The excitement for the Marshall Islands’ SOV has been somewhat eclipsed by the international race for Central Bank Digital Currencies (CBDCs) with China seemingly leading the way. Yet, for Barak Ben-Ezer, founder of SFB Technologies, the company behind the SOV, that’s like comparing apples and oranges. The SOV isn’t just a digital form of money. For him, it’s the “future of money” with in-built scarcity, egalitarianism, and UBI.
Why UBI matters so much today
The concept of a Universal Base Income (UBI) is nothing new. In fact, it has been debated for several centuries although the first known person to have sketched the idea is a mathematician and political activist Antoine Caritat, Marquis de Condorcet in the 1700s.
More recently, U.S. democratic presidential candidate Andrew Yang thrust UBI back into the limelight making it the pillar of his campaign. He wanted to offset the certain displacement of jobs by technology by giving every American $1,000 a month.
Yang was scoffed at by many and too radical for most. However, he did manage to pique the interests of a growing crowd, although not many people truly believed that the White House was ready for “the numbers guy” just yet.
Oh how much the world can change in the blink of an eye. Just a few weeks after Yang exited the presidential race, President Trump would find his administration sending out rescue checks of $1,200 to all citizens. It isn’t UBI. But it’s certainly a close cousin.
You know what would have helped before the crisis, during the crisis and after the crisis? Universal Basic Income.
— Andrew Yang🧢🇺🇸 (@AndrewYang) March 28, 2020
With the world gripped in the throes of the worst economic and social crisis in living memory, desperate times call for desperate measures. As people are forced to stay at home and unemployment in the U.S. rises to a record 33mn, the importance of UBI is glaring… Yet so are the side-effects of ceaseless money printing that will be felt in the near future. Ben-Ezer says:
“Most people don’t understand that if the government is increasing the money supply by 20%, they’re actually being taxed because the money is being diluted.”
The SOV is drastically different.
A hard-coded monetary policy
Apart from being the country’s first-ever legal tender, the SOV is more than just a digital currency. It has a hard-coded monetary policy following the Nobel Prize-winning economist Milton Friedman’s K-percent rule. This means that the money supply will grow by a fixed amount each year. This is algorithmically coded into the SOV chain at 4 percent. Unlike central banks, no one can tamper with it and inflate the supply at will.
#bitcoin reminds me of Milton Friedman’s k-percent rule to eliminate the central bank and automate the growth of the money supply
— left.ai (@mawueli) April 1, 2013
And, instead of that new money going to make the rich even richer, it will be distributed per capita to all SOV holders, giving it in-built UBI. On top of that, of the initial supply of 24 million, 10 percent will be air-dropped to Marshallese citizens and a further 40 percent allocated to funds on the islands to tackle some of the problems the country faces, such as damage from nuclear testing and the devastating effects of climate change.
Lead economist on the project Peter Dittus is also former Secretary-General to the Bank of International Settlements (BIS). When asked why 4 percent was chosen, he admits that there was not exactly a “great science to choosing the right amount of inflation.”
“We chose it basically because 4% is broadly in line with long term world growth, so assuming that after the initial distribution phase after a few years things stabilize and after the stabilization point the currency will grow roughly in line with world growth. So prices in the long term would not have to decline but be roughly stable.”
Both Dittus and Ben-Ezer believe that the Marshall Islands is in a unique position having never had its own legal tender before. Says Ben-Ezer:
“The government has seen all the evils of the western world and when they finally initiate their own money they don’t want to mirror the same problems.”
Other countries could follow a similar model
If SOV proves to be successful, Ben-Ezer explains that the model could easily be rolled out to other countries. This is because the protocol is customizable and can be used by any country wanting to issue money.
He believes that this format is especially relevant today because:
“You can actually print money with proven scarcity… If Sweden wanted to use the protocol, for example, they could code in a different type of inflation.”
It also has built-in AML protocols and a digital identity on-chain so it complies with global regulations.
But, will the future of money really have UBI built-in? That depends. Ben-Ezer is hopeful although not completely convinced.
“I don’t expect other nations right now to issue money where the monetary supply is completely decentralized and the new money distributed per capita… I suspect that most countries issuing on the chain will be the same old fiat money they can just print and inflate as much as they want and that’s not going to the people but going probably to banks.”
As we’ve seen from the moves made by countries like the Bahamas with its digital ‘sand dollar’ and the tentative plans from China or Japan, there’s certainly no talk of UBI. Yet, as and when we emerge from the ashes of the coronavirus crisis, maybe there will be more people willing to listen to the need for sound money that cannot be inflated by governments. Dittus ponders:
“The question is, what happens at the end of this crisis? Are they [governments] going to withdraw the money or are we going to see something like defaults on a large scale? Something is going to happen if we are not careful when we come out of the crisis.”
There are significant benefits for the Marshall Islands if this new currency works–and potentially for the rest of the world–especially post-COVID-19.
Rather than paper checks administered in times of crisis, the future of money could have built-in UBI, automatically allocated into your wallet each year with a fixed rate that cannot be changed.
So, to review, the $2 trillion coronavirus relief package provided:
— A $500 billion blank check to corporations
— $174 billion in tax breaks for the super-rich
— A one-time $1,200 check for working Americans
It's more socialism for the rich, harsh capitalism for the rest. https://t.co/mJ1ALNRF6z
— Robert Reich (@RBReich) April 25, 2020
Compared to the uncertainty and inequality that we see today, that certainly sounds like a good plan right now.
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