The Economics Of Local Banking


This post will build upon my Decentralizing Credit And Currency post and extend the discussion to the future of local banking and currency in the wake of the transitioning next decade with the slow motion collapse of the centralized banking and accounting bureaucracy and the future decentralized financial system, and hopefully can and will serve as a guide for young local entrepreneurs looking to set up private issue of local currencies worldwide, and explore the economics of local banking and currency issue including benefits and drawbacks…

Context And Background To The Concept of Local Banking

While local banking might sound a fanciful, ridiculous and naively utopian concept at first contemplation, banking as an industry has always started out local before being progressively centralized and nationalized in conjunction with and because of the rise of government… All my writing on my now lengthening blog has been on the eternal struggle between centralization and decentralization, and how the last five centuries of Western History has been a centralization supercycle, with the first four centuries of Monarchy (Absolutist and Constitutional from Circa 1500-1900 AD) centralizing law and the legal system and in many cases legislating on money and credit, and this last century of Social Democracy, of the rise of central banking, of war, misery and spiritual and material poverty… The unique evil of combining government and the issue of money and credit (central banking) has centralized and distorted every corner of sector of every economy as all other production and exchange is recycled and stored in a nationalized (communized) medium of exchange, as banking and financialization become globalist so does the set up of the world economy, away from the small and local trader and business network, toward the transnational banks, corporations and “free trade” legislation… However the fatal flaw of centralization is that it is inherently wasteful, destructive, and impoverishing and so is eternally unsustainable, and this Age of Empire like every other in human history can last only as long as the productivity and serfdom of the working classes who shoulder the incredible and crushing debts of socialism… As I described in my previous post on The Collapse of Socialism – The Collapse Of The Banking And Accounting Bureaucracy, the only way we will ever see economic growth under the current regime again is by devaluing the enormous debt pile which can only be done by diluting the already pitiful purchasing power of fiat currencies, you can only devalue debt by default which is the implicit defaulting of your purchasing power that will reward debtors (millennials) and crush savers (boomers)… The coming defaults of governments and their central banks will naturally be intricately tied to the issue of money and credit, and so the fragmenting of globalism is the fragmenting of banking, finance and law that will be far reaching and will fundamentally change all our lives in the coming decade, with the obsoletion of the legacy system and decentralization of money and power over the West, and then work its way East…

Decentralization Full Retard – E-mail, E-commerce, E-money

My extensive writing on the decentralization trend has posited the internet as the beginning point just over twenty years ago which has completely revolutionized the disseminating of information while also disintermediating traditional gatekeepers and shills of the (Elite funded and controlled)  legacy media, if you need any evidence of this now rapidly accelerating trend you need only look at the Brexit and Trump phenomena of the last six months driven to a large extent by online social media… If information exchange was the first application of a distributed internet protocol then the second application to follow at the end of the nineties was decentralized peer to peer trade and e-commerce, although a bastardized version of person to person exchange corrupted by central bank inflation (Dot Com Bubble) and by governmental taxation and regulation that has destroyed the small independent trader for the benefit of lobbying and corrupt corporatism, with corporations such as Amazon, E-Bay and Paypal existing as convenience middlemen generating billions in revenues as essentially skimming operations that would and could not exist in a decentralized financial system… So the third and final application of the distributed internet will be as a conduit for the decentralized and digital layer of the future financial system that is yet to fully mature, and it is this application that will be the most far reaching and life changing disruption for all of us in this next decadeAnd the application that takes us from inflationary debasement to deflationary enrichment will be the internet protocol in combination with a barely eight year old protocol, that of blockchain technology

Blockchain Technology is a very catch all term that in the end doesn’t describe very much at all and so to elaborate on the blockchain and its implications I always discuss Bitcoin, as the first and by far the most successful and currently the only globally scaleable blockchain… Bitcoin as a growing and maturing distributed ledger that disintermediates centralization (finance and government) has many applications that I have only scratched the surface in discussing and explaining, this early writing has looked at Bitcoin up against the status quo and from the contexts and angles of Overview, DeflationGold, Banking, Property and Law, Barter and Exchange, Credit and Currency, The Halvening, Adoption Demographics, The Banking Collapse and the collapse of the Housing Bubble

Decentralizing Credit And Currency – Economics Of Scale

Inverted Pyramid Assets

This local banking post will be an extension to my Decentralizing Credit And Currency – Economics Of Scale post which presented the above inverted pyramid of assets as the broad framework for the future financial system, consisting of competing and complimenting currency layers each offering something that the other cannot, and achieving a balance between physical reality and digital utility…

Physical Anchor – Precious Metals

Gold and silver as money as I described in previous posts are eternal constructs embedded deep in the human psyche as the last six thousand and counting years of recorded history attests, the scarcity of supply and utility of characteristics (durability, portability, divisibility) that made these metals the best medium of exchange, the best unit of account and the best store of value, and the de facto money of humanity over the sands of time… However as I also described in The Theory Of Credit And Money post, gold and silver have throughout history worked in conjunction with (or even subordinate to) accounting ledgers, whether a credit ledger to facilitate local barter, or double-entry bookkeeping ledgers and paper derivatives of of local, regional and national banksIn any economy of real complexity and division of labour there will be a requirement for the private production of both money and credit, and the major drawback of physical precious metals is their lack of practical divisibility in an economy of increasing sensitivity to price discovery and cost ratios… It is indeed for this reason that I contend that banking originated and developed with paper derivative substitutes (paper money) acting as more convenient and easier divisible units of account, and in my opinion this would be a thousandfold for the world we live in today… Just imagine if an ounce of silver were to reach its intrinsic scarcity value unchained from the derivative fraud system that mercilessly manipulates its price downward, and that an ounce of silver traded at say $1000 an ounce, then a silver quarter (25 cents) would purchase approximately $250 of goods and services, and even though silver in theory can be subdivided to any weight or measure, the minting and coining of silver would be very laborious and cost intensive, and this would be even more so for gold (that is far scarcer than silver)… To sum up in short one of the main purposes of the invention of paper currency in world history, is that it is easier to divide than metal

In the human history of the last five centuries the origin of money (gold and silver) was eventually superseded by the origin of banking, an organic credit layer built upon money by the invention of modern double-entry bookkeeping and a paper derivative layer (paper money), with ledgers allowing the co-ordinating and tracking of debits (deposits) and credits (withdrawals) and paper banknotes as physical manifestations of this ledger operating out in the wider economy, with paper the far more convenient and superior method of price discovery in an ever expanding and increasingly complex division of labour and by extension inherently deflationary purchasing power of money (especially gold, being approximately sixteen times more scarce than silver), in short paper money was accepted and trusted by people as more convenient credit substitutes for the underlying money in society… However while there were advantages to a paper credit layer, history has also amply demonstrated that intrinsically tied to the history of banking is fraud, of fractional reserve banking, and the rise of fractional reserve banking societal inequality, oligarchy, and war… This is because the money is intricately connected to the whole of the economy, to all exchange of goods and services and property, and therefore the control over banking is the control of society and the direction of society, which nearly universally is a disaster for societal liberty and peace… Banking is an industry dependent on trust and this trust is always eventually betrayed for power and control over people

For the reasons above I put gold and silver at the base of the monetary pyramid as hard physical assets and money proper and will be held and saved by the productive population as pensions, insurance, nest eggs, and gifts to descendants as tried and tested stores of value… However I do not envision precious metals being widely used in exchange, and will be superseded by superior mediums of exchange and units of account, that will be carried out by a different financial layer and anchor, that of the credit layer

Digital Anchor – Blockchain and/or Bitcoin

The blockchain is a barely decade old distributed digital ledger technology that in the next decade will obsolete and eliminate national and transnational banking and why I have continuously described this technological rebellion as the biggest development of the last five centuries, indeed since the double entry bookkeeping ledger itself Instead of being a paper credit layer the blockchain is a digital layer that will replace the current paper and digital layers of banks and central banks with its distributed ledger and in built scarcely issued currency (bitcoins), that eliminates legacy finance and middlemen that we will increasingly witness as this technology matures and develops, and currently the most successful iteration and at this time the ONLY globally scaleable blockchain is Bitcoin, that I will now describe in some more detail…

Bitcoin unlike banking is not a derivative layer, and I will repeat this for clueless economists and gold bugs alike, Bitcoin is NOT a derivative but a stand alone digital ledger that derives its value solely from its utility and its intrinsic scarcity of supply… Unlike the banking derivative system Bitcoin is not a ledger operated and controlled by central counter-parties, but a decentralized sovereign electronic ledger that works on cryptography and mathematics rather than trust in fallible human accounting… Because there is no longer counterparty trust issues this ledger becomes infinitely scaleable and can connect potentially everyone on earth through electricity and internet connection on laptops or smartphones, which makes it easily adoptable for the majority of the global population these days even increasingly in third world countries and continents… And most importantly and completely at odds with the current inflationary infinite credit creation of the dying centralized banking system, Bitcoin has a pre-determined and predictable rate of issue with a maximum cap of issue of twenty one million (21,000,000) bitcoins, and as I described at length in my post on the halvening, the rate of inflation is halved every four years (every 210,000 blocks mined) reducing liquidity and providing a hugely deflationary anchor for the purchasing power of the bitcoin currency… In fact I can encapsulate the monumental genius of Bitcoin’s currency issue in a dozen or so lines, so here’s how simple it is to understand:

Bitcoin Block Issue (Transaction Database And Ledger): 1 block every ten minutes, 6 blocks every hour, 144 blocks per day, 52,704 blocks per year, 210,000 blocks every four years, halvening

Bitcoin launches in 2009 with block reward of 50 bitcoins every 10 minutes (300 bitcoins per hour) = 210,000 x 50 = 10,500,000 btc

Bitcoin reward halvening in 2012 with block reward of 25 bitcoins every 10 minutes (150 bitcoins per hour) = 210,000 x 25 = 5,250,000 btc

Bitcoin reward halvening in 2016 with block reward of 12.5 bitcoin every 10 minutes (75 bitcoins per hour) = 210,000 x 12.5 = 2,625,000 btc

Bitcoin reward halvening in 2020 with block reward of 6.25 bitcoin every 10 minutes (37.5 bitcoins per hour) = 210,000 x 6.25 = 1,312,500 btc

Bitcoin reward halvening in 2024 with block reward of 3.125 bitcoin every 10 minutes (18.75 bitcoins per hour) = 210,000 x 3.125 = 656,250 btc

Bitcoin reward halvening in 2028 with block reward of 1.5625 bitcoin every 10 minutes (9.375 bitcoins per hour) = 210,000 x 1.5625 = 328,125 btc

Bitcoin reward halvening in 2032 with block reward of 0.78125 bitcoin every 10 minutes (4.6875 bitcoins per hour) = 210,000 x 0.78125 = 164,062.5 btc

Bitcoin reward halvening in 2036 with block reward of 0.390625 bitcoin every 10 minutes (2.3475 bitcoins per hour) = 210,000 x 0.390625 = 82,031.25 btc

Bitcoin reward halvening in 2040 with block reward of 0.1953125 bitcoin every 10 minutes (1.171875 bitcoins per hour) = 210,000 x 0.1953125 = 41,015.625 btc

Bitcoin reward halvening in 2044 with block reward of 0.09765625 bitcoin every 10 minutes (0.5859375 bitcoins per hour) = 210,000 x 0.09765625 = 20,507.8125 btc

Bitcoin Total Blocks = 210,000 blocks x 10 = 2,100,000 blocks until end of currency supply

Bitcoin Total Currency Issue (per block) = 50 + 25 + 12.5 + 6.25 + 3.125 + 1.5625 + 0.78125 + 0.390625 + 0.1953125 + 0.09765625 ~= 100 bitcoins

Total Bitcoins = 2,100,000 x 100 = 21,000,000 bitcoin units

Once the 21,000,000 coins are exhausted by the miners they will be rewarded for their continued power contribution to Bitcoin’s blockchain security by transaction fees spread across billions of people will mean virtually zero, and that is in a nutshell is the greatest invention in human history, a distributed digital exchange standard and double-entry bookkeeping ledger that within its eight year existence is already slowly increasing adoption on all five continents and will continue to increase in both market cap and purchasing power of currency (bitcoins) as the legacy systems of unhinged governments and central banks continue their batshit mad monetary experiments and schemes while slowly (then quickly) debasing their currencies to zilch on all five continents…

Third Layer Of Decentralized Finance – Local Paper Currencies

The increasing collapse of the global banking system is currently seeing a severe and visible crackdown on the use of cash in Western countries most intriguingly recently the humanitarian disaster that will destroy India in the coming years after demonetization of the currency and lifeblood of the average Indian… This push for the cashless society is framed as a crackdown on tax evasion, corruption and the black economy, however anyone with functioning brain neurons should realize that this is merely a cover for eliminating liberty, as cash is a fungible, convenient, and anonymous means and method of living which can also be used to avoid taxation in exchange and starve a little on the devouring beast of socialism… With the elimination of cash is the elimination of anonymity and the tracking and tracing of every transaction in a digital matrix, with a purely cashless society they can then drive interest rates negatives and thus charge savers for depositing their money with them now they are unable to withdraw it in physical form, and I am fully expecting this trend to continue, national bank currencies will be eliminated as far as is humanly possible slowly strangling the gateways of liberty in the next few yearsSo kiss cash in its current form goodbye

During and in the aftermath of the collapse of the banking system and central governments, inflationary necessity will force people to substitute mediums of exchange in times of shortages whether shortages of physical cash or banks suspending withdrawals or even vanishing billions in wealth overnight, people will have to adjust to shortages of what they have depended upon without question their entire life, their trust in the system… In a world of complete economic collapse then the only trade would be local and based on a barter credit derivative system (local barter ledgers and/or currencies), and where there were gold and silver there could be instituted local banking services (paper currencies with gold or silver backing) however this would be a world without electricity and I see that as an unlikely future, however to be clear there will be sure to be regional and national shortages of energy and the natural resources to create energy that will begin the long necessary process of the decentralization of energy generation, driving innovation and invention of a more self sustaining and local (and hence antifragile) energy grid in both urban and rural settings… So I envision a world of electricity and where there is electricity, there is the digital global scale anchor and layer to scale off of in the form of blockchain technology, and it is this planetary scale distributed ledger technology that can and will scale local banking world wide

The Return of Local Banking

Go back only a century and most banks were local, or local branches of regional or national banks, most villages had a bank and there would be many banks in town and cities, so the return of local banking (where there is desire) is just an extension of the decentralization trend that is consuming central banking and governments, so if you desire to see the return of cash it will only happen by the local and private production of currency, both banknotes and coinage… The concept of local banking is not inventing the wheel but reinventing it, and the return of banking at the heart of the community, of local exchange expressed in local currencies

What form this local banking will take is the first question to consider… This local bank could be a local barter ledger issuing currency or it could be an issuer of currency derivatives based on gold and silver, however I mostly envision local banking as a derivative layer on top of Blockchain Technology and Bitcoin for the simple fact that a global ledger will provide a better and more sensitive price discovery system… While gold and silver will certainly play their part in the future financial system, they will be enhanced and unleashed on a global scale by utilizing blockchain technology as a distributed worldwide price discovery mechanism, as I extensively discussed in my Gold and the Blockchain post, so I do not envision gold and silver being used widely as mediums of exchange except local physical exchangeBitcoin however can span the world as both distributed digital ledger and currency, and so forms an uniform anchor and platform for building a local banking layer, so I see the future of local banking as a derivative of Bitcoin and the Blockchain

The Macroeconomic View – The Benefits Of Scaleability

As gold and silver are universal and one world currencies on the physical plane, so Bitcoin is a world currency on a digital plane and why I and others continually describe Bitcoin as digital gold, it has all the same characteristics and benefits, but weaponized by the world wide web… With a simple electrical and internet connection you can trade with the world and use this shared public ledger as the means for exchange, unit of account and store of value, with no limits or capital controls or fees and a scarce and predictable issue will increasingly consume the banking system, inflation and loss of purchasing power, with sound money and increasing purchasing power… So fast forward a few years when Bitcoin has furthered and matured from its current puny market cap of fifteen billion dollars ($15,000,000,000) and for a simple thought experiment imagine that the market cap of Bitcoin has reached twenty one trillion dollars ($21,000,000,000,000) and also assume that the maximum cap of twenty one million (21,000,000) units of the Bitcoin currency has been exhausted, then one bitcoin would trade at one million dollars… As we move forward we will increasingly recognize (and we are seeing it being discussed at length in the bitcoin community currently) that bitcoin will need to be sub-divided and that the pricing of bitcoins will increasingly be in bits, that is one millionth of a bitcoin… Bitcoin is divisible to eight decimal places (0.00000001) and so infinitely scaleable for price discovery and deflation in the long run too, but for this thought experiment lets stick to the milibits or bit concept… Under the above scenario, one bit would be equivalent in value to one dollar todayThis unit of accounting would be universal and would instantly be recognizable to exchanging parties even on different continents! And this universal unit of account would also serve as a platform for derivative layers which I can now start to describe…

The Microeconomic View – The Economics Of Local Banking

The local layer of the decentralized financial system would be a derivative system that would be backed by Bitcoin, and redeemable for paper currencies… In the aftermath of the collapse of fiat paper currencies and legal tender laws, then the production of money and credit will one again become local and privately issued, that will itself thoroughly purge banking of its power and control over the people… Not just anyone can start issuing currency locally for obvious reasons… This is not national and remote banking when you haven’t the first clue where currency comes from or who issues it, this the local and familiar where you know who you are selling currency to and more importantly they know you and who they are buying currency from… The simple knowledge that you can only defraud your local friends and peers and that they know where you live just in case you were ever tempted to try it, will virtually eliminate all banking fraud as local bankers will be inherently weak and vulnerable, as they should be in any credit (trust) based system… Indeed as any banking system is a derivative and therefore based on trust (outside of legal tender laws) it is to be expected that banking will work best locally where trust is face to face and familiar… You will need to be an honest and upstanding member of your community before people will ever trust you and your local issued currency, so if you are a future budding local banker now is the time to clean up your affairs and appearance and start networking locally and build up trust relationships with the people you hope will accept your currency in exchange one dayLocal banking and honesty go hand in hand

It is important to identify who to target amongst the population when setting up a local currency for your venture to be successful… If you set up in hope and just expect the locals to accept your currency from scratch then you will be in for a rude awakening, locals will only accept your paper currency if they can use it in local exchange and so in my opinion your first course of action is to target local business and retailers… Whether you live in or near a rural village or in small communities within towns or cities, the heart of the community is the village centre or town high street, it is where locals shop, sit down for a cup of tea or go to the pub for a pint, where they eat and go to buy meat, groceries, bread, milk, newspapers, hardware, and so on… If you can get these local businesses that form the heart of local community to start using your currency then local consumers will know that they can use your currency there and so will far more likely accept your currency and even start exchanging directly outside of the centre with other locals who know they can spend this currency in the centre… So I would advise canvassing local opinion and targeting local business owners and starting there and if there is a will and a need for local currency then they will start accepting it

Setting Up Premises

If you go back and look at the history of your village, town or city, you will probably find a building that was the local bank, as in my small village of a few hundred people in the heart of North Wales, the local bank was the issuer of the lifeblood of the community, the money and credit… So you can either set up a physical bank to issue and redeem currency or you can issue and redeem currency without a physical premises, that is by going around local businesses issuing and redeeming currency, or stand in the middle of the street issuing and redeeming currency to locals and tourists alike, or you have local businesses promote it on your behalf, but a physical premises or even a kiosk window would give the bank a visible headquarters and place in the local community, and could be valuable for automation purposes like an ATM (Automatic Teller Machine)

You will be issuing paper currency and/or coinage as the heart of your business and so you need some sort of pricing mechanism for it to be pegged to, and backed by, and as I discussed above I believe that that will be Bitcoin and the Blockchain and its digital and global pricing mechanism that provides an uniform platform for pricing local currencies… To go back to the previous thought experiment at a twenty one trillion market cap one bitcoin would be one million dollars, and a bit (a millionth of a bitcoin) would be equivalent to one dollar… You can simply issue a paper derivative of a denomination like say pounds, and peg this paper note to the value of a bit so that one pound is equivalent to one bit, an unit of account the local population already knows the value of… Indeed, the beauty of local banking is its flexibility and scope for creativity, you can substitute a digital bit with any and every paper currency denomination imaginable conserving all manner of historic customs and traditions, whether you call your paper notes pounds, or dollars, or marks, or lira, or francs, or pesos, or gilders, or krone, or rubles, or yuan, or yen… This method of pricing would in itself be of benefit to the global travelling population as they would be visiting and spending local currencies of the same equivalent values, and so they could instantly compare the costs of goods and services with their own local currencies, by making the current Foreign Exchange (Forex) market obsolete Bitcoin unleashes global price discovery on an absolutely mind bending scale! Now we have a premises from where to issue the currency and we also have a derivative value for the currency, we can now discuss the actual production of currency…

Production Of Currency And/Or Coinage


A sample of Brixton (London) Pounds, pegged to Pound Sterling

While the beginnings of the production of local currency may involve local printing and production, as the trend of local banking accelerates I fully expect there to be the development of an international online industry in the production of currency and coinage… It would be as relatively simple as setting up an user friendly website that would allow the full design of paper notes and metal or plastic coins where you could upload your own designs incorporating whatever symbols, local personalities, historical characters, local landmark buildings and landscapes, whatever human creativity and ingenuity can dream up can be printed and produced by specialist producers of currency… This industry would also naturally be concentrated on counterfeit proof measures, and would continually be in a game of cat and mouse with local criminal counterfeiters as limited as they would be and relatively easy to trace in a closed loop local currency structure… This decentralized and competitive industry of currency production will be competitively priced and will decrease in cost over time, which will help drive lower the cost and margins of local banking (that I will discuss later) while also improving the durability and counterfeit proof measures… You will simply upload your designs for different denominations (pound note, fiver, tenner, twenty pound note etc) and click on the quantity of currency you need, you pay the fee to the company and order, and a few days later you will have the currency and coins in your hands, and ready to issue…

Issuing Currency And Ledger Accounting

The issue of currency into the local economy will be gradual, and must be issued in conjunction with removing the underlying digital currency (bits of bitcoins)… Remember the local currency you are issuing is a derivative unit of bitcoin so for your currency to maintain purchasing power for every pound you issue (sell) you need to redeem and remove from circulation (buy) digital bits… If you issue a hundred thousand pounds, you must redeem and store one hundred thousand bits (0.1 bitcoin), so that you reconcile your digital to physical accounting, which would work on a traditional double-entry bookkeeping model, that of tracking debits (incomings, digital bits) and withdrawals (outgoings, paper pound notes), so your sole accounting work is matching paper currency for digital currency… Local businesses and tourists will be buying your issued currency by selling you their bits, and you will also have local businesses and tourists selling your currency which you will be buying back for bits, so debits and withdrawals will ebb and flow with your bookeeping ledger matching incomings and outgoings and seeking to minimize imbalances, which brings us to currency control and management…

Currency Control And Management

As your bank establishes itself and becomes more trusted and attracts a larger exchange and user base, then naturally the amount of currency you have to issue will become larger, as inevitably with increasing trust and stability the exchanging population will hoard your currency, so the local banker will need to stay on his toes to make sure there are no currency shortages or may need to call currency amnesties every so often to encourage liquidity and turnover of currency… Currency issue will also be subject to seasonal fluctuations with quieter winter months (especially in tourist destinations) interspersed with busy holiday and summer seasons because of weather conditions and summer holidays which is usually the peak tourist months, and will also vary between rural locations that will be subject to bigger seasonal fluctuations than more densely populated towns and cities that will see more stable all year round business… The only way a banker can learn and become attuned to these fluctuations in the currency business is by experience and trial and error, being on guard for currency and liquidity shortages, and to keep his digital currency reserves stable by calling in liquidity and asking for return of hoarded currency and thus draining his bitcoin reserves

Another critical aspect of local banking that should be discussed is the inherent and chronic deflation that is built into the Bitcoin Blockchain that will mean rapid and sustained increases in the purchasing power of currency which will translate as the prices of goods and services priced in bitcoin (and therefore local currency) rapidly becoming cheaper, a twenty or thirty percent deflation per annum for example would mean a twenty or thirty percent decrease in the costs of living which would equally be expressed in the local currency… This when you think of it could increasingly become a headache as pounds or dollars were becoming too valuable to use in everyday exchange (which is not the worst set of affairs really is it?!), then it would become necessary to issue lower and lower denominations of currency, with pounds subdivided to shillings and pence, dollars to nickels and dimes for example, so this is where a banker needs to manage currency… He essentially needs to produce and issue pounds, shillings and pence (lower denominations) to release into the local market, while increasingly calling in and removing from circulation higher denominational banknotes, the twenty pound note or even the ten pound note… So the local banker should pay special heed to the deflationary rate of the global economy as it translates directly through currency on the economics of local banking, he should have the deflationary rate on an app on his smartphone and should check this daily but also needs to monitor and chart it over months and years, as this will serve as an invaluable guide in the issue of new lower denominations and removal of higher denominations that once destroyed free the underlying bitcoin currency that can be converted into new lower denominational currency, and so onIn this environment of rampant deflation and staggering increases in the material standards of living of all society, the banker has to manage society’s enrichment through his banknotes

The Societal Benefits Of Local Banking

While a digital currency like bitcoin will work beautifully on peer to peer trade over regions, nations and continents, there will be other occasions when you need the material and physical, such as when buying and selling locally… When you visit the shops or go down the pub you want the ritual of handing over notes and getting the change and saying thank you and good day, currency is something we share and a global but decentralized structure of local banks and currencies would promote diversity and distinction, local pride and patriotism, a common identity, and lifeblood of local life whether the rural village or town and city district… A shared common local currency that everyone identifies with can encourage local exchange and more community interaction and contribute to a more tight knit and stable social order, and this would all be to the benefit of and longevity of the local bank and banker… Local banking I contend will be of massive societal benefit to local life in general and will I hope override the six hundred pound gorilla in the room that has gone until now unmentioned, and is the one major drawback that will determine if local banks and currency will be a long term success or just a flash in a pan

The Drawback Of Local Currency – The Banking Premium

There are two drawbacks that I can think of involved with the issue of local currency, the first is counterfeiting which I have already discussed and explained will be very isolated and pretty quickly and easily traceable on a local level and so not worthy of discussion, the second is the major determinant of the success or failure of local banking in my opinion, that is the banking premium… When transacting digitally using Bitcoin, your costs will be virtually zero as using Bitcoin will become cheaper over time as scaling solutions working off the blockchain (but connected to it) will make it more lean, efficient and essentially free, you must understand and appreciate that this cannot ever be the case for local banking, and so local banking will always be at a disadvantage in this regard… Banking costs, physical premises or selling kiosks costs money, the design production and delivery of paper currency and coinage costs money, opening times for currency issue and withdrawal costs time and time is money, maintenance of bookkeeping ledgers costs money, and the management of currency and production of lower denominations while destroying higher denominations costs money, and so on… A banker like anyone else shouldn’t either toil or work for peanuts and so should seek to make a tidy profit for himself for supplying a public service but this overhead also adds to the banking margin

To elaborate somewhat on this banking premium let’s assume that the banking premium would be five per cent over using bitcoin, or in other words for every one hundred bits you received in deposits you could only issue ninety five pounds in currency notes, so whoever would be exchanging with you will immediately notice this five pound shortfall… Especially expect the local businesses and locals in general to also notice this shortfall from day one, and while local businesses may be willing to swallow this premium for the support and success of the local currency I would be doubtful if many locals would be willing to pay this local surcharge at your currency desk, so you would expect them as far as possible to exchange your currency directly with local businesses for goods and services so as to evade this surcharge, the businesses will further shoulder the costs when draining their currency reserves and redeeming digital bits from the banker, so what can and will the local businesses do to mitigate this cost? They will increase their prices to account for the banking premium that will be borne invisibly by the locals, by raising the prices of goods and services by five per cent as it is always the consumer that pays in the end… Local banking in essence carries a societal premium over the cashless society, and so this premium becomes critical and above a certain threshold (my guess would be 10%) could lead to locals and businesses ditching your currency venture and either going back to cashless or you being open to competition by other local producers of currency who have a public mandate (and user base) to outcompete your profligate and wasteful methods of banking… You will never make your fortune from local banking because of this societal margin cost, as the higher you charge the more vulnerable you becomeHowever it should also be acknowledged that this premium would be within the overarching context and backdrop of a rapidly deflating currency and increase in purchasing power and material standards of living, so if you were to think of it like this, if your purchasing power were increasing at thirty per cent every year and the goods and services costed five per cent higher locally due to the production of local currency, would you really care or would you even notice? Your deflation and increased purchasing power would be five per cent lower, is all

The Banking Premium And Tourism

Depending on what banking premium the local banker can get away with for local businesses and users, he can also supplement his income and offset some of his locally imposed margin, by tourism… Indeed a functioning local currency may in itself be a boon and attraction for tourists (especially for local currency pioneers) as tourists visit in order to interact with and immerse themselves in local landscapes and attractions and local culture, people and customs, and I could see local currencies adding to the desirability and increased tourism as a charming and quaint local ritual in the cashless world, at least until the use of local currencies become widespread worldwide and familiar to more of the global population… And when on holiday tourists are more willing to spend money and even consume their own capital in the use of local currency, knowing that they could save a few percent by not using local currency but still being willing to use it for ingratiating themselves in local life and rituals during their stay… The higher the desirability of your locality as a tourist destination the more you can offset your banking costs and increase revenues through tourism, but beware of overcharging for your service as tourists will not pay any price for using your local currency, which would then increase the burden on local businesses and local consumers to eventually pay for your services

Future Timescales For Local Banking

The big question left for budding local bankers and entrepreneurs dreaming of eventually issuing local currency is when will society be in a position to adopt the concept and practicality of local currencies, and that in my opinion will all depend on external factors, and the extent of the cashless society… To give possible timelines I will compare with the development and evolution of the birth of the decentralization trend, that of the world wide web… After being the privilege and plaything of intelligence agencies and the military in its inception, the internet became private (or public depending on your definition) around 1994 with little real world application and prospects, the internet barely had webpages, or e-mail, audio or video, and was considered too technical and too nerdy for any kind of mainstream and long term utility and adoption, in short the cries of the naysayers in the early days of the internet was that it could never scale (Please forgive me for this but I could not resist, Paul Krugman and his powers of futurology from 1998)


One generation later (twenty to twenty five years), the vast majority of modern business is dependent on the internet, it has adopted e-mail instead of snail mail, it has adopted the internet for online banking and payment conduits in lieu of cash and cheque payments of the legacy banking system, most if not all registration of legal documents and titles for property and government taxations scams are done online, the insurance and accounting apparatus is nearly exclusively done online, the Post WW2 globalist just in time delivery economic mode of production has become completely dependent on the internet, it is only when you take a step back and really think about modern work and life do you realize that both the private productive sector of voluntary exchange and local small business AND the vampire squid of the public parasitic sector, of traditional banking, modern government and multinational corporations are by now as utterly dependent on the internet and its national and global reach as everyone else… It even brings a wry smile to my face when I hear the oft repeated drivel from doomer gold bugs and statist bootlickers alike regarding this infamous government kill switch for the internet, that governments could shut it down overnight killing Bitcoin, the Blockchain and cutting off all contact to the outside, and sure I agree all this is perfectly possible and plausible, but if the internet is shut down then all governments and banks would collapse in a few days and could never re-establish as the currency and registration for taxation conduits would be all shut downIn fact the whole premise of the cashless society and the elimination of physical cash is completely dependent upon the continued functioning of the internet as a banking conduit for the robbing and defrauding of the production of the general population, so for me it is inconceivable for them to even attempt something as obviously suicidal and stupid as killing the internet, which will mean that rather than collapse to the stone age overnight, the next ten years will be a transition period between regimes so to speak, or as I extensively described it over a year ago, Bitcoin Kills Banking – How It Happens And Why It will Happen… The internet and electricity generation will stay on (albeit with guaranteed local or regional shortages in the coming years) and will allow the transition from the increasingly cashless fiat banking system to the completely cashless blockchain system with internet and energy providers (and the infrastructure grid in general) switching currencies from fiat to bitcoin, but to be clear once they move toward bitcoin and away from fiat (and this will be by necessity and no other reason) the deflationary and decentralized nature of Bitcoin will strip internet and energy providers of their corporate and government protected monopolies and will open up them up to the brutality of free market competition before being obliterated and obsoleted in the resulting decentralization of both the internet and energy generation creating a more antifragile and localized (and sustainable) infrastructure grid…

Bitcoin is now just about eight years old… At eight years old the internet had all the same naysayers, the internet could never scale to e-mail until it did scale, it would never scale to host all the websites and blog pages created without running out of capacity until it did scale, it could never scale to incorporate audio, video and online streaming of live content from anywhere in the world without running out of capacity until it did scale, the internet could never scale as a conduit for the fiat banking system development of online banking until it did scale, it could never scale as a governmental repository for registration and digital transfer of property deeds and ownership until it did scale… The naysayers have been predicting the limits and collapse of the world wide web for the last ten years, and yet it continues to “surprise” and scale vast layers of applications incorporating nearly all aspects of modern life, and so at least you can imagine what the future may hold for Blockchain Technology and Bitcoin… Like the internet at eight years old (Circa 2002) they say Bitcoin cannot ever scale, it has too many intrinsic flaws, it cannot ever scale international and global remittances until it does scale international and global remittances that will consume the legacy foreign exchange industry, it cannot ever scale the block size problem and the limited amount of transactions that each block can process every ten minutes until it does scale protocol code improvements and off chain transactions and payment layers that will be intrinsically backed by the immutable security of Bitcoin’s blockchain and will scale free of cost peer to peer trade, it cannot ever become reliable and widely adopted and scale as an accounting ledger and platform for bartered goods and services until it does scale as a global platform for bartered goods and services and destroys the legacy banking system, it cannot ever scale as a worldwide public repository of property ownership and transfer until it does scale as a global public repository for property ownership and transfer destroying the governmental legal system, Bitcoin will not and cannot ever scale, until it does scale

So as the internet in this last generation (1994-2017) has fundamentally changed of all our lives whether in work or for leisure, the Blockchain will in one generation fundamentally change all of our lives and that will be in about ten to fifteen years (2009-2030) for work and for leisureBitcoin will likely take another ten to fifteen years to create and scale the necessary applications for solutions to our two most important problems in modern society, the money and the banks, and governments and the legal system of taxation, regulation and exploitation, but once it has scaled to this level it will be ripe for the development of local banking as an extension of the underlying security of the Blockchain, so in my opinion the time window for the genesis and rapid acceleration of local banking will be between 2025 and 2030 and the corresponding online industry of currency designers and producers, security counterfeit proof expertise and measures, printers, Automatic Teller Machines, and double-entry bookkeeping software, etc, so if this post interests anyone reading to venture into this business and industry you may have to wait for a while, or if you cannot wait you will among the first of the local currency pioneers


In days of yore before the utter corruption of law and money, the lawyer and the banker were amongst the highest respected and upstanding members and pillars of society at the top of the social hierarchy because they were trusted transmitters of private property, lawyers as transmitters of the title deeds for property, and bankers as transmitters for the title deeds of money, as facilitators of local exchange and maintainers of law and order… While the blockchain will act as the future ledger for exchange of money (bitcoins) and property (digital title deeds and smart contracts), the local administration of law and money will still need the local touch, and so expect the return of local money and of local banking… However, if you enter the business of local banking as a way to get rich quick or your progressive path to riches you will be sorely disappointed in a derivative system where the banker is inherently weak and with fraud easily exposed and retribution swift and brutal, and his banking service costing a premium over the cashless underpinning, you will be strictly muzzled by free market forces and already at a severe disadvantage against digital platformsIn the cashless society cash is no longer a necessity but a luxury, the costs of which will be borne by its user base and local population and so you do not go into local banking for the money, you go into local banking to reinvent money and offer a service as money distributor, you offer something the population does not already have, hard physical cash that greases exchange and the local economy, adorned with familiar figures, symbols and landscapes, that encourages shopping and spending locally and the rituals of local exchange… You will need to issue and also manage currency reserves in a backdrop of rapidly deflating currency and rapidly increasing purchasing power of money which means progressively issuing lower denominational banknotes into circulation while removing higher denominational banknotes notes from circulation, and so at this conclusion something of a paradox arises, the banking premium that I have been harping on may not be of any real consequence in a deflating paradise of annual double digit increases in purchasing power and by extension material standards of living, maybe the local population, businesses and tourists would be willing to pay a ten percent and higher banking margin that would allow a local banker a full time living and forty hour week, that would allow him to invest in automation and ATM’s for use at weekends and would not have to constantly worry and watch out for his costs and emerging competition… We will only know when we get there…

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