Neither Debt nor Interest

Taler Bullion and its variants cannot be used to express debt. Because of this, nobody needs to ever agree to pay interest.

Recall that Taler Bullion and variants are fully value-backed and the Taler currencies are used to trade titles of ownership on the value.

Since debt expresses a shortage, it cannot be expressed in units of Taler Bullion, Taler Energy, Taler Focus or Taler Dinosaur. If it were, then titles of ownership would change hands on unfounded basis, and somewhere along the line the full backing breaks down.

This is actually also a problem with everyday money. Debt itself is traded, as a future payment. This is very much a Keynesian approach to money, where money itself (and even debt) can be traded. Debt can purchase other debt, and this creates a chain of dependencies, where each link in the chain gives off guarantees on the basis of similar guarantees in the other place. Such chains break when one link drops out.

When debt goes awry, then a party does not receive its expected future payment. As a result of that, that party may run into difficulties meeting its own obligations, which may ripple down the chain in the reverse of the buildup direction. Strong intermediate links may lap up their losses and maintain what remains of the integrity, but whether this is possible depends on the small amounts of value kept as backing. The pressure to reduce that amount of backing value is great, because it brakes the growth of an economy.

Taler Bullion deliberately passes a title of ownership on the underlying value, and guaranteeing full reserve all along the way, because actual ownership has the stability that is lacking in a partially-backed system, especially when under pressure to hollow-out the value-backing. Taler Bullion and variants always have the (title to) value in the hands of the party spending it, so their payments are fully backed and leave no debt.

Debt is the main reason to charge interest, to cover losses for not selling the debt elsewhere, and for covering a risk in a given ratio to the height of the debt. Finally, inflation needs to be overcome, which is considered the responsibility of the party in debt. All this does not work in the Taler Bullion system and, as a result, interest need never be charged.

Interest is vile. Most religious teachings will ban it as such, for good reason. Anytime a charge is made a percentage of an amount of value, it is charged on a periodic basis, for instance annually. This repeats and that leads to interest on interest. These are percentage that look like additions but that are really multiplications with a factor somewhat above 1.0. For a 5% interest rate, the actual calcuation is multiplication by 1.05 for each period. In N interest periods, that makes 1.05 ^ N, an exponential development.

Expential charges are extremely lucrative. They are so lucrative that no taxation percentage could ever charge enough to settle the inequality that is being caused by this mechanism that pumps money from those who haven't to those who have. Interest is considered a main driver of the differences between income classes, and especially for broadening the gap.

The game of earning at least the inflation percentage makes sense for such money uses as investments (where it raises the bar on performance of funds) but it is far less sensible for savings of value. Consider keeping a pension fund under a system with 3% inflation per year. After 50 years, the original deposits have been depreciated by inflation with a factor 1.03^50 = 4.38. An original deposit of €4.38 ends up with the purchasing power of €1. Once more, the mechanism is not vile in itself, it just has lost perspective by only caring for inflation and there is a need for a secondary mechanism.

Parties who charge a percentage over an amount almost always do this because they can get away with it. But what more effort is there to selling a house at ten million than at one million? Really, a service like that could be charged as a fixed-rate fee. The same goes for pretty much all other situations, possibly with exceptions for insurances and other things that really do represent a scalable amount.

Lending done differently

There is a lot of literature about lending without debt. Islamic banking has been founded to avoid interest, for the reason that the religion is explicit in calling it vile. In fact, most religions say this.

Islamic banking works by parnerships between a business and a funder. The funder is promised a share in the proceeds, possibly for a few years and possibly a fixed amount or a percentage, but that is under the cnondition that profit is being made. The funder takes the risk that no profit may be made.

In that sense, the funder is more of a participant. He will want to think along what the company does in terms of acquisition (to protect his funds) but may also have ideas about any development activities. This is not at all uncommon; the most successful investors in the World sit on the boards of the companies they fund, and know in great detail what their companies are doing.

This system does not align well with anonymous loans, such as banks have grown used to. Islamic banking is also getting more creative in circumventing what is called interest but quietly re-inventing a mechanism to the same effect, such as risk compensation. This is only required because of the wish to invest anonymously, without active involvement with the investment. This does not seem to align with the original intentions, or the condemnation of interest, but it follows from competitions between banks that each interpret the rules in a balance with their competitors. Self-controlled systems do not survive market competition, we've seen that in many places.

Taler Bullion and variants are suitable for trusted relationships, and can then be used for risk-sharing loans with all that comes with them. They are not suitable for anonymous trading of shares, let alone anomylous variants such as flash-trading.

These "missing" features may not be a loss to the intention of an economy, which is about people and their welfare. Economic growth only improves people's lives inasfar as it improves efficiency, but the idea of an ever-growing amount of money is not necessary, and possibly even counter-productive, to achieving that, as a result of inflation, debt and interest, anonymous and flash-trading.