Apply HN: Gresham Dollar – Viral Currency for Basic Income

We will compel sellers to accept GD at par with USD through a legal contract. There's legal force, so Gresham's law can apply.

We're not going to be buying back GD at par.

Given that GD will be less valuable to sellers than USD (inherently and by design) it seems to follow that the value of GD to sellers will crash the moment you stop injecting USD into the system.

The plan is to continually inject USD into our reserves at a rate faster than the rate of GD attrition. The rate of GD attrition will decrease as the currency gains more and more traction.

By the time we removed the USD peg, Gresham Dollar would be a strong currency that can stand on its own.

If we don't end up making it that far, we enter into Disruption and Gresham Dollar might depreciate. We have a plan for how that would work (see other comments).

Is there a way you can get a massive amount of sellers to accept a massive amount of a rapidly depreciating currency without discounting it once you can no longer keep up with the required cash injections?

No. And we don't plan to.

We can't force merchants to accept GD payments, but they have a fairly strong incentive to. When we first launch, every GD in existence will be backed 100% by our USD reserves. It's free money. All of the GD the merchants receive, if they hold onto it, is guaranteed to convert into USD no matter what.

Once a currency is widely accepted as payment, there's a self-reinforcing network effect: "I value this currency because I know others will accept it as payment." The challenge lies in bootstrapping the currency to the point where the network effect can take over. We start by taking USD from our investors and handing it out to consumers who will spend it. But in the process, we package that USD inside GD.

So we start 100% backed by USD and then we ease up with time. As merchants come to rely on their GD revenue, they'll gradually be willing to accept slightly lower reserve requirements lest they lose all their Gresham Dollar business. And since the reserve requirements only come into play when our USD reserves get low, once merchants accept lower reserve requirements, they have skin in the game and an incentive to see Gresham Dollar succeed.

Note that any user can accept payment in GD. You don't have to have a merchant account. But non-merchant accounts are subject to the Activation Cap which limits the pace at which GD can convert into USD (e.g. $20/day). We remove the cap for merchant accounts, but in exchange they must set the same price in GD and USD.

Merchants typically have margins of at least 35%, so they may make smaller profits, but probably not negative. It may be a discount, though the value of GD is not measured solely in it's USD value.

Oh OK, this clears it up for me, thank you.

By design, as you say, Gresham Dollar will at first be considered an inferior currency to USD. This is important for the Gresham's Law effect.

All businesses have expenses and there's no reason why a given business wouldn't adopt a policy of spending GD before spending USD whenever possible. As more and more businesses start accepting Gresham Dollar, they'll start passing GD among themselves like a hot potato. Due to the mechanics of Gresham Dollar, I wouldn't be surprised if we saw very little GD automatically converting back into USD during this time.

Our goal, however, is for Gresham Dollar eventually to surpass USD and become the superior currency. After this happens, it no longer makes sense to peg Gresham Dollar to USD. When we remove the USD peg according to this plan (the Transition date), the value of Gresham Dollar will not crash.

Your concern, however, is with what happens if insufficient USD reserve levels force us to abandon the peg early perhaps before merchants can easily start passing around GD like a hot potato.

Yes, in the initial phase, as long as you are putting USD into the system for merchants to cash out, it seems like it would work.

Right. And this initial phase is perhaps our most vulnerable. Merchants may not have easy ways to spend their Gresham Dollars during this phase because there aren't enough other merchants who accept them. Instead, most merchants will let most of their GD expire and automatically convert to USD.

However, once you and investors stop funding GD, and the expected value of GD goes down, a merchant would then be selling goods paid for in USD, and receiving GD worth less than their USD cost.

Gresham Dollar's USD reserves are designed to be continuously crowd funded through the sale of FGD. Additionally we may boost our USD reserves through the Gresham Points system and our participation in the USD/GD market. Other than on the Transition date, there's no one cut-off point at which USD funding stops.

There is a hypothetical cut-off point (Disruption) at which, despite our best efforts, our USD reserve levels drop to exactly what's required to pay every USD according to their required reserve ratio. For example, if you're a merchant with a 90% required reserve ratio and $10,000 GD in your account when Disruption begins, $9,000 of your GD is still guaranteed to convert to USD if you hold on to it. The remaining $1,000 will only convert as USD reserves become available to back it.

This would be a negative profit per sale and no volume effect of sales in GD would make up for this.

During Disruption, merchants are not required to maintain price equality between GD and USD. The impact of Disruption depends on a lot of factors, but merchants would set their prices so as to avoid taking losses on their sales.

It would seem like at least at this point, merchants would stop accepting GD payments?

Some of them might. Most of them would probably just set GD prices higher than USD prices.