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Author's profile photo James Zdralek

Dead Accounts, Dead Money and Hoarding (5th in the series)

What if the world ran on new classes of digital currency that are inflation resistant, create price stability, discourage bubbles and deflationary spirals? What if they could protect citizen’s savings without reducing liquidity when they save rather than spend?

This blog series examines issues and possibilities in the changing banking and monetary systems. Rapid change could occur in the near future due to the ongoing digital transformation. What are the possible outcomes? Which future will happen? How are you prepared?



Futures-backed currency, introduced in the first of this series of blog posts, is a type of currency that creates a natural per-industry interest rate that eliminates the artificial components of inflation.

Dead accounts can form when a person dies after without leaving a comprehensive list of their accounts or passes on after hiding a box of cash in the garden. When these savings are not transferred to a next of kin there is a change in the money supply. The cash is no longer in circulation and there is a strong likelihood that it will not return to circulation. In terms of national fiat currencies this is insignificant in relation to the reserve balance of central banks. Inflation and the expanding money supply will mask any losses due to destruction.

For digital currencies, this is a different issue. The volume of dormant accounts in Bitcoin are estimated to be near 30%. The chance of recovery is a mathematical impossibility. Since Bitcoin will eventually max out at 21 million coins the number of dormant accounts will eventually eat away at the number available for transactions. Certain strategies for valuation have also led other cryptocurrencies to destroy mined currencies. There is nothing illegal in doing this but, based on estimates of the carbon footprint of mining, this should really be considered an environmental crime.

Once a person is hoarding currency one of the three functions of money becomes moot. The “unit of account” function is no longer applicable since you are no longer trying to relate the equivalence of dissimilar items such as apples and oranges through a common unit of currency. The two functions of money that relate to dead accounts and hoarding are “medium of exchange” and “store of value”. Money is useful because it improves everyone’s position. Not through the possession of money but through the transactions it facilitates. Once a trade has occurred both parties feel that they have what they want. Money changed hands but in the end the person who wanted oranges has oranges and the person who wanted apples has apples. The chance the trade was directly apples for oranges is rare so money was needed for the time during which the trade and movements of goods were occurring. Once the trade is complete the usefulness of the money decreases. Hence the fluctuating value of some currencies as transaction demands rise and fall. If before the trade commenced there was a person who had profited highly from selling bananas but had no interest in purchasing or consuming anything. They would hoard their cash and sit on their accumulated wealth. When the apple and orange merchants want to do business they now face difficulty because their ability to acquire money to transact is hindered by the lack of currency in circulation. As they price their merchandise lower people notice two things. They notice the rarity of cash and collect it and seeing the lower prices of merchandise the people start putting off purchases since things will be cheaper next week. Their saving can buy more and more as the merchants lower their prices trying to stimulate business. This does not encourage people to buy. It encourages them delay further, leading to a deflationary spiral. Ignoring the simple solution of barter which is difficult in the real world, the apple people want oranges and the orange people want apples but a trade is not occurring because there is no money circulating to trade with.

The solution is a futures-backed currency. Firstly, currency can be created and destroyed quickly based on the reputation of the issuers. The orange people who want apples can create a futures-backed currency obligating them to deliver oranges. Based on their reputation they can go to the market with this currency and buy apples. The same for the apple producers who want oranges. Both can create and add currency to the market valued at the promise of future delivery and the trust people have in their reputations.

Secondarily, what about the hoarding banana producer who has no desire for products and just wants to save? Assuming that a traditional currency has been gradually replaced with an economic system based on futures backed currencies then the hoarder has a couple financial products to look at. One type of money would be the specific currencies issued by producers. Futures in kiwis, peaches, mangoes. These instruments would have specified delivery dates and locations associated with the currencies. The second type of money would be “managed funds” of aggregated futures. A mutual fund of fruit offered by a bank or industry player who buys and sells futures. These financial service agencies would be managing a “unit” of a future assortment of fruit. It would be issued as a currency that is backed by other currencies that are in turn backed by the value of future fruit. The hoarder that does not want to actively manage their trade in currencies would chose the currency that would not expire when the backing product is about to be delivered.  If someone accumulated a huge amount of these “managed fruit futures”, an amassed hoard of wealth, their success, their bonanza, is not an impediment on other people trading. If fact their trust and faith in the producers, by holding on to their future promised output and product, increases the reputation and trust in the system. To the hoarder, it would be apparent that they are holding the same futures, a set of managed fruit futures, but under the hood the fund that created them is actively selling recently maturing futures and purchasing distant futures to replace them, maintaining a consistent value and basket of fruit.


Stay tuned for the next blog post in the series where I address apparent complexity and the fear of bilkers and shirkers.




This blog series will be a forum to discuss different concepts and areas where these theories can be applied. Subscribe to stay informed.

Read more about the future of money: Full article. 



The Team

The SAP Canada Ideation Centre’s mission is to help Canadian leaders of business, academia, government and non-government organizations develop a deeper understanding of the digital forces driving the economy today. Ideation Centre members strive to bring forward made-in-Canada fact-based arguments that challenge decision makers to think about the potential of organizational shifts that were not possible in the past. The Ideation Centre is fueled by thought leaders from the Industry Value Engineering team at SAP Canada. This diverse team of industry and value advisors helps organizations of all sizes and industries take advantage of technological innovations to create incremental economic value by adopting new business models and optimizing business processes, from the back office to the boardroom, farm to storefront, mine to operating room, etc.



The Author

Over his decades-long career in the high tech industry, James Zdralek has concentrated on usability, user research and design thinking while building a reputation as a visionary innovator. Merging his expertise in product design, human behavior, and economics, and through his focus on improving accounting tools, James envisions ideas that can drive tectonic shifts in financial and monetary systems. He holds a bachelor’s degree in Industrial Design, a masters in Psychology, and a diploma in Professional Accounting.

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