IEEE Technology and Society Magazine - Summer 2013 - 29

average marriages. The expected
value does not tell us why and
under what conditions the expected
duration might change, and there
may be infinitely many such conditions and factors in evaluating
the risk in any particular marriage.
More importantly, the expected
value doesn't tell us the worst
case scenarios, and under what
conditions they might take place.
Vague but intuitive insights into
marriages and what makes them
fail in general may be more useful than the expected duration, or
even the variance, as they provide
policy guidelines by inferring causality [1], [31]

Money and Risk
Money introduces risk to an economy, since it is an IOu issued
by a central bank, and all IOu's
carry the risk of change in value
in terms of purchasing power,
or even a complete loss of value
when the IOu's are not honored.
National currencies have the former risk because the central bank
controls the amount of currency
in circulation and hence its purchasing power; and private IOu's
such as bank loans have the latter
risk since the issuers may default
and fail to honor the IOu. These
risks are multiplied when banks
loan to each other and the failure
of one bank affects all the others.
Central management of money by
central banks and governments
adds to this risk, since their decisions affect all other banks and the
complete economy of the nation,
and financial crises are difficult
to localize.
Finally, interbank relationships
among the central banks of different nations, and among the private
banks of different nations, make
any crisis in any part of the world
a global crisis. Such centralization
and interconnection in the financial world, enabled by technologies
and agreements such as SWIFT,
is relatively new in history and
unprecedented. It is yet another

example of modern communication technologies creating great
global efficiencies, along with huge
global risks. This global financial
system leads to repeated financial
crises, because centralization leads
to information overload, and makes
decisions very complex; and global
interconnection spreads the effect
of any faulty decision globally.
The combination of the difficulty
of complex centralized decisions
and the global impact of any faulty
decision creates an extremely risky
environment [27], [33].
There are alternatives, and
it hasn't always been this way.
Ancient barter economies of
the early agricultural societies,
although much less efficient, did
not have any of these risks. Local
banking systems of early industrial
societies, isolated from the international financial system, had their
risks localized. Crises were common, but did not escalate into global
crises. Even the risk of a national
currency was often reduced by
private currencies issued by private banks, local currencies issued
by local governments, or barter
economies that existed alongside
the national currency. None of
these schemes were very efficient,
because of their inability to take
advantage of global opportunities
and exchanges, thereby leading to
the development of more efficient,
but more risky, global financial
systems. But new information technologies are making many of these
ancient techniques of risk reduction feasible again, and even more
desirable, by reducing their inefficiencies, while still maintaining
their low risk [14].
National money is debt created by national governments or
by regulated commercial banks. It
is managed centrally, with all the
consequent problems of central
management, such as information overload at the center, single
point of failure, and incentives
for political struggle to influence
and corrupt the decision makers.

IEEE TECHNOLOGY AND SOCIETY MAGAZINE

|

SuMMEr 2013

Distributed and decentralized
money management would alleviate these problems. There is some
historical precedence for decentralized management of money in
the united States. In the early 19th
century, many commercial banks
issued their own private currency,
and the federal government largely
stayed out of the money business.
By the mid-19th century, there were
approximately 30 000 different
private currencies in the united
States. There were many problems
with such decentralized management of money through private
currencies, such as the non-universal acceptance of money, the risk
of bank default, and the difficulty
of consistent currency exchange
among all the different currencies.
Modern information technologies
can be used to solve these problems
while maintaining all the advantages of decentralized management. Communication networks
can be used to connect all currency
issuers for universal acceptance
of all currencies; social networks
and recommendation systems can
be used to collectively judge the
default risk of currency issuers; and
electronic exchanges can be used to
automatically exchange currencies
to support multi-currency transactions [18], [33].
Imagine a new monetary environment where all businesses, and
even some individuals, can issue
private money as credit to their suppliers and employees. Such private
money is merely an electronic IOu
signed by a business in exchange
for goods and services. It is fundamentally different from debt-based
money, since it is issued only in
exchange for goods and services,
and hence its quantity is expected
to be self-regulating, except in
case of fraud. It is implemented
merely as an electronic record in
a database shared by all parties
involved. The shared database can
be housed and maintained by a
third party electronic marketplace,
or merely duplicated as a shared
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