Real Bills Revisited
"... until the opening of a branch of the Bank of England in Manchester, nine-tenths of the total payments in Lancashire were made in bills.”
Bitcredit Protocol is designed to serve the real economy, the productive businesses which create our wealth, by facilitating financing and payment with bitcoin redeemable credit money, called "bitcredit". The supply of bitcredit is strictly limited by the circulating stock of e-bills, electronic bills of exchange drawn and paid by businesses which in turn is limited by the value of goods already produced and services already rendered. It is a natural, self-limiting mechanism for adjusting the money supply in lockstep with economic activity, industry and commerce.
A Neo-Austrian real bills theory is a core element of this solution. Bitcredit seeks to fix the defects in the historic bill discounting practices, as criticised by the early Austrian School of Economics.
Present vs. future money
When traditional banks discounted real bills they created money indistinguishable from gold certificates payable on demand. The practice of crediting discounted amounts to demand deposits conflates credit money with outright money. This seemingly small difference regularly causes the obviously big problem of contagious bank runs when currency holders lose trust in their deposit banks.
Bitcredit Protocol minimises reliance on trust to a negligible modicum and prevents this malpractice. Bitcoin credits are bitcoin substitutes distinguished from bitcoins by their issuer and maturity, not to mention their differentiating name: bitcredits.
Bitcredit Protocol completely decentralises credit money issuance, atomically: each e-bill has its own payer. Bitcredit mints keep Bitcredit safe through their cryptographically verifiable guarantee capital. There will be no more bank runs, as Bitcoin and Bitcredit are kept safelymin in end users non-custodial wallets.
Discount vs. interest
When a central bank - with monopoly power and legal tender laws - issues an excessive amount in bank notes out of the thin air of government debt this increases the supply of money, interest rates decline. Such issuance has no natural limit, it results in inflation and leads to destructive boom-bust cycles.
But even private money creation can be corrupted, as shown by the Crisis of 1763. When credit money is created merely on the creditworthiness of bankers, on so-called financial bills of exchange, it is inflationary and the system will ultimately collapse, just like fiat.
The Bitcredit Solution
(a) Firstly, Bitcredit Protocol mints can only create money for verifiable real value, i.e. e-bills issued in payment of goods already produced or services already rendered. This indispensable rule firmly roots Bitcredit supply in the objective economic reality: the medium of exchange tracks what can be exchanged.
(b) Second, this replaces the hubris of monetary policy of central planners with a free market mechanism: as the volume of e-bills sent to mints increases and decreases, their minting fee will rise or fall accordingly which naturally regulates Bitcredit supply.
In summary, Bitcredit mints are responsible and liable by their guarantee capital to prevent excessive credit money issue. They must verify every real e-bill's backing by the invoice paid and the delivery confirmation attached encrypted to any eligible bill.
Read on: Monetary Elasticity