Another interesting alternative to the money we have right now are energy units, or energy currency – money backed with electricity produced in a country or a union of countries. This is a commodity currency that is probably the most universal since electricity is one of the most demanded resources in the world.
As you remember, Reserveum Group continues working on creating a protocol of fair money. This time, we offer you to look into energy currencies as effective money. Can such a demanded and valuable resource as electricity become a basis of a financial system?
If such money ever comes into power, then the money system will be called an energy standard. A payment unit will be an electricity measurement unit, and the international exchange rate will be based on the quantity of electricity produced in a country over a certain period.
This idea has been discussed for over a hundred years, and with new technologies, it is becoming more interesting and promising. The thing is that from all the possible money models, energy money looks maybe not perfect, but the most effective.
Why can energy replace money?
If we estimate energy by applying the same parameters used for the previous money standard – gold, we can see a number of advantages:
- Electricity is not susceptible to heterogeneity, wear and tear;
- One can produce electricity in any amounts;
- There are many ways to produce electricity, from natural resources to atomic fission.
There are, however, certain drawbacks too, as there are still no technical solutions for storing large amounts of electricity; also, currently, it is impossible to transfer energy between continents (even though it is possible with transferring natural fuel).
Will energy currency manage to be the new money?
Now let’s see what functions can energy money have and see if it corresponds to modern-day fiat money.
We have already dwelled on the fiat money and its drawbacks in the previous articles. If you are interested in this topic, we would like to recommend “Why Bitcoin Can Never Replace Dollar”.
In modern-day economy, money can perform only three out of its five functions, which is:
- Medium of exchange.
- Means of payment.
- Conventional measure of price.
Fiat money cannot be used for savings, as its value keeps decreasing; it can also not be the world currency, as it does not have a common commodity basis (supply).
So let’s take a closer look at energy currency, what functions can it perform?
- Measure of price. Since electricity is a product already, it can become a measure for defining the value of other products.
- Medium of exchange. Energy currency can be either cryptocurrency or banknotes that are guaranteed to be exchanged for energy.
- Means of payment. Energy currency can be used for buy-and-sell settlements since it easily performs the two first functions.
- World’s money function. Electricity is demanded in all the countries so it can be used all around the globe as an acknowledged product basis of money.
The only unavailable function is the savings function, but it is only about the physical forms of energy. If a currency is tied down to it, this problem can be easily solved.
The obvious advantages of energy currency are high demand and therefore protection from inflation.
The topic of inflation is as popular as ever now. To figure it out, read our article “Why Cheeseburgers Are Becoming More Expensive”.
Electricity is already enough for creating an energy currency.
We can estimate the volumes of the world’s largest energy producers and consumers based on data from EES EAEC, a large energy information analytics site, for 2018.
|Country||Gross electricity production||Energy consumption||Unused energy|
|China||7166133 mln kW⋅h||6000960 mln kW⋅h||1165173 mln kW⋅h|
|USA||4455439 mln kW⋅h||3900875 mln kW⋅h||554564 mln kW⋅h|
|Europe||3756597 mln kW⋅h||3217296 mln kW⋅h||539301 mln kW⋅h|
|India||1521785 mln kW⋅h||1158311 mln kW⋅h||363474 mln kW⋅h|
|Russia||1115093 mln kW⋅h||759582 mln kW⋅h||355511 mln kW⋅h|
Taken from: https://www.eeseaec.org
Excess electricity unused for the current purposes can become the basis of the energy money supply. As you see, overproduction makes it possible to create energy currency emission for mln kW h already now. Such energy currency can be included in the economy as a partial replacement of the main currency or used for average settlements. This experience can give a lot of food for thought for studying alternative money as the new stage of economic development.
According to the analysis group findings: reserveum.org