, not enough to make a difference)?
This happens in a sort of way in real life already... Because govt meddle in education loans and subsidies for college, the result isn't that there are more availability of education only, there's also an ever increasing climb , almost unhooked from reality, if tuition costs. And some people simply stop paying back, which in a way results in a kind of wealth transfer effect like your GD.
But the lethal point that is becoming ridiculous, is that colleges no longer have incentive to adhere to reality and prices go to the moon.
Applied to entire economy, you get hyper inflation. Your GD can't distribute fast enough when mass psychology sets in.
That's another fundamental problem with currency or its like -- the entire human race is really not just cooperating with it, every one will also try to game it. It's like a horde of intelligent learning agents trying to bring it down for his own benefit.
GD, if it's meant to create distrust and runs, almost by definition must over time lose its value compared to USD.
Gresham Dollar is not meant to create distrust and runs. It's meant to withstand distrust and the psychology behind currency runs. If people want to get rid of their GD, the only option they have to spend it. Spending GD resets its lifetime, so the same psychology that would normally deplete the reserves of a central bank has the opposite effect on the USD reserves backing Gresham Dollar.
Are you worried that a Gresham Dollar panic would increase monetary velocity enough to kick off an inflationary feedback loop? I'm not worried about that. The same panic would also strengthen Gresham Dollar's peg to USD by making our USD reserves last longer. And because the peg would remain strong, any inflationary effects would affect GD and USD equally.
It might start off 1:1 with us US dollar, but it must drop for the simple fact because it's supply will exceed USD.
Do you feel that merchants would refuse to agree to reserve requirements below 100%?
That's another fundamental problem with currency or its like -- the entire human race is really not just cooperating with it, every one will also try to game it. It's like a horde of intelligent learning agents trying to bring it down for his own benefit.
Some people are definitely doing that, yeah. One "attack" that I could imagine being carried out against Gresham Dollar is if a GD dealer sold a large amount GD people who were under their Activation Cap to help then "top off." This would cause us to burn through our USD reserves more quickly because more GD would be active.
There are other possibilities, but I'm not worried about something like a currency run panic.
* Someone with a deep pocket decides to buy as much as possible at a high discount, say 1 cent per dollar, and wait 30 days and get a 100x gain in a month. (There are some funds that specialize in this kind of operations with bond from developing countries. Usually it takes more than a month to get the money, but sooner or later the country has to pay, because whatever is in the land is essentially a collateral. (Hi from Argentina!))
* Nobody in their right mind would buy the money, no merchant, no exchange, no other user because all of them think that the value will continue to decrease. So the only option is to save them in a drawer and wait 30 days, and after 30 days they are convertible to dollars. (At the 29th day, you can choose to sell it to someone that will have to wait 30 days or exchange it for a few cents, or wait 24 hours and get a whole dollar.)