Why an IOU based system is better than conventional money systems

Since launching the Owe'm system a few days ago, I've been having a number of exchanges with various colleagues about the relative merits of an IOU-based system compared with more conventional money systems.

I'm becoming increasingly convinced that the advantages of using a pure IOU based system are enormous.

In a conventional money system, you create a fixed number of tokens - coins, notes, vouchers or whatever, and you distribute them among the members of the population. There are a whole range of different ways you can do that initial distribution.

For example, you could decide to simply give everyone a fixed number of tokens. This is essentially what is suggested under a citizens income scheme.

Alternatively, you could distribute the tokens to people who do work that is in the interest of the community - building bridges, repairing roads, teaching children, looking after the elderly and infirm, or whatever.

Another option is to provide the tokens as loans to people and projects that are considered to be of value.

Whatever the scheme, someone has to decide (a) how many tokens to create, and (b) how to distribute them. And even before you get there, you have to decide who gets to decide.

Once the tokens are in circulation, there will be a natural tendecy for the tokens to accumulate with some members of the group. Initially, this may well be because those members are working hard, and earn the tokens that they get. But inevitably, as the tokens accumulate, some people will end up with a lot more than the others. You will tend to have a situation where there are not enough tokens to go round, and the poorer members of the community may end up having to borrow tokens from the wealthiest members - who will be happy to make loans, but will certainly want to charge interest. And before long, you will have one group of people (let's call them the workers), who end up working for another group of people - the ones who have managed to get their hands on the tokens (let's call them the capitalists). 

Indeed, some of the wealthy people may well realize that it is in their interest to restrict the number of tokens in circulation. That way, the poor members will be even more prepared to work hard for them, simply to get their hands on the few remaining tokens that are still in circulation.

Now, compare that all too familiar scenario with what would happen in an IOU based system such as Owe'm. Remember that the idea here is that there is no actual money. You start off with €0. Each new member who joins the system gets an account with a balance of €0. But they are given the right to emit IOUs to other people. If someone does some work for them, they can acknowledge that by sending them an IOU. If someone provides some goods, again they can acknowledge the fact by emitting an IOU.

Importantly, there is no limit to the number and the value of IOUs that any individual can emit. If they can convince someone that they can be trusted, then so be it. But, for every IOU that you emit (and which leaves you with a negative balance), someone else will become positive.  And so the net value within the system will always stay at €0.

I see some amazing advantages to such a scheme. It is impossible for anyone to restrict the amount of "money" that can be used. It's not because one member of the group is very positive, than they can restrict the freedom of others to emit more IOUs.

Secondly, there is absolutely no need to worry about how much "money" to create, how to distribute them, and who should be given the job of making those decisions. In the IOU based economy, everything just works by itself, with no need for centralised control. The only thing that needs to be done centrally is to set up the initial system with all the safeguards needed so that people can trust it. I seriously think that this is already the case with Owe'm.

Maybe I'm wrong, but at least for the time being, I'm very enthusiastic about the possibility that IOU based transactions could be the solution that we are all looking for.

Finally, to explain the difference between Conventional Money systems and an IOU-based one, I've just prepared a short presentation video. I hope you like it.


Why you can try OWEM with no risk and start the revolution!

I've been working to get the OWEM system fully functional. You can register by connecting to the site at www.owem.net. If you do, you will find the following screen.

You can check out the information menu, which gives some of the reasons why OWEM could be for you. And then you can Register by filling in the following form.

You can see that I have been having fun changing the logos, and the colour scheme from the standard Cyclos interface that I was using yesterday. And as  you can also see, you don't have to give away too much detail - just your name (which could be fictitious for all I know), a login name, a password and a valid email address (so that you can be sent a confirmation email).

Once you are on the system, you will have a credit limit of €10000 (!) that you are free to use to send IOUs to other people on the system. One of the people you could send an IOU to is me (user name sjt), but you might not feel happy about owing me something! Can I be trusted?

So, why not try sending an IOU payment to one of the 10 fictitious characters that I invented to try out the system - namely, the Baker, Builder, Carpenter, Cleaner, Electrician, Farmer, Gardener, Hairdresser, Nurse and Teacher. They are all there and ready to recieve your test IOUs. I can assure you that, since none of them actually exist, they will not come and try and get you to pay them the "money" you owe them! Indeed, I could easily log in with their passwords (which only I know) and get them to send you an IOU back!

You can do all this via the www.owem.net website. I should maybe point out a bug in the Cyclos 4 software that makes it impossible to type in numbers on a Mac with a French AZERTY keyboard  unless you have a keyboard with a numerical pad too. It's a known bug, that will hopefully be fixed real soon now. But you can get round that by doing your payments  using the Cyclos 4 mobile app that just came oute for iPhones and iPads and is also available for Android based smartphones. (Note added 3rd June - and you can also type in numbers on a Macbook by setting the keyboad to Caps Lock - then the top row can be used to key in numbers directly). Those mobile apps are really neat. Just specify www.owem.net when you log in and you are away. You even get my green OWEM interface instead of the standard blue of the Cyclos system. Very simple to use.

One of the things that I have checked is that as administrator of the system, I am unable to access your transactions. It is impossible for me to know the details of who you have been sending IOUs to. All I can see as system administrator is the balance on your account. That starts off at €0, would go negative if you send lots of IOUs to people (limited to €10000!), but could go positive if people on the system started sending you IOUs instead. And there's no limit to the number of IOUs that people can send you. You could be an OWEM millionaire if you did loads of things that other people appreciate!

As I say, I really am confident that this is completely safe. Anyone anywhere can use OWEM to send an IOU to anyone else who is on the system. But at no point do you actually send anyone any real money. The worst thing that could happen is that you could recieve a message to ask if and when you intend to pay off your IOU. Nothing legally binding. But, obviously, if you did send out a whole load of IOUs that you didn't respect, then you would soon find that you credit on the system will have vanished, and that nobody would believe you any more.

Effectively, your IOUs have value as a sort of money if, and only if, people think that you are trustworthy. But in the end, that's all money is anyway. A piece of paper with €10 written on it is only worth €10 if you think that you can swap it for something worth €10. Likewise, an IOU from me on the OWEM system is worth €10 if you think that I would pay it back at some time.

So, why not give OWEM a try? If you already owe someone something, why not make it official by both of you joining OWEM and you sending an IOU payment? It doesn't cost anything. And you could be part of the revolution that will mean that our children may never need to use conventional bank created money - all of which requires us to pay interest. That system, which has produced a world where there is more than twice as money debt as there is money to pay it off, is simply stupid. It's time to try something new.

OWEM is my suggestion for a way out of this mess. Why not give it a try?

Correction added June 3rd. I've just discovered that, as administrator,  I can actually access all the transactions made by Users. It's a bit complicated, but I can open the accounts of individual users and recover the transactions. Now, you might think that this is bad news in terms of privacy. But the good news is that it means that it will be possible to modify Cyclos 4 to do the fancy stuff that I want - namely cancelling out IOUs that form loops within the data structure. Without access to the basic data, this would have been impossible. 


OWEM is now online

I've just launched the OWEM system with its own site. You can find it at www.owem.net

Please check it out. And feel free to register!

Currently, the list of members is limited to just me, and the 10 fictional characters that I added yesterday.

Hopefully, some of my readers will be interested in trying out the system.  If you do, I will owe you a beer (with a value of €2).

Here are just a few of the advantages of an OWEM-like system when compared with a conventional bank-based payment system.
  • The total amount of credit that can be generated in the system increases directly with the number of people using it. With the current settings, each new person gets a credit creation capacity of €10,000. If you can convince someone to take an IOU from you for €10,000 then you effectively have €10,000 of purchasing power! If a million people sign up, that means that you can potentially generate up to €10 billion of credit - out of thin air! Just like commercial banks, but without the strings attached!
  • If there are underused resources in the community, and people prepared to work, then there will never be a shortage of the credit needed to get things done. Unemployment will effectively be a meaningless term. If someone is willing to work, and there are useful things to do, the only other thing that is needed is someone ready to emit an IOU to cover the cost. But that person doesn't need to have any money up front. 
  • The system is completely free. It has cost me a small amount to declare the www.owem.net site, and I've paid a total of €60 to the Cyclos4 people to do the linking. But that's it. I have set up my own open system that all of you can use. As it stands, there is  probably going to be enough capacity to handle a few hundred users at least. But if we start getting hundreds of thousands of people signing up, or even millions, the Cyclos 4 software that I am using can be scaled up. There's a Cyclos 4 Pro version that has a range of prices depending on the numbers of users - you can find the price list here. You can see that for non-profit social systems, Cyclos are prepared to handle up to 20,000 users for just €1! Very reasonable.
  • There is no interest! Unlike borrowing money from a bank, where you (or someone else) ends up paying the bankers interest to rent their "money", user created credit within OWEM has no interest charges to pay at all. Of course, if you and your partner so wish, you could arrange things so that, if you don't pay off an IOU after 1 year, it's value is increased by some percentage. But that's up to you. Compound interest is not built into the system.


Implementing Owe'm on Cyclos4 - it really works!

I'm getting there. It really looks like I will be able to get my idea for a limitless "money" system to work using the the Cyclos4 software system.

I've created a community using Cyclos that models the toy system I showed you a week or two back. Remember that imagined a group of ten people in a community who emitted IOUs to eachother as follows.

To do the same thing in Cyclos, I created 10 users - one for each person in the community. Then I logged in as each user in turn to make the approriate payments. In fact, I did this using the Cyclos 4 app on my iPhone, but there are versions for iPad and Android too. Very neat.

Here's what the system looks like if you log in as the Carpenter and check out the account details after all the "payments" have been made.

You can see that the Carpenter has sent IOUs (payments shown as negative numbers in red) to the Teacher (€12), the Hairdresser (€15), the Cleaner (€10) and the Baker (€5). But he has recieved IOUs from the Gardener (€12), the Electrician (€10) and the Builder ($15), leaving him with a net balance of -€5.  You can also see that the available balance stands at €9,995 - simply because I was pretty generous when I set the system up - I decided arbitrarilly to let people run up cumulated IOUs of up to €10000. But of course, that is up to the administrator of the system. And it would be easy to start users off with a small value (say €100) until they have proved that they are reliable.

There is a similar picture if I log in as any of the names.

As administrator for the system, I can look at the overall balances for each of the ten users. Here's what it looks like.

You can see that the numbers all tally up. They all correspond to the "Net" values in my original illustration. And the net balance across the system is exactly €0. Indeed, it can't be otherwise. The only thing that users can do is send IOUs to other users. Even as the adminstrator for the system, I am unable to generate a transfer between users. So the whole thing is perfectly safe.

I was thinking that it would be nice to implement the fancy graph analysis mechanism to eliminate the loops in the system. But the fact is that you don't even need that. The only thing that users need to know is whether they are seriously imblanced or not. And from the point of view of the administrator, the only thing that would be necessary would be to just warn people who have become seriously negative for a long time that they need to do something about it, or risk being labelled as a bad player.

But even if someone ends up owing the Baker too much because they have been going an getting their bread every day without paying off the tab, there's no real problem. The Baker would just have to say - OK, this time you will have to pay off the debt with some "real" euros - either by cash, by cheque or by credit card. When the debt was paid off, the Baker would simply send a "payment" via the Owe'm system to acknowledge that the IOU had been cancelled.

Simple. In this way, the entire community could function with goods and services charged for in Euros, but without actually needing any "real" euros at all! No need to borrow "money" from a Bank. And no need to pay any Bankers interest for letting use their "money" that they create out of thin air anyway.

I seriously think that this way of conducting business could make conventional banks almost irrelevant. We don't need their "money", because we can create our own in the form of IOUs using the Owe'm system.

STOP Press. I've just made the system public and you can log in at www.owem.net. You'll need to registrer by providing an email address so that the Cyclos 4 software can send you an activation code. After that, if there are two or more of you out there, you can owe each other as much as you want. And if you want to try owing somebody some money, you can try sending an IOU to one of my characters - the Baker, the Builder, the Carpenter etc. Don't worry, I can get them to send you back an IOU to cancel it out, so you won't actually lose anything on the deal!


More on the Owe'm concept

The more I think about it, the more I think that an IOU based system like the one I proposed last week could be really interesting.

Last week, I discussed a simple case with just 10 individuals interacting by emitting IOUs. We saw that when a large number of IOUs had been emitted, many of them can be made to magically disappear in a puff of smoke with a little bit of housekeeping work behind the scenes. Obviously, it's trivial to notice that if the Baker owes the Electrician €8, and the Electrician owes the Baker €3, you can cancel out one of the IOUs by subtracting €3 from both - leaving the Baker owing the Electrician €5.

But it gets much more interesting when the network is much larger. My postdoc Jake told me that this is a standard problem in Graph Theory, and that the question of eliminating loops in directed graphs is a well studied problem.  Essentially, we need a bit of software that examines the structure of the IOUs within the entire population, looking for loops. For example, consider the following
  • A owes B €10
  • B owes C €12
  • C owes D €10
  • D owes E €14
  • E owes F €10
  • F owes A €11
Those 6  IOUs can be radically simplified by subtracting €10 from each to leave just three IOUs outstanding:
  • B owes C €2
  • D owes E €4
  • F owes A €1
This sort of loop could potentially involve hundreds of people, who would all have the happy surprise of discovering that their accounts had magically become much simpler overnight. You would always stay with the same net amount owing or owed.... but the people on your list could get dramatically simplified with no effort on your part.

There's another very interesting thing that can happen if you include not just individuals in the network, but also a public authority, such as the local council. Each citizen might be required to emit an IOU to the council to cover the cost of provided services such as road repairs, a public library, administation and so forth.

In turn, the local council could partially pay its staff using the same IOU system for doing things such as road repairs. But it could also reward other citizens with IOUs for performing other useful work in the community such as looking after the elderly and disabled, providing after school actitivies for school children, or providing gardening services for communal gardens.

Now that the council is involved, there will be a wide range of new ways of cancelling out IOUs. Suppose that an unemployed person owes the Baker €10, the Baker owes the Council €10, and the unemployed person does some useful work for the community that the Council considers merits an IOU of €10 (for example, by helping a disabled person do their shopping). In that case, we have a new loop, and all three IOUs can be cancelled.  In effect, the unemployed person has managed to pay his bill at the Baker's by doing some useful work for the community.

And the truly wonderful thing about such a system is that no-one had to go and borrow money from a Banker to make those transactions, and that means that there is no interest to pay! It demonstrates just how stupid we have been for so long by allowing commercial banks to create the money we need for commerce out of thin air, and then charging us all interest to rent their money.

We really can create as much "money" as we want, free of debt.

Right now, I'm looking seriously at the possibility of modifying the Cyclos4 software system to allow this sort of IOU based system to be implemented.  Cyclos4 is a remarkably sophisticated payment system that can be used for developing a wide range of alternative currencies. You can make payments using a smartphone app, or by SMS. So far, I haven't quite worked out how to replace actual transfers by IOU emissions, but I'm confident that it could be done. A bit more programming round the back to detect loops in the graph, and we would have a fully usable system.

If you would like to help me get it up and running, do get in contact! Owe'm could be just around the corner!


EUREKA - How to create unlimited amounts of "money" without banks! The "Owem" system....

Yes, I really do that think the EUREKA! label is appropriate here. I've been thinking more about the idea that I raised in my last post - namely, that we can all create "money" simply by generating IOUs, and that the whole system could be managed by something a bit like the mobile phone based "Paym" (Pay 'em) system that has recently been launched in the UK.

The difference is that people would not send messages to PAY other people. Instead, they would send messages to say that they OWE them money. We could call the system Owem - for "Owe 'em".

I just tried simulating how the system could work with a group of 10 different people in a community - a Baker, a Builder, a Carpenter, a Cleaner, an Electrician, a Farmer, a Gardener, a Hairdresser, a Nurse and a Teacher.

Suppose they all start of with a balance of zero.  Then, during the first week, they note the following set of IOUs.

For example, the Baker emitted two IOUs : one to the Electrician for €8 and another to the Farmer for €7. This makes a total of €15 that you can see in red in the IOU column.

At the same time, the Baker was given IOUs by the Builder, Carpenter, Cleaner, Electrician, Gardener, Hairdresser, Nurse and Teacher (they all went to the Baker to get some bread!). That gives him a total in UOIs (you owe I) of €26, which is the number in green at the bottom.

This means that the Baker has a Net status of +11 euros - which you can see in the right hand column.

Adding up all the IOUs (or all the UOIs - it comes to the same) gives a total amount of "money" in circulation of €384 - the number highlighted in blue.

Note also that the sum of all the "Net" values in the right hand column is Zero. It has to be - because every IOU emitted is matched by an equivalent UOI.

Now, while all this economic activity may look complicated, you can actually cancel out most of the activity. Some of the IOUs were between the same two people. Thus while the Baker emitted an IOU to the Electrician for €8, the Electrician also emitted an IOU to the Baker for €3, meaning that the Baker now owes the Electrician €5.

But there are more complicated chains involving three or more "players". Thus, while the Baker still owes the Electrician €5, we can note that the Electrician owes the Carpenter €10, and the Carpenter owes the Baker €5. The result is that all that can be cancelled out, leaving just the Electrician owing the Carpenter €5.

Once you have done all the cancelling out, you are left with the following highly simplified table.

Each person actually only owes anything to one other person. The Baker owes nothing, and is owed a total of €11 euros by four people. Note that the Net IOUs for each person haven't changed at all, and the total is still zero. But the amount of "money" in circulation has dropped from €384 down to just €37. Magic!

And all this money creation and removal was done without the need for a bank! It could all be done with a simple bit of software that could be provided for free.

Seriously, I think that this can be done. We don't need to borrow euros from banks. And we don't need to pay interest to the banks for lending us their tape measure. All we need is a bit of software that allows people to keep a tally of who owes who what.

If, after several months of running the system, the Carpenter still owes money to the Cleaner, it might be necessary to ask him to make the payment with "real" euros. But in the meantime, everyone has been getting on just fine using their IOUs. Business will have been booming, bread will have been baked, buildings built, farms farmed, gardens gardened, hair dressed, the sick nursed and the children taught - and no need for debt-based money at all.

I really do think that there is a way out.


Let's all create our own money!

I've been thinking about the new Paym ("Pay 'em") system that has just been introduced by 9 banks and building societies in the UK, and which allows people to transfer money between accounts with a simple mobile phone application. It's been developed by the Payments Council. You just need to link your bank account to your telephone number, and if the person who you want to transfer money to is also on the same system, you can easily transfer money directly with your phone.

On the Paym website, there is a bit about how many people in the UK have IOUs - and that the average person is owed about £21 a month. When people end up owing someone else some money, this is effectively like money creation. Thus, if you do some work for me, and I agree that I now owe you £50 (say), this is a bit like creating some extra money.

So, that got me thinking.

Suppose that we modified the Paym application so that in addition to being able to transfer actual money from one account to another, you could also emit an IOU to another person. The App on your phone would not just keep a track of the payments you have made. It would also keep track of the IOUs you have emitted to someone else, and the IOUs that other people have made to you.

So, I might end up with the following scenario.

IOUs (I owe them) Total : €45
  • Chris : €20
  • Michèle : €15
  • Ursula : €10
UOIs (they owe me) Total : €45
  • Stefan : €5
  • Tasmin : €5
  • Kieran : €15
  • Jonathan : €20 
Current Balance (UOIs minus IOUs)
  • €0
This is really just the equivalent of the Tally sticks that were used very succesfully in the Middle ages for centuries before the Bankers discovered how they could control money creation, and charge interest. But note that while there is a total of €90 in "circulation", I'm actually with a net debt of €0 because I am owed as much as I owe.

Now, here's the amusing thing. Let's suppose that there is a server somewhere that is keeping a track of who owes IOUs to who, and that the system notices that while I owe Chris £20 and Jonathan owes me €20, Chris also owes Jonathan £20. In that case, there is a loop, and all three debts can be written off.

These loops can be much longer than 3 of course. Wouldn't it be a pleasant surprise to discover that your list of IOUs and UOIs just got shorter because of a linked list involving tens of other people, many of whom you have never met!

Of course, what really makes the idea so attractive is the fact that the "money" that is being used in the system is entirely interest free. No bank will need to lend me the money that I use to post an  IOU to someone. And no bank will get interest payments for loaning me their "money".

Some people may complain that this is just a sophisticated way to avoid paying tax. Obviously, there will be no VAT to pay. And if, when someone does some gardening for me, and I add €100 to my list of IOUs, it would be effectively a way to avoid paying the social charges. But as you know, I would be in favour of scrapping all those employment charges anyway.

And, if the system became official, I would see no problem in having all such transactions taxed using exactly the same universal FTT that would apply to all the other Euro denominated transactions. 

France has 192 "petites taxes" - many of which are pointless. Scrap them I say!

In case my case for scrapping the current tax system and replacing it with a simple, universal and painless FTT was not sufficiently convincing, take a look a soon to be published report on a set of 192 "petites  taxes" in France, produced for the French government by the IGF "Inspection Générale des Finances".

The contents of the report were described in an article in "Le Figaro" on the 7th of March. Together, the 192 taxes raise €5322 billion - which may sound quite good. But it turns out that in many cases the cost of collecting the taxes exceeds the amount of money they raise.
Here's a figure from the Figaro showing which sectors are currently affected by this mountain of taxes. The French Budget Ministry is considering scrapping 90-100 of them.  I say scrap them all! It's just needless bureaucracy. Replace them all with an automatic financial transaction tax on all electronic transactions.

Amazon UK paid just £4.2 million in tax - time to scrap corporation tax completely

A report in the Guardian today says that Amazon UK paid just £4.2 million in tax last year, despite selling goods worth £4.3 billion.  The report goes on to day that this "brings to just over £10m its contribution to the public purse through corporation tax in a decade. Over the last four years, Amazon has generated £23 billion in British Sales".

For me, the solution is simple. Governments should offer to abolish corporation tax everywhere in the EU. But in exchange, we should introduce a tiny Financial Transaction Tax on all electronic transactions.

In the UK, corporation tax raises just under £40 billion a year. That number is about 0.002% of the level of UK financial transactions (over £1840 trillion).

Similarly, in France, the "Impôts sur les sociétés" generated €39 billion in 2011. While transactions in France are a lot lower than in the UK (I got a total of €273 trillion from the BIS figures for 2012), it would still be possible to replace the Impôt sur les sociétés by an FTT of just 0.014%.

And, of course, the best thing would be for all Central Banks to fix an FTT on all transactions in their currency - wherever they occur in the World. That way, it wouldn't matter whether the euros were being used for trades in Paris, Frankfurt, London, New York or Singapour - the ECB would recover the tax payments and could distribute the money between the 18 Eurozone countries simply on the basis of relative population size.

As you are probably aware, I would like to scrap not just Corporation Tax, but also Income tax, VAT and a whole pile of other pointless taxes. But, strategically, it may be a good plan to offer to scrap Corporation taxes first. That way there would be very strong backing from business, and this would help get the FTT idea through the door.....


"Nouvelle Donne" : A new french political force that will be getting my vote

"Nouvelle Donne" - or "New Deal" is a new political party in France that is putting up candidates for the forthcoming European elections - in just over two weeks. It was launched by the economist Pierre Larrouturou on the 28th November 2013.

I personally will be happy to give them my support - and I have signed up as a member some time ago. I went along to a meeting in Toulouse last week and was impressed by the fact that they are clearly offering a real alternative to the traditional parties. But, in particular, they are clearly open to a wide range of innovative policies that could really result in the sort of fundamental changes that are so obviously vital.

 I would recommend that anyone who can read French should have a look at the three original documents.

The first concerns the party's program for the the European Elections.
The second describes 10 key measures for taking the initiative in Europe.
The third describes the party's proposals for France.

For those of you who have a bit of a problem with the "langue de Molière, I am providing a fairly accurate translation of the party's main policies - largely dependent on Google Translate!
Here is a translation of the party's Program for the European Elections in 20 points.


 For 30 years , Europe has been an area of cooperation and social justice, but after the Neoliberal movement in the 80s, Europe has become an area of ​​competition and deregulation. 
Europe today faces 3 major obstacles that weaken its ability to respond

  • insufficient democracy
  • the weight of finance and lobbying
  • the choice of austerity.
But it is essential that Europe moves forward with strength and speed with 2 main objectives :
  • bring the social progress to which everyone is entitled 
  • preserve the planet, which is our common good.
Prosperity in Europe will require concrete improvements in our standard of living, quality of life
and the lifestyle of each of us.
We should never give up the ambition to see our children live better than us.


1) Create an Action Zone incorporating those countries that share  the same objectives 

It has become almost impossible to progress effectively with 28 heterogeneous countries  that differ widely in their  levels of integration and different economic and social objectives.To move faster and get results, it is now vital that we create a group centered on those countries willing to implement solutions that meet citizens' expectations.
It is time for Europe to move on from a logic of competition to a logic of cooperation. Some countries have managed to do this with Airbus: we must now go further on the issues that are essential for our future.

The conditions for access to this restricted group would be :

  • Not to be a tax haven
  • Be a member of the Eurozone
  • Have signed the agreement on implementing an FTT (Financial Transaction Tax)
  • Agree to the  the adoption of a Treaty on Social Convergence
  • Accept that Europe  no longer relies almost exclusively on citizens for financial support
The operation of this Action group :
  • MEPs from the core countries would designate a small group of representatives who would also sit on the Action Zone parliament, based in Strasbourg.
They should be prepared to establish a balance of powerJust as Margaret Thatcher and the Liberals succeeded in 3 years to change the course of Europe with their neo- liberal revolution in the early 80s. It should be possible, in 3 years, to achieve  a counter revolution.

This small group will have 3 years to adopt by referendum a European Social Treaty of Convergence that would include the implementation of a
a broad financial transaction tax and a tax on profits that are  not reinvested, with the threat of refusing to pay their share of the EU budget, and using the policy of the "empty chair" to achieve their aims.

2) The immediate cessation of ongoing negotiations on the transatlantic partnership (TTIP/TAFTA)
  • This treaty would give immense power to transnational corporations and put an end to the power of regulation of a State like France in key areas (Shale gas, Genetically Modified Organinisms, Employment...)
3) Regulate global trade by requiring compliance with social rules and under the threat of imposing environmental taxation onimported products. This would require the introduction of a tax on the EU's borders on imported products that fail to respect social and environmental standards, starting with those already issued by the WTO.

 4) Use the opportunity given by the ECB to refinance the "old sovereign debt". To save the banks, the European Central Bank (ECB ) generated 1 trillion euros of new money. And in the United States, the Federal Reserve has lent ailing banks a total of $1200 billion at the incredible rate of  0.01%! While the ECB is not allowed to lend directly to member states, it can lend to "publicly owened credit instiutiions" (Article 21.3 of the Statute of the European System of Central Banks ) andinternational organizations (Article 23 of the Statute). It can therefore lend directly to the
European Investment Bank (EIB) or the Caisse des Dépôts, which in turn could lend at 1.1% to governments to refinance their existing debt. Several tens of billions of euros would be saved each year, reducing substantially the effort required by citizens, and freeing resources for public and social services.

5) Provide the European Union with its own resources
. Financing the EU budget from its own resourcs would give each European country some room for maneuver. For example, every year France "gives" 21 billion euros to the EU budget. This is all money that could be "delivered" to the French public. The budget of the European Union shall be provided with two new own resources :

  • A European tax on corporate profits. In Europe  the average rate of corporation tax decreased from 37 to 25 % over 15 years, compared with 40% In the United States. Nouvelle Donne would create a tax on profits that are not reinvested, and this would be an important first step towards tax harmonization.
  • A real stock exchange tax (tax on financial transactions ) - with a broader base and a higher rate than the current project .
6) Recover money from fraud and tax evasion. The European Parliament has said that a trillion euros are lost each year in fraud and tax evasion.

  • Deny access to public contracts to companies using tax havens.  The procurement code should be changed so that  no bank, business, industry or service could  obtain public contracts if they use tax havens to evade tax.
  • Remove Banking secrecy by adding a FATCA (Foreign Account Tax Compliance Extra- European Act) that would apply to foreign accounts. It would, using the model of U.S. legislation, oblige banks to transmit the relevant information, under penalty of prohibition of activity on European territory.
  • Strictly regulate transfer pricing. These are the prices of goods and services between companies of the same group located in different countries. The OECD estimates that these intra-group transactions represent more than 60% of world trade. However, companies are tempted to take advantage of disparities between diffferent national tax laws, making existing penalities ineffective. The new proposals would impose strict regulations with criminal penalties in the event of  cheating .

 7) A Treatise of Social Europe. The Maastricht Treaty requires five convergence criteria in financial matters (including keeping the deficit below 3% etc...). It is time to rebalance the European construction by negotiating a treaty that imposes 5 social convergence criteria

  • An unemployment rate below 5%
  • A Poverty rate of less than 5%
  • A rate for poorly housed below 3%
  • An illiteracy rate at the age of 10 years of less than 3%
  • Public aid for development equal to at least 1% Of GDP
8) Create a social anti-dumping salary. In contrast to logic of farming out workers, low wages must be curbed. A company that relocates to an EU country where the minimum wage is less than that of their country of origin will be required to apply a minimum wage at least equal to the average in both countries.

9) Create a European apprenticeship. All young people should be able to do an apprenticeship anywhere within the Union on the basis of a single contract, that would be valid in all European countries.

10) Give the ECB the goal of full employment in addition to the objective of fighting inflation. This can be done on the model of the Federal Reserve, the U.S. Central Bank .


 11) Encourage investment and penalize speculation

  • Prohibit banks from speculating with our money. Impose a strict separation different banking activities.  To limit the consequences of a financial tsunami on the real economy,  there needs to be a real separation bteween deposit banks and investment banks, thus supporting and strengthening the existing European legislation. The law passed in 2013 in France is almost completely ineffective. In the case of a bank failure, the banks should turn to their shareholders, not to the state. The money belonging to citizens must be protected in the event of a new crisis.
  • Ban toxic financial products. Create an authorization process for the marketing of new financial products, like the one used for drugs. It should not be possible to launch financial products that endanger household savings or public finances.
  • Ban high-frequency trading (i.e. using machines to place orders every few microseconds). It should not be possible to speculate using financial robots.
  • Establish a bonus/malus scheme that encourages long-term investments and deters very short term strategies. The aim should be to encourage the use of savings for productive investment, which can create real employment.


12) Create an additional currency to the euro to avoid deflation : the euro-franc. With a single currency and an independent central bank, the democratic institutions in Europe no longer have any power over the currency. But France, like most of Europe, is close to deflation, creating a formidable combination of low prices, revenues and profits, increasing unemployment, an increase in extreme poverty and triggering large-scale bankruptcy. The purchasing power of the French is blocked by stagnant wages and tax increases needed to finance austerity. Such policies empty the order books of companies. In parallel, the real economy lacks money, just as the body is deprived of oxygen. At present, money creation is in the hands of the commercial banks, who use it to finance speculation. In this context, it is necessary, while keeping the euro, to issue currency at the national level.  Thus, a "Euro-Franc" should be  be created by the Banque de France, something that is quite legal. It would be pegged to the Euro, with 1 Euro-Franc = 1 euro. It will be unconvertible, and could not be used for the purchase of financial assets and property. Every resident citizen over the age of 18, will receive
150 Euro-Franc every month on an account that is specifically opened for this purpose.
Functioning as a reverse tax, will be directly provide surplus purchasing power for more equality and economic security. Thousands of businesses and citizens are already using successful complementary currencies locally. The Euro-Franc would be a sort of "national" local currency local that, while not affecting our partners, would directly help the French, with a real potential for recovery in the real economy.
This initiative in controlle money creation could push other European countries to do the same. But once the European monetary situation has stabilized, the various additional currencies could be progressively replaced  by the Euro.


 13) 1 trillion euros to save the climate. Negotiate a European Pact on Energy - Climate - Purchasing Power. It will allow each state to borrow each year the equivalent of 1% of GDP at zero percent interest from the European Investment Bank (EIB) to finance energy-saving  projects. While European States do not have the right to create money, over a ten year period  2,528 billion euros have been created by and for commercial banks! This is totally outrageous. For centuries, Nations were the only ones allowed to create new money. While they might share this power with commercial banks, it does not seem right that Nations have been totally deprived of this fundamental right. It is urgent to regain control of the currency. It is time to control the power of creation money by commercial banks to avoid the emergence of new speculattive bubbles. Reclaiming the right to create money would also make it possible to create money to finance major projects such as the fight against climate change. Each year, France could thus borrow 20 billion euros at 0% interest to  finance projects that include insulating homes homes, factories and offices. A report by the European Commission shows that households can expect savings up to 1000 € per year. Moreover, a CNRS study shows that such a policy could create 200,000 jobs in our country. The pact could also fund a European research program on cleaner transport systems, an environment and an energy industry that are less wasteful and the development of recycling in the  economy. Airbus and Ariane have been two great success stories for European industry. It is high time that we invested with the same ambition in environmental excellence.

14) Make it compulsory to display the origin and composition of all products

15) Extend the duration of the legal guarantee of household goods, the availability of spare parts and the possibility of local repair (fight against planned obsolescence)

16) An agricultural policy that serves the people. Liberalization of world agricultural trade is causing major imbalances in the world that include blocking the development of  food production in the poorest countries; speculation in agricultural and food commodities; health problems due to frenzied attempts to reduce production costs. Nouvelle Donne proposes :

  • to denounce the Marrakech Accords that have removed all protection measures and support of agricultural markets
  • to restore protectionism for agricultural production in the poorest countries, who are entitled to their own food sovereignty (since this is the type of policy that Europe and Japan have used to protect and developed their own agriculture)
  • to encourage farm diversification and support techniques that respect the environment, animal welfare, traceability and food safety, in Europe and in all countries with which it trade.
17) No new European Treaty without a referendum.
Building Europe behind the back of its citizens  should not be possible. Nouvelle Donne proposes that any new treaties should be adopted by a pan-European referendum held at the same time in all European countries.

18 ) The power of the European Parliament. Currently, all major decisions are made in the European Council by a unanimous decision of Heads of State and Government. This rule undermines democracy and leaves ample room for technocrats and lobbyists. Our  solution would be to prune back the area of competence - Europe should not be legislating on the size of zucchinis or Cheeses - and we need to establish a parliamentary system. The locus of power is Parliament, where the citizens who vote once every 5 years must say what team has the majority and which policies should be implemented.
Moreover, the weight given to projects initiated by  citizens should be increased. Proposals that can collect one million signatures should be turned into legislation and submitted within six months to the European Parliament and the Council.

19) An increased presence and role of women in the European institutions. There should be Parity within the College of Commissioners with a specific commisioner responsible for Women's rights, a specification of the parity rules used for appointments to key positions, and strengthening of gender equality in the EU action plan across member states. 

20) Protect citizens from risks and and defend fundamental freedoms on the Internet. The digital revolution provides citizens with new opportunities but also  new risks. We must protect privacy from personal data monitoring and abusive commercial exploitation. This includes the right to anonymity and encryption, the promotion of free software, and the defense of neutral and open access networks. We will oppose mass surveillance, and the commercialisation of global surveillance technologies. We will strengthen the rights of citizens, and we oppose any administrative or private sanctions without review by a judge .

That's a pretty impressive list. And I'm particulary happy to see that they have included a number of the ideas that I have developed myself over the last few years on my blog. 

For example, their proposal of introducing a Euro-Franc is remarkably close to my suggestion of the N-Euro. 

And their proposal to introduce a 150 Euro-Franc basic citizen's income is also something that I have been pushing myself. 

And, of course, introducing a Financial Transaction Tax has always been one of my favorite ideas.

So, I would encourage any French readers of my blog to seriously consider a vote for Nouvelle Donne. And if you are living elsewhere, maybe you need an equivalent proposition where you live too?

6 criticisms of my proposal to scrap the current tax system - none of which is valid

In the last part of my TEDx talk last saturday on "Towards a (almost) tax free world", I looked at the 6 main criticisms that I have come across since proposing the idea back in 2010. Let me say from the outset that none is valid.

Just to recap on the idea - the proposal is to scrap all the existing tax mechanisms (income tax, sales taxes (VAT in Europe), business taxes (corporation tax), and social security  and health contributions) and replace them all with a single universal transaction tax that would be applied to absolutely all electronic transactions made in a particular currency. Each Central Bank would fix the tax rate for their currency, and the tax would apply wherever in the world the transactions were occuring.

So, what are the criticisms that I have heard?

1) If it's such a good idea, it would already have been done. 

No. The fact is that implementing such a universal tax has only become realistic relatively recently. Traditionally, virtually all transactions were done using bits of paper - not electronically. It would have been totally unwieldy to tax each paper transaction when it occured.  s Interestingly, it is clear that all the current tax mechanisms, requiring quarterly or yearly reporting date from the time when everything was done using paper.  Arranging things so that you only had to declare your income, profits and sales once per year was clearly just a way to keep the admin down to reasonable levels. But now, there is no need to keep these 19th century taxation tools in place. We are in the 21st century now. And virtually all transactions are electronic.

2) The traders would move elsewhere.

This is the standard response when anybody mentions Financial Transaction Taxes. How many times have I heard the old story about Sweden attempting to tax transactions, only to find that 90% of the trades moved to London.  But with my scheme, the transactions are taxed on the basis of the currency being used - not where they are located. The ECB would be able to tax all of the transacations denominated in Euros - including the €1.35 trillion in euro-denominated trades done by LCH.Clearnet's SwapClear system the day before yesterday. And if the traders all moved to some island in the Carribean, that would change nothing. If they trade in euros, they pay... or they go to prison.

Of course, if some Central Bank (such as the Bank of England) decided not to implement the system, traders could still trade in that currencywhereever they like. But you would have to be mad not to want to join in the international mechanism.

3) All financial transactions would cease and there would be nothing left to tax.

It's clear that when the UK is doing over £2 quadrillion a year in transactions (that's a 2 with 15 zeros) and even the much larger Eurozone is managing 2 quadrillion in euros, a lot of this trading is likely to be pure speculation. The High Frequency Trading systems can extract a profit even when the margins are truly minuscule - even at 0.001%. Just move a billion dollars back and forth hundreds of times a second, and you can generate enough money to pay for quite a few Maseratis for the traders. And it's clear that when the algorithms wiitten by the Whizz Kids have to include an FTT of 0.1% on each transcation, a lot of that activity will slow down and much will disappear. The first point is that, of course, no-one would really mind because all that frantic trading doesn't actually do anything useful. It's just feeding that enormous tapeworm that is clogging up the economy's digestive system.

But the other point is that, even if 98% of the transactions did completely dry up, people in the real economy would still be making transactions. Even if the transactions did drop to just 2% of their current value, and we were forced to increase the FTT rate to 5%, everyone would still be massively better off than under the current system, where we all pay 20% VAT on just about everything, and where our incomes and profits are also taxed at anything between 20 and 50%.

When I go to the UK or the USA and pay using my Credit Card, I get charged between 2% and 2.99% as an international fee. This is a pure transaction tax that is a charge for multiplying the cost in pounds or dollars by the current exchange rate. Does that stop me buying things in the UK and the US? Of course not. If I want to go to a restaurant, or stay in a hotel when I'm on a trip, I will pay the banks' financial transaction tax - because I don't have a choice. The only difference with my proposed tax is that the money would go to the state, rather than to the commercial banking system. 

No, the fact that you might have to increase the tax level cannot be used as an argument for keeping the current, totally dysfunctional tax system.

4) People will switch to other types of payments.

I'm told that as soon as there is a tax on making electronic transactions in Euros, people will switch to using alternatives. They might choose to use cash. They might use bitcoins. They might use some alternative local currency. They might use a local exchange system. For me, none of these is a problem.

Let's take the possibility that people might massively switch to using cash. If people really started using cash too much, it would be enough to impose an extra fee for drawing out cash from a cash dispenser. But in any case, we could easily move towards a truly cash free system if we wanted. Only last week, it became possible to make payments in the UK using your mobile phone using the Paym (for Pay 'em) system. The system already works for 9 different UK banks (Bank of Scotland, Barclays, Lloyds, Santander, HSBC, TSB, Danske Bank and the Cumberland Building Society). Other banks i and building societies have committed to join Paym later in 2014, these include: Clydesdale Bank, first direct, Isle of Man Bank, NatWest, RBS International trading as NatWest, The Royal Bank of Scotland, Ulster Bank and Yorkshire Bank. Nationwide Building Society has confirmed its intention to join in early 2015, while Metro Bank is finalising plans to join.

If people start using other alternative currencies then again, this is not a problem. Indeed, if those alternative money systems were based on debt-free money creation, then that too is something that should be actively encouraged.

And finally, if people simply opt for direct exchange of services (I'll do 3 hours of babysitting if you do 3 hours of gardening for me), then that too is something that is to be encouraged. 

And in any case, none of these alternatives will be a problem as long as the Euro based transactions are still continuing - which they will.

5) A flat rate transaction tax would not be progressive.

Some people I know object that the automatic flat rate FFT does not vary depending upon the person who is being taxed. They actually like the idea of being able to impose a very high tax rate (50% or even 75%) on people earning very high incomes. They see the tax system as a good way to redistribute money from the rich to the poor.

While understandable, I think the arguments are very weak. The fact is that very rich people will always be able to find schemes that allow them to avoid paying their fair share. The richest woman in France, Mme Bettancourt, pays remarkably little tax because her income from the Oreal empire gets paid into various trusts that are held in taxhavens. She only brings into France what she needs to make payments.

No, if you want to redistribute from the wealthy to the poor, it is far better to use a simple, efficient and fair tax collection mechanism (such as the flat rate FTT) and then redistribute the money widely. For example, I would be in favour of introducing a universal and unconditional basic income for all citizens. It would be difficult (impossible?) to come up with a more efficient way to redistribute wealth across society.

The bottom line is that it is simply not a good idea to use income tax as a way to redistribute wealth.

6) It would be blocked by lobbies.

This is perhaps the biggest problem of all. Indeed it was the only problem raised by the four people from the Toulouse School of Economics when I presented my proposal to them back in march 2012. It is clear that there are some extremely powerful interests who will be motivated to do everything in their power to keep the current system in place.

One of the most important of these lobbies are the multinational corporations. Under the current system, multinationals have an enormous advantage relative to smaller nationally based companies. If you have a bookshop, it is very difficult to compete with the likes of Amazon, because Amazon can avoid paying taxes by using a wide range of "tax optimisation" strategies. It's no wonder that they can undercut a local bookseller (or CD seller etc).  Likewise, if you open a coffee shop you will have to pay your taxes. But the Starbucks outlet next door can avoid those taxes.

The other massive lobbying groups are the ones based in the City of London and on Wall Street. These people will be ferociously opposed to any introduction of an FTT, not so much because the idea of paying 0.01% or 0.1% tax on transactions is so terrible, but rather because as soon as the tax is introduced they would be required to declare all the transactions they do. This would remove one of the largest advantages offered by the City of London to people and businesses with large amounts of money - the ability to use the network of tax havens in places like the Channel Islands, the Cayman Islands, the British Virgin Islands and so on to conceal the financial transactions.

In my humble opinion, that is the real reason why George Osborne has been desperately trying to block the introduction of an FTT in 11 Eurozone countries. I was, of course, delighted that the UK government's attempts to attack the legal justification for such a tax was rejected by the European courts last week. As soon as it becomes clear that it is actually quite easy to raise money this way, it will be difficult to resist calls to introduce the tax everywhere. And that would mean that the City and Wall Street would have to be open about who is doing the trading.

But the fact is that, at least for the time being, we live in a democracy. Citizens vote - not corporations (except, interestingly, in the City of London!). And so, if 99% of voters realize that the current tax system can be completely scrapped and replaced by something far more efficient, simple, and fair, then there should be nothing to stop it happening.

All that we now need is for a few political parties to realize that this sort of tax reform is a vote winner, and to put this sort of proposal into their programs. It's unfortunate that it is certainly too late to get this to be an issue for the European Parliament elections in two weeks time. But, I'm hopeful for the future - especially if, as I very much hope, my TEDx presentation goes viral when it finally becomes available.

Watch this space!