recommended reading

Here’s an Idea for a Digital Currency That Actually Solves a Problem, Unlike Bitcoin

Rick Bowmer/AP

Nobel economist Robert Shiller thinks bitcoin is a bubble, but he has an idea that might help electronic money solve the problem of price volatility. Think of Shiller’s idea as using big data to make money a more perfect expression of value.

Bitcoin aims to function as a medium of exchange or a store of wealth, but it’s not yet clear that it’s better than the alternatives; indeed it seems to be worse, because many people are instead treating it as something to speculate on. Instead, Shiller proposes designing electronic money around ways to properly index prices. He takes his inspiration in this area from Chile, where something called the unidad de fomento (UF) exists. The UF is an inflation-indexed unit of account used to set the prices of loans or long-term contracts in real terms. Almost all financial activity in the country is priced in terms of UFs and converted into pesos only when it’s time to pay up.

What does that mean in practice? More certainty and safety in the future. Right now, any long-term obligation—in any currency—is affected by currency speculators, inflation, deflation and other stuff unrelated to the value of whatever you’re buying. The UF strips out the ephemera to look at exactly what things cost. Chile adopted the UF to attract international lenders who might have otherwise worried that rampant inflation would devalue the return on their investments, but Shiller likes the example of rent: If it is set in UFs, you and your landlord don’t need to argue about how much it should go up due to inflation, just how to value those new light fixtures she installed.

Shiller’s next step is making UFs electronic, and calling them “baskets.” Each basket aggregates the price of a typical consumer’s daily purchases. More specific baskets for seniors, children or different income levels would improve accuracy even more. Consider the minimum wage: In the US, it’s not inflation-adjusted, leading to fights over how much to raise it each time inflation makes the old one obsolete. But if the wage were based on the basket of goods a low-income earner needs, there would be no need to change it. (Of course, deciding what to put in the basket would be a hell of a fight).

Electronic payments companies like Square or PayPal could integrate this concept into their products, allowing you to transact payments in “baskets” across borders rather than euros or dollars. It’s also an opportunity for companies like Premise, which is developing a global, real-time price index. In a paper on the topic, Shillerdescribes a future (pdf) where baskets are “used for all transactions, so that the role of conventional money might be reduced to clearing-house functions only.”

What we’re talking about is reducing currency to its most fundamental abstraction, basing it on units of economic need. It’s futuristic stuff, and Shiller hopes that ideas like the “day-wage” and the “basket” spur a re-thinking of how we measure value.

Reprinted with permission from Quartz. The original story can be found here

Threatwatch Alert

Thousands of cyber attacks occur each day

See the latest threats


Close [ x ] More from Nextgov

Thank you for subscribing to newsletters from
We think these reports might interest you:

  • Modernizing IT for Mission Success

    Surveying Federal and Defense Leaders on Priorities and Challenges at the Tactical Edge

  • Communicating Innovation in Federal Government

    Federal Government spending on ‘obsolete technology’ continues to increase. Supporting the twin pillars of improved digital service delivery for citizens on the one hand, and the increasingly optimized and flexible working practices for federal employees on the other, are neither easy nor inexpensive tasks. This whitepaper explores how federal agencies can leverage the value of existing agency technology assets while offering IT leaders the ability to implement the kind of employee productivity, citizen service improvements and security demanded by federal oversight.

  • Effective Ransomware Response

    This whitepaper provides an overview and understanding of ransomware and how to successfully combat it.

  • Forecasting Cloud's Future

    Conversations with Federal, State, and Local Technology Leaders on Cloud-Driven Digital Transformation

  • IT Transformation Trends: Flash Storage as a Strategic IT Asset

    MIT Technology Review: Flash Storage As a Strategic IT Asset For the first time in decades, IT leaders now consider all-flash storage as a strategic IT asset. IT has become a new operating model that enables self-service with high performance, density and resiliency. It also offers the self-service agility of the public cloud combined with the security, performance, and cost-effectiveness of a private cloud. Download this MIT Technology Review paper to learn more about how all-flash storage is transforming the data center.


When you download a report, your information may be shared with the underwriters of that document.