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Systems Thinking and Finance 3.0
Strathclyde University
Chris Cook, Glasgow
23 July 2010
“You can't solve 21st Century problems with 20th Century solutions”. Dr Narsi Ghorban
Market 1.0 – was for thousands of years decentralised but disconnected
Money 1.0 was a physical object and market presence also physical
Market 2.0 is centralised but connected
Money 2.0 is a credit object and market presence is through 'for profit' intermediaries
Market 3.0 will be decentralised but connected – a “Peer to Peer” Market
...market presence is network presence - intermediaries become service providers
Money 3.0 – is a relationship defined within an interactive protocol
Money 3.0 – is one of the outcomes of P2P Credit and P2P Investment
Let’s look first at P2P Credit
Sellers Buyers
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Sellers give buyers interest-free credit –or “time to pay”
Sellers Buyers
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Credit
Value
Credit is guaranteed by a Guarantee Society of seller and buyer members...
Sellers Buyers
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Pool
GuaranteeGuarantee
..with some kind of “common bond”: geographical, functional, or both....
Sellers Buyers
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Pool
GuaranteeGuarantee
Both sellers and buyers pay into a Pool for the use of the Society’s Guarantee
Sellers Buyers
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Pool
GuaranteeGuarantee
FeeFee Fee
Buyers settle credit in money, or money’s worth of Value acceptable to Sellers
Sellers Buyers
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Pool
GuaranteeGuarantee
FeeFee Fee
Value
If buyers default, the Pool pays sellers, and collects from buyers
Sellers Buyers
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Pool
CollectsPays
A service provider sets guarantee limits, handles defaults & manages the system
Sellers Buyers
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Pool
ServiceProvider
Services Fee
Fee
Guarantee Guarantee
Fee
P2P Investment and Unitisation
There are conventionally two types of ownership - Public or Private
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There are two conventional investment protocols: Debt and Equity
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The statutory Limited Company protocol
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....a 19th Century legal dinosaur...
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...is what makes the Private Sector Private
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Credit is typically issued by banks and secured by debt protocols....
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...giving two conflicting claims over the same productive asset
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But there’s a new furry mammal out there....
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...the 21st Century UK Limited Liability Partnership (LLP)
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A UK LLP is a corporate body with limited liability....
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...and...errrr...that’s it!...
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As far as the UK Tax Man is concerned it is a Partnership
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It’s an “Open” Corporate where partnership working is possible....
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... even without a written agreement
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It enables direct Peer to Peer (P2P) Credit and Investment
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Over 60,000 UK LLPs are now in pervasive use for purposes never intended...
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...even in the Public Sector, where Glasgow has five municipal LLPs
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Capital Partnership – direct Peer to Peer investment in productive assets
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Hilton Capital Partnership ( > £1bn)
Capital Partnership LLP10 UK Hotels
Gross Revenues
Hilton GroupCapital User
Consortium LLP Capital Provider
Bank PropertyDeveloper
HotelSpecialist
% %
%%%
Capital Partnership
Assets
Investors
Payment
% %
Custodian
Use
Managers
Users
Productive assets are held by a Custodian
Assets CustodianOwnership
...who safeguards the asset on behalf of the Community
Assets CustodianOwnership
Investors put in Financial Capital in money, or money’s worth…
Assets
Investors
CustodianOwnership
Financial Capital
Managers provide Human Capital of time, expertise and experience....
Assets
Investors
CustodianOwnership
HumanCapital
Financial Capital
Managers
Users pay for the use of Capital
Assets
Investors
Payment
% %
Custodian
Use
Managers
Users
Result: Capital Partnership
Assets
Investors
Payment
% %
Custodian
Use
Managers
Users
Capital Partnership reinvents Equity
Equity Shares - % age shares in revenues or production...
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…..which may be transferred, but never redeemed, since there must always be 100%
Units – Redeemable in production eg Kilo Watt Hours, natural gas
Example: “The Art of Flirting” – a film incorporated as an LLP
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The actors received nth’s of the gross revenues...
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...I got 5%...and the producer the rest...
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...except that we needed lights, cameras, pizza, coffee
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Two Capital Partners invested £10k for 20% of revenues
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...if there are any
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Art of Flirting Partnership
Art of Flirting Partnership
Financial Capital(Investors)
Viewers
Human Capital(Actors, Producer, Me)
Custodian
% %
£
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Everyone was on the same side
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Example: Albion Trust...a charity
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..which provides affordable office space for social enterprises
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...due to demand they bought a disused church next door
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...and planned a £4m development
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But if they borrow, the rents will be unaffordable
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Solution? An Albion Partnership?
Albion Partnership
Investors
Tenants
Managers
Custodian
% %
£
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Capital Partnerships and Guarantee Societies are not Organisations
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They do not own anything, do anything, employ anyone, or contract with anyone...
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They are simply framework protocols with cross border application
...transcending borders through interactive consensual agreements
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...rather than adversarial contracts imposed by national statutes or courts
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Law is Code
Partnership protocols require no legislation
Master Partnership
Financial Capital(Money, IP etc)
Users
Human Capital(Developers, Operators)
Custodians(National)
% %
Payment
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There need be no national or international organisations or hierarchies
Money 3.0 is not an Object: it is a Relationship
My vision for Money 3.0 is of a networked Clearing Union....
....where 'Money's Worth' of value is exchanged on credit terms
....by reference to a Value Standard
I assume three fundamental bases of Value.....Location
Energy
Knowledge
Units redeemable in payment for location rental will be acceptable geographically
Units redeemable in payment for energy will be acceptable generally
Credit Units issued by individuals and enterprises are backed by knowledge
Transactions will be priced by reference to an energy standard or Unit of measure
Communities with a common bond constitute Guarantee Societies
The agreement defines the Community
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Money 3.0 - the Community is the Currency
Thank You
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