Framework For an International Currency Network (ICN)
Draft: 6/8/2016
By: M. Urban

Copyright Notice © M. Urban, 2016. Permission to copy this work for non-profit academic and intellectual use is granted so long as this copyright notice is retained. To copy otherwise requires specific permission. To Contact M. Urban regarding this work, email: optopian@protonmail.com

Introduction

The current International Financial System (IFS) is the historical result of ongoing international negotiations, often biased by individual political strategies. This process has not resulted in an efficient, secure, and sustainable system. The IFS is the result of many special interests influencing domestic and international policies in order to satisfy their individual agendas. This process produced the current global finance system with its inherent control and auditing complexities, as well as its internal contradictions. It has enabled financial fraud on a global scale that has proven difficult to remedy.

This paper proposes an innovative International Currency Network (ICN) as a viable solution. It’s been designed from the ground up as a comprehensive, distributed, standardized network that supports international money/trade transactions.

This following is a partial list of the benefits that could be achieved through the implementation of a complete ICN.

1. Eliminate/reduce the need for a global reserve currency.
2. Eliminate/reduce black market for currencies (money laundering).
3. Eliminate/reduce vulnerability to unilateral sanctions or foreign reserves confiscation.
4. Eliminate/reduce foreign manipulation of domestic money systems.
5. Eliminate/reduce need for a centrally controlled money system.
6. Stabilization of participating currencies (internally and externally).
7. Reduce economic cost (net) of global money transactions.
8. No requirement for extensive new infrastructure to implement/operate the system.
9. Simple system, easy to understand (financial accounting based).
10. Eliminate/reduce the need for centralized clearing/control (IMF, WB, FX, etc.).
11. Eliminate/reduce global finance fraud.
12. Eliminate/reduce need to peg domestic money to an exogenous currency.
13. Eliminate/reduce global tax evasion (individual/corporate).
14. Eliminate/reduce illegitimate capital flight/expropriation.
15. Reduced complexity of multi-currency accounting.
16. Reduce “bearer” anonymity fraud (disguised national origin).

One of the weaknesses of the traditional IFS is that it’s dependent upon some form of reserve (privileged) currency to support global operations. Unfortunately, any State that undertakes the task of supplying its own currency as a global reserve (sole, joint) faces a difficult paradox (Triffen’s Dilemma). Actions that may help their domestic economy could have detrimental effects on the global money system, and vice versa. The US dollar is the current standard (2016), and the types of issues it experiences from this situation reflects the experience of any State that supplies its domestic currency as the international reserve currency.

Several remedies have been proposed for the existing IFS in recent years. Some advocates recommend a return to gold backed currencies. Some have proposed digital-currencies. Even though such tools may play a part in an ideal system, by themselves they are insufficient to support a complete global solution (framework). This paper proposes an innovative blueprint for such a complete, distributed, integrated, simple solution that can properly support any global, inter-system money transactions.

In the ICN model, all domestic Entities (Agents, Actors, etc.) are participants in the State (Citizens) money system. This excludes any Entity that isn’t a participant in the domestic political system [human and corporate citizens]. Therefore, domestic money accounts may only be referenced to domestic Entities (subjects, agents, etc.). This simple model of a domestic system is relatively common globally. The real challenge begins when any attempt is made to construct a system that can support money transactions between 2 or more unique money systems (inter-system transactions).

The existing global inter-system policies and laws have been patched together over the years to satisfy various special interests, resulting in the current complex and unstable system. It inadvertently enables a wide spectrum of illegitimate activities. This includes private manipulation of money systems, arms trade, drug trade, and many others. A fully functional, rational, and pragmatic inter-system currency architecture should eliminate or reduce many of these current weaknesses.

ICN Organizational Structure

The inter-system currency network consists of the participating members, as well as 3 to 10 regional ICN Secretariats that provide administrative support services for all of the members. These Secretariats will be evenly distributed throughout the globe, for security purposes. Each Secretariat is independent, but each one is capable of supporting the entire network on it’s own, if necessary. All Secretariats are organized as Universal Commons Organizations (see UCO attachment). The following is a list of the services provided by each regional Secretariat.

1. Membership services (joining, quitting, member IDs)
2. Conversion Rates (setting)
3. Trade Adjustment Rates (setting)
4. Archiving (transactions and reports)
5. Training and Compliance
6. Data Security (public/private key system) support
7. Regional website name resolution (member .onion server names)
8. Dispute Resolution Moderation (suspensions, errors, conflicts, etc.)
9. Aggregate Reporting (network level)
10. Network Funding (member transaction fees)
11. Internet connectivity (secretariat .onion servers) for participants
12. Hosting member meetings

To support the expenses of the ICN Secretariat services, members pay a membership fee based upon their fractional usage of the network. All fees are paid in “Talons”. This is the working name for the network currency that members utilize for inter-system transactions.

To achieve the greatest benefit from network participation, each member should set a goal to eventually eliminate any financial process that results in the foreign possession of their domestic currency. This will enable any member to reclaim their monetary independence, since their domestic currency is never subjected to foreign manipulation (FX markets, sanctions, etc.).

ICN Accounting Architecture

The ICN proposed here may require minimal changes to the National Accounting practices of States. Currently, nearly all Countries have two general categories for transactions, one for “money” and one for “titles” (assets). To implement a ICN requires that these be expanded to include several ICN specific accounts in order to participate in the network.

ICN Accounts
Account Name
Account Type
Description
Sequestered Cash
Asset
Non-interest bearing, non-collateral, domestic cash
Conversion Cash Reserves
Capital
Equity for Sequestered Cash
Conversion Cash Payable
Liability
Liability for Sequestered Cash
Talons
Petty Cash
Non-interest bearing, global Talons

ICN Accounting Transactions

The following is an exemplary list of the standard transactions that can take place in the ICN system. Some transactions are bilateral and require 2 balanced journal entries.

ICN Funding transaction

1A. Debit – Sequestered Cash
Credit – Cash (domestic Cash)

1B. Debit – Cash Reserves (domestic Capital)
Credit – Conversion Cash Reserves

ICN De-funding transaction

1A. Debit – Cash (domestic Cash)
Credit – Sequestered Cash

1B. Debit – Conversion Cash Reserves
Credit – Cash Reserves (domestic Cash)

Talon Issuance transaction

1A. Debit – Conversion Cash Reserves
Credit – Talon Reserves (Debit * Conversion Rate)

1B. Debit – Talons
Credit – Conversion Cash Payable (Debit / Conversion Rate)

Talon Liquidation transaction

1A. Debit – Talon Reserves
Credit – Conversion Cash Reserves (Debit / Conversion Rate)

1B. Debit – Conversion Cash Payable
Credit – Talons (Debit * Conversion Rate)

Talon Payments transaction

1. Debit – Talons Reserves
Credit – Talons

Talon Receipts transaction

1. Debit - Talons
Credit – Talons Reserves

ICN Daily Reporting

Each day, all members of the ICN transmit an encrypted report to all other members of the network, even if they don’t execute transactions on that particular day. Each member has a private key for decryption, and a copy of all other member’s public keys for encryption.

1. Journal (all daily transactions) Fields include member identifier for report, self identifier and other party identifier, debit amount, credit amount, account name, account number.

2. Balance Sheet (all ICN accounts) Daily balance for Sequestered Cash, Conversion Cash Reserves, Conversion Cash Payable, Talons, and Talons Reserves.

These reports are required of each member until the value of all of the ICN accounts of that member reach zero (empty).

Inter-System Transaction Constraints

Since each domestic money system is a closed system, inter-system transactions should not violate the internal (domestic) system integrity of participating Entities.

Asymmetric transfers between/among domestic money systems can cause a permanent, asymmetrical gain/loss in value by the participants, rather than an exchange at higher value (net) for both. This is one of the ways that economically unsophisticated States within the current IFS are often exploited.

In the legacy IFS, permanent transfers of wealth (legitimate/ illegitimate) can easily be hidden behind a complex and dysfunctional system of international finance/trade transactions and informational asymmetry. Avoiding such asymmetrical transfers requires an Inter-System currency that never accrues or generates interest, either directly or indirectly. It’s also important that all inter-system transactions utilize the same accounting standards.

ICN Project Risk Assessment

There is a potential threat to implementing any system such as the ICN. There are powerful individuals, governments, and corporations that benefit (profit, political influence, crime, etc.) from the ease with which the current IFS can be exploited (overtly and covertly) for individual gains.

The stakeholders who capitalize on the current IFS for individual benefit may exert efforts to block the implementation of such a system. A complete ICN can expose illegitimate international activities, creating a significant loss of individual power for such perpetrators. The proposed ICN would mitigate many of the loopholes encoded into the current IFS that are easily exploited. The overall contribution of the ICN to domestic and international security, productivity and resilience could be significant. It may be a major challenge to persuade those who currently benefit from the legacy IFS to support (or not prevent) the changes necessary to implement the new system.

Conclusion

The ICN architecture can provide many overall benefits for international finance productivity, systemic resilience, sovereign security, and international legitimacy. Such a project can easily be implemented by leveraging the existing support systems for such transactions with only minor modifications. An ideal implementation might utilize digital currencies for inter-system (international) transactions, in order to provide system security and stability. Alternatively, any appropriate, traditional transaction system could also be utilized to implement the framework.

A ICN could eliminate or significantly reduce a great deal of international criminal activities and political manipulation. It represents a discontinuous innovation that could revolutionize international trade finance transactions. The architecture is simple and complete, and the next task would be to develop a formal project for immediate implementation. Implementations in each State (Country) would be a duplicate of the others, and therefore a template approach can be taken to maximize project productivity. A logical means for accomplishing sufficient stakeholder buy-in would be through the use of a mutual assurance contract (treaty), with the individual pledges being gathered in the usual manner.

The ICN constitutes a virtual money system that eliminates the need for central clearing services. Each member of the peer-to-peer network acts as a virtual clearing center for all other members. This provides an important improvement to the existing system.

This entire white paper is the result of Optopian methodologies and models contained in the Optopian Wiki