Money is at the heart of any financial system. It is the “joints” that link markets across space and time. As long as money performs its functions, markets tend to allocate resources efficiently and allow participants to be more productive and therefore more prosperous.
As money is a prerequisite for the normal functioning of markets, it cannot itself be part of the market. Money, thus, cannot as such be a source of income or profit. This is one reason why all divine faiths prohibit usury.
Cryptocurrencies were invented supposedly to avoid the ills associated with the fractional reserve system. Unfortunately, they end up with the same problem: both systems are transforming the process of money creation into a commercial process motivated by destructive competition.
We should always remember that money is a social good. The generation of money cannot be a commercial process. With this in mind, let us see how we may capitalize on the power of blockchain technology to create a cryptocurrency (1) without profits, (2) to support the community, and (3) to enhance business activities.
My colleagues and I are working on a system called: Social Cryptocurrency (SC). The system has three types of stakeholders:
- SC Authority. This is a non-profit entity (could be public or private) responsible for the management of the SC System.
- Beneficiaries. These are the targeted groups of the community for support. They are mainly two groups:
- Socially disadvantaged individuals who in general deserve receiving zakat.
- Micro or small enterprises.
- Service Providers: These are businesses that offer various kinds of goods or services, e.g., supermarkets, pharmacies, clinics, electronics stores, restaurants, gas stations, etc.
The SC System works as follows:
The Authority will issue blockchain-based tokens and offer them as grants to the group (a) of the Beneficiaries. The Authority will also issue tokens and offer them as interest-free loans to the group (b). These loans obviously will be based on proper feasibility studies to ensure the viability of the businesses.
Meanwhile, the Authority will pre-arrange with Service Providers who accept to participate in the System. They agree to sell (some of) their goods and services in exchange for the tokens. They also agree to use these tokens to purchase the goods or services produced by the group (b) of the Beneficiaries.
Tokens accordingly are issued and offered to the Beneficiaries, who will use them to buy goods and services from participating Service Providers. Those Providers, in turn, will use these tokens to buy goods from the group (b) of the Beneficiaries, i.e., the micro and small enterprises. These enterprises took loans in tokens, and they have to repay the loan (with zero interest or commissions) to the Authority. Hence, they need to sell their products in these tokens. Alternatively, Providers can use the tokens to buy from other Providers, who in turn will buy from the micro and small enterprises.
By participating in the Social Cryptocurrency System, Service Providers can support the community without paying any cash. The reason is simple: By accepting SC tokens for some of their sales, the Service Provider can support the two groups of the Beneficiaries. Group (a) benefits by using the tokens to buy goods and services from the Provider, while the Service Provider can use these tokens to buy goods and services from the group (b), helping them to repay their loans, or from other Providers. Although the sale and subsequent purchase are commercial transactions, collectively they constitute social activities. The Service Provider will not pay any additional fees for such support. The System offers social support to the community without compromising business productivity.
For the system to function smoothly, the Authority must be financially sound so that the participants will have trust in the system. Moreover, borrowers or group (b), must have collateral or equity to back their loans and to align their incentives with the community. Moreover, a credit rating system and a cooperative insurance arrangement shall enhance the sustainability of the system.
The system can be scaled up if:
- A major service provider, e.g., an electricity or telecom company, participates.
- The government accepts taxes or fees in the SC tokens.
- A platform is established to exchange the SC tokens for the formal currency at a stable exchange rate.
My colleagues and I are working hard on these and other aspects of the SC System. Our vision is to develop a complete, end-to-end, system for a stable, social cryptocurrency, serving sustainable development without compromising economic productivity. Some of the components have been patented, others are on the way. We are not there yet, and there is a lot of work to do, but we are confident that, by the grace of the Almighty, we will be able to make it in the not-too-far future.
Originally published on www.blogs.irti.org