How the ICEO Currency Exchange Worked

Note: This can be considered a part of the Discussion of the Mechanics of Currency Exchange

Note 2: There are a lot of italics to emphasize key points and meanings.

Part I - The Currency

The basic goal of the ICEO was to allow currencies to be traded in a fair, or at least acceptable, manner. The worth of a currency was determined by a formula and compared against other currencies.

A currency could be exchanged because it was worth a certain number of another currency. Well, that's not entirely true, but I'll get to that later. Unlike in the macronational world, micronational currency is fluid. If you want to exchange your $1.00 USD for yen, you could not exchange it (that is, turn a dollar into 120 or so yen), you had to buy it. There is a fundamental difference between exchanging and buying. Macronational money is not fluid because it is physical. Micronational money is fluid because it is not bound by physical properties; it is electronic. There happens to be on my desk a US dollar with the serial number G 81814880 I. This dollar is the only dollar with the serial number G 81814880 I. But a Tymark is the same as any other Tymark, because the Tymark is electronic. Even if Dollars did not have serial numbers, they'd still be not fluid. Let me make a comparison. Those of you familiar with probability have likely heard of a fair coin. A fair coin is a coin with an equal chance of landing on either side. A fair coin represents micronational currency; either side ("Tymark") is exactly equal to the other. Macronational currency, however, is like a deck of cards. The nine of hearts card will always be the nine of hearts card, no matter what. Even if you strip the card of its ink, it will still be the nine of hearts card, albeit without nine hearts on the card. The difference that I wish to explain is this: Let us name the sides of our fair coin "heads" and "tails". The probability of a fair coin landing on heads is one in two, or 50%. Let us now compare this to the deck of cards. Out of a standard 52-card deck, what is the probability of a card I choose being the nine of hearts? You might say 1 in 52, but I disagree. I say the probability is one in two. Why, you ask? Because the cards are physical. If we spread out the entire deck onto a tabletop, I have 52 choices. I could choose the card nearest the left, the card nearest the right end, the card in the middle, or the card somewhere in between. These are physical choices. Once I choose which card to turn over, let us say for the sake of our example the card furthest to the right, the probability of its being the nine of hearts is one in two, because I have eliminated the other 51 cards from consideration; I am deciding to turn over this card, and this card only. Now compare this to a fair coin. I can't eliminate any cards, or faces, because the coin is not separated into discrete parts like the deck of cards is. In order for the deck of cards to be fair, and thus achieve a 1 in 52 chance of a card being the nine of hearts, all 52 cards would have to be turned over simultaneously. And even then we'd run into the problem of how to make a decision. After all, there are 52 places. A better way of having a deck of cards be fair would be to have a 52-sided coin, with it being tossed. Maybe this is more of a philosophical issue than a technical issue, but hopefully at least some of you are understanding what I am trying to say a fair coin and a deck of cards, or rather, micronational currency and macronational currency.

One thing in the macroworld that is quite close to micronational currency is the banking system. More specifically, the bank accounts. The money in the bank accounts don't exist physically; instead, they exist electronically. If I decide to pay for a $10 lunch with a check, the $10 that will be withdrawn from my account, there will be no difference between the first dollar and the last dollar. It's all electronic. But if I decide to pay for a $10 lunch with 10 one-dollar bills, then there certainly is a difference. I'm not paying for a $10 lunch in $1 format, I'm paying for a $10 lunch with bills that have serial number G 81814880 I, serial number F 11088985 L, serial number B 84325034 M, etc. However, a macroworld checking account is not truly electronic; the bank must have a certain amount of cash in its vaults to back up its accounts in case of a withdrawal from electronic format to paper format.

Returning to the issue of exchanging currency, the problem of macromoney being physical is the reason why you are technically buying yen with a dollar, not converting a dollar into yen. A certain amount of gold is worth one dollar, and a certain amount of silver is worth one dollar, but does this mean that gold = silver? Of course not. While the Transitive Property of Equality may work for mathematics, it does not work when we're doing with physical things. Which brings up an idea. Perhaps this will be simpler than the deck of cards/fair coin example. In mathematics, numbers are abstract ("electronic"). But gold and silver are physical. The number 8 will always be the number 8, no matter if I write it in fancy cursive or type it. 6 + 2 also equals the number 8. Carbon happens to weigh about 12 amu. Helium weighs 4 amu. Does this mean that if I put three helium atoms next to each other they will turn into a carbon atom? No, helium is helium, and carbon is carbon.

Micronational currency is more like mathematics than chemistry. When we convert micronational currency, we don't have to worry about serial number whatever, or fear the day when 6 + 2 stops equaling 8, nor do we have to engage in weird paradoxes like 6 + 2 only sometimes equaling 8.

Well, micronational currency can't be directly, directly exchanged (or converted) into another form, at least in ICEO currency theory. You see, the basic unit of currency in the ICEO is the currency unit, or CU. The basic value of currency in the ICEO is the currency value, or CV. One CU equals one CV, or 1.000. It is this intermediary currency that allows micronational currencies to be exchanged with one another. Let's suppose that Currency A has a currency value of 2.000. Another currency, B, has a value of .500. One unit of Currency A therefore is worth 2 CU. One unit of Currency B is worth .5 CU. 2 CU divided by .5 CU yields 4 CU. One unit of Currency A is worth 4 units of Currency B. So when we convert from one currency to another, it's converted to CU, then the other currency. But this is more of a technical issue than anything else. Just semantics. Nobody bothers to convert to CU, but that's how it "works", theoretically. But in actuality, the CU is merely a formality. Sort of like how Taiwan calls itself the Republic of China.

In this summit, people have talked about something called value unit currency exchange. This is quite similar to how the ICEO exchange works. Actually, it's similar because it's the same things, except for one important part, where it is more or less the exact opposite.

In a value unit currency exchange, the value unit is fixed. For example, a million value units are allowed to each nation. A nation can then print any amount of money it wants. The one million value units would be distributed equally among the money. If a nation prints one million dollars, each dollar is worth one value unit. If a nation prints two million dollars, each dollar is worth half a value unit. The amount of value units that a currency is worth determines how much it is worth compared to other currencies. A higher number of a currency would mean more inflation for that currency. This is very similar to the ICEO way, except for the million value units. In a value unit currency exchange, the number of value units is fixed. In the ICEO currency exchange, the number of units of the currency of a nation is fixed. In fewer words: 1 million of its currency, not 1 million currency value units. The ICEO system could easily be changed to a currency value unit system; instead of one million of the nation's currency, each nation would receive one million CU.

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Edited by: dStryker at: 5/29/02 1:30:12 am