Security Notes: Buying a Dollar for Eighty Cents

I challenge you to make sense out of the title of this column! It is a vision of the near future, discounted dollars for sale. The catch: you pay 80 untethered cents to buy a tethered dollar.

What does it mean? The government offers the public a chance to pay with nominal dollars, which are untethered to any condition of use and have no expiration date, and get in return more dollars that are tethered to some terms of use. This is a transaction that empowers money to fashion the economy and society to conform with government policy. It’s where digital cash makes the biggest splash.

Here’s an example: a certain state government would like to see light industry built in a particular area. The state will declare that a preset amount of money is available “for sale” at 80 cents on the dollar. The purchaser really buys claim checks for the discounted dollars. These claim checks can be paid forward per their nominal (not discounted) value. And the recipient can keep paying these tethered dollars for their nominal value.

But when the current owner of these claim checks tries to redeem them per their nominal value, he or she must show that he or she earned this money for constructing, or servicing the construction of, light industry in the designated area. The tethered dollars can also come with an expiration date to ensure that the government’s policy is carried out in a timely manner.

Trying to use these dollars in a casino won’t work, since the casino cannot redeem these dollars as they don’t meet the condition of redemption.

For the issuing government, the discounted dollars represent investment. Traditionally, governments will give out grants, or reduce taxes, for which the entrepreneur has no risk and hence limited incentive. The purchaser of the discounted dollars spent 80 cents on each of them. This puts market forces in play as purchasers sustain a risk. If they don’t pay these discounted dollars to a qualified recipient who can redeem them for untethered money, then by the expiration day they lose their value.

The government will use competitive pressures to minimize its liability. It will first offer a 5% discount for these tethered dollars. If there are not enough buyers, the government will offer a larger discount, and so on until there are enough buyers. Successful buyers will make money from constructing the light industry per se, and then make more money through the discounted purchase.

Government-issued tethered money will be used for research and development in areas the government wishes to promote. Venture capital will have to supply the purchase price.

There is a lot of room for creativity in how to exactly tether the discounted dollars. Once the plan is fully implemented, the government will have a smooth, frictionless, fast-moving tool to leverage the private sector in favor of society at large.

Tethered money is not limited to governments. Advocacy groups can readily use it to steer private money for a cause. Commercial entities will use tethered money in more and more creative ways. A shopping center will offer discounted dollars, which will have to be used, say within three months, for purchases in any store in that center.

As AI engines become more and more sophisticated, they will fine-tune the terms for discounted money, the amount discounted, and the rate of discount.  Money will become a much better chisel to carve out a growing, equitable economy.

Assorted applications and thorough explanations of this concept may be found in my book, “Tethered Money,” published by Elsevier.

—Gideon Samid gideon@bitmint.com