This is an interesting idea. A few thoughts from a student of international financial macroeconomics.
Seignorage is essentially the profits that come from devaluing money holdings. That means your basic mechanism is to transfer value from holders of GLO to people who claim your UBI. This could work with the early enthusiasts, or with there being transactional value in holding GLO (e.g. if sellers accept GLO then buyers will keep some of it on hand). Since enthusiasts will be attracted if there is a strong prospect for transactional value, I’ll give a few comments on the prospect of GLO becoming a global currency. My comments are mostly issues, problems, and questions that you may have to answer to convince people that the GLO ambition has potential. But that shouldn’t detract from the value of the project.
Any currency needs to have its value continually supported in some way. Your summary contains a misconception: that, to maintain the $1 value, USD reserves won’t be required after some point. In fact, entire countries can fail to defend their national currencies’ pegs despite having billions of USD reserves. It’s similar to a bank run, and it can happen to stablecoins not backed 1 for 1.
Generating demand for GLO may be difficult. Since seignorage is a devaluation of money holdings, it would create a disincentive to hold GLO. For example, cryptocurrencies often constrain supply or burn tokens in a bid to get people to buy and hold. You’re proposing to do the opposite. That is why getting people to use GLO for transactions, or some other utility such as altruistic appeal, is vital. So generating demand is not impossible, but challenging.
Your ambition for GLO may not be consistent with a $1 peg, since your ambition is effectively for the dollar to become irrelevant. Of course, a $ peg would take you a long way at first. Nevertheless, a natural solution in the case of runaway GLO success may be to peg to a CPI-like weighted basket of prices. Perhaps CPI—x%, to generate some value to transfer to UBI claimants.
The amount of seignorage revenue in a given period will depend on the growth of demand for GLO in that period. Demand may fluctuate, and with it the UBI income amount. The income will be zero in periods in which reserves are used to prop up the value. That is not a deal breaker, but you will have to dip into reserves to produce a steady UBI income stream, or accept income fluctuation.
If GLO becomes a ubiquitous global currency, it will limit countries’ ability to use domestic monetary policy to stabilise the business cycle and unemployment. That would open the question of global monetary policy in a GLO world, and whether the policy variables e.g. GLO supply should be used for macro stability as well as UBI, and who should make those decisions.
I hope my comments are constructive enough to be helpful. Best of luck!
Thanks for the close read and thoughtful comments, Michael. FWIW, if you’d like to discuss this more over email or a Zoom call, we’d be glad to connect.
To each point in turn (along with a paraphrase—LMK if I got any of this wrong)
The seigniorage model is effectively a (redistributive) tax on holding the asset
Yep, that’s right. For this model to work, in the short term, we need people to buy, hold, and use GLO for altruistic reasons and accept a (relatively modest) depreciation of the asset over time. (Cash also devalues.) If our group of enthusiasts is large and vocal enough, they create an incentive for vendors to accept GLO, and, best case, to prefer GLO for branding reasons. In the medium-term, we aim for parity in terms of ease of use with other means of exchange. In the long run, we aim for GLO to be the easiest, or among the easiest, ways of buying and selling stuff, which is something you’d pay a small price to deal with, just as sellers currently eat the costs of a fee to accept credit cards. Right now, we’re focused on the short-term problem of convincing folks to give it a try, with the basic calculus that if the project works, it could have transformational effects on global poverty. Even if you assign only a small probability to the project’s eventual success, a small probability * a transformational impact is still a very large gain in expected utility.
USD reserves are necessary to maintain value in the long-run
Probably reserves of something are necessary for the long run but they don’t necessarily have to be in USD. Your point is well taken though, especially today.Our vision is that in the early phase, reserves will effectively subsidize the value of GLO, since there is no natural demand; later on, if/when GLO garners transactional, altruistic and branding demand, we’ll use the reserves to manage the float and dampen volatility. The action is the same (trading GLO for dollars) but during the ‘subsidy phase’ the reserves will on average only go down, and we hope to get to a point where natural demand growth allows us to grow the reserves as well. There’s a trading strategy section in the whitepaper that spells this out in more detail—we’d be glad to have your feedback!
The seigniorage model is also a disincentive for holding the currency
See above
Rather than a $1 peg, why not a basket of CPI-linked indexes?
First, we’re not aiming for a peg. We’ll let GLO be its own free-floating currency and only use $1 as a loose target. And yep, in the long run, we might aim for a new target. In the short- and medium-run, 1 GLO = $1 has a number of nice properties, e.g. simplicity & ease of understanding.
UBI won’t be consistent over time unless demand for the asset rises steadily and monotonically
This is right in principle and we could deal with it in a few ways; 1) we might have a system where rich world users only accepted UBI sometimes, or never, or only when it was above a certain value threshold, and could opt instead to have it automatically distributed to users who truly need it (or to an unrelated charitable fund, e.g. GIveWell’s Maximum Impact Fund). 2) we might supplement from existing reserves, as you suggest. 3) Create a ‘friends of GLO’ foundation to which people can donate (tax-free) some amount of money that goes directly to recipients, for which we will already have the infrastructure set up. This could take the form of a close partnership with an NGO (e.g. GiveDirectly) or a mobile money transfer service (e.g. M-PESA).
What about existing monetary policy uses, like reducing unemployment? Are we imagining a world where governments can’t do that anymore?
1) if GLO becomes the single global currency, countries would indeed have to rely more on fiscal policy. This has downsides, clearly, but is not unprecedented, as we see within the Eurozone or countries that adopt the dollar. 2) Long-term, we don’t want to be solely responsible for running the world’s money supply, and global monetary policy will ultimately need to be handled by an org like a global central bank, a trusted NGO, or a democratically representative DAO. 3) The $2.86T number is useful as an optimistic case to get a sense of the potential scale, but our ethos is not “take over the world’s money supply or bust!!” A variety of intermediate outcomes would still also be very good, and those would still supply governments with latitude to, e.g. use OMOs.
This is an interesting idea. A few thoughts from a student of international financial macroeconomics.
Seignorage is essentially the profits that come from devaluing money holdings. That means your basic mechanism is to transfer value from holders of GLO to people who claim your UBI. This could work with the early enthusiasts, or with there being transactional value in holding GLO (e.g. if sellers accept GLO then buyers will keep some of it on hand). Since enthusiasts will be attracted if there is a strong prospect for transactional value, I’ll give a few comments on the prospect of GLO becoming a global currency. My comments are mostly issues, problems, and questions that you may have to answer to convince people that the GLO ambition has potential. But that shouldn’t detract from the value of the project.
Any currency needs to have its value continually supported in some way. Your summary contains a misconception: that, to maintain the $1 value, USD reserves won’t be required after some point. In fact, entire countries can fail to defend their national currencies’ pegs despite having billions of USD reserves. It’s similar to a bank run, and it can happen to stablecoins not backed 1 for 1.
Generating demand for GLO may be difficult. Since seignorage is a devaluation of money holdings, it would create a disincentive to hold GLO. For example, cryptocurrencies often constrain supply or burn tokens in a bid to get people to buy and hold. You’re proposing to do the opposite. That is why getting people to use GLO for transactions, or some other utility such as altruistic appeal, is vital. So generating demand is not impossible, but challenging.
Your ambition for GLO may not be consistent with a $1 peg, since your ambition is effectively for the dollar to become irrelevant. Of course, a $ peg would take you a long way at first. Nevertheless, a natural solution in the case of runaway GLO success may be to peg to a CPI-like weighted basket of prices. Perhaps CPI—x%, to generate some value to transfer to UBI claimants.
The amount of seignorage revenue in a given period will depend on the growth of demand for GLO in that period. Demand may fluctuate, and with it the UBI income amount. The income will be zero in periods in which reserves are used to prop up the value. That is not a deal breaker, but you will have to dip into reserves to produce a steady UBI income stream, or accept income fluctuation.
If GLO becomes a ubiquitous global currency, it will limit countries’ ability to use domestic monetary policy to stabilise the business cycle and unemployment. That would open the question of global monetary policy in a GLO world, and whether the policy variables e.g. GLO supply should be used for macro stability as well as UBI, and who should make those decisions.
I hope my comments are constructive enough to be helpful. Best of luck!
Thanks for the close read and thoughtful comments, Michael. FWIW, if you’d like to discuss this more over email or a Zoom call, we’d be glad to connect.
To each point in turn (along with a paraphrase—LMK if I got any of this wrong)
Yep, that’s right. For this model to work, in the short term, we need people to buy, hold, and use GLO for altruistic reasons and accept a (relatively modest) depreciation of the asset over time. (Cash also devalues.) If our group of enthusiasts is large and vocal enough, they create an incentive for vendors to accept GLO, and, best case, to prefer GLO for branding reasons. In the medium-term, we aim for parity in terms of ease of use with other means of exchange. In the long run, we aim for GLO to be the easiest, or among the easiest, ways of buying and selling stuff, which is something you’d pay a small price to deal with, just as sellers currently eat the costs of a fee to accept credit cards. Right now, we’re focused on the short-term problem of convincing folks to give it a try, with the basic calculus that if the project works, it could have transformational effects on global poverty. Even if you assign only a small probability to the project’s eventual success, a small probability * a transformational impact is still a very large gain in expected utility.
Probably reserves of something are necessary for the long run but they don’t necessarily have to be in USD. Your point is well taken though, especially today. Our vision is that in the early phase, reserves will effectively subsidize the value of GLO, since there is no natural demand; later on, if/when GLO garners transactional, altruistic and branding demand, we’ll use the reserves to manage the float and dampen volatility. The action is the same (trading GLO for dollars) but during the ‘subsidy phase’ the reserves will on average only go down, and we hope to get to a point where natural demand growth allows us to grow the reserves as well. There’s a trading strategy section in the whitepaper that spells this out in more detail—we’d be glad to have your feedback!
See above
First, we’re not aiming for a peg. We’ll let GLO be its own free-floating currency and only use $1 as a loose target. And yep, in the long run, we might aim for a new target. In the short- and medium-run, 1 GLO = $1 has a number of nice properties, e.g. simplicity & ease of understanding.
This is right in principle and we could deal with it in a few ways; 1) we might have a system where rich world users only accepted UBI sometimes, or never, or only when it was above a certain value threshold, and could opt instead to have it automatically distributed to users who truly need it (or to an unrelated charitable fund, e.g. GIveWell’s Maximum Impact Fund). 2) we might supplement from existing reserves, as you suggest. 3) Create a ‘friends of GLO’ foundation to which people can donate (tax-free) some amount of money that goes directly to recipients, for which we will already have the infrastructure set up. This could take the form of a close partnership with an NGO (e.g. GiveDirectly) or a mobile money transfer service (e.g. M-PESA).
1) if GLO becomes the single global currency, countries would indeed have to rely more on fiscal policy. This has downsides, clearly, but is not unprecedented, as we see within the Eurozone or countries that adopt the dollar. 2) Long-term, we don’t want to be solely responsible for running the world’s money supply, and global monetary policy will ultimately need to be handled by an org like a global central bank, a trusted NGO, or a democratically representative DAO. 3) The $2.86T number is useful as an optimistic case to get a sense of the potential scale, but our ethos is not “take over the world’s money supply or bust!!” A variety of intermediate outcomes would still also be very good, and those would still supply governments with latitude to, e.g. use OMOs.
Happy to keep discussing, we love this stuff 😃