Opinion: Issuance of Stored Value


California, and indeed many states, are reviewing their laws regarding money these days. Money has become somewhat ambiguous over the last fifty years, and that ambiguity is only increasing with Bitcoin and all of the other new money being created all over the world. I’ve reported in other articles about Auroracoin, Mazacoin, and other bitcoin based cryptocurrencies that are intended as community currency, but I haven’t spoken directly to the issue of stored value here.

If you have been following this website for very long, you know that I have a keen dislike for what I term barter industry pirates. To recap, barter industry pirates are exchange owners who steal the present value of goods and services available through their membership by using and abusing corporate credit lines, personal credit lines and secondary business credit lines with no intent of ever repaying those credit lines. Pirates spend trade they haven’t earned, increasing the trade credit in circulation, which usually brings pricing pressures, and starts the vicious cycle of price inflation inside a barter exchange.

Most of us in the industry have either experienced it or have seen it over and over again. There are some operating exchanges out there, that if you peered in to their books, you’d wonder how they manage to stay open.

What does any of this have to do with California?

IRTA, in their responsibility as a watchdog for the barter industry, proactively reached out to the state of California to get clarity on the responsibility barter exchanges would have if they were deemed money transmitters, and to try to make sure exchanges actually weren’t ever deemed money transmitters. And this was wise on the part of IRTA for anyone in the industry.

California has one of the largest economies in the world.

Yeah, in the world.

Bigger than a lot of other countries’ economies.

If IRTA can persuade California to see that barter exchanges are truly only third party record keepers, like the industry has been saying for thirty years, then exchanges are exempt from the heavy burden of regulation and reporting that money transmitter companies must comply with under threat of being shut down.

Kudos to IRTA for taking steps to keep the industry burden free.

I lean libertarian. I loathe government intervention in just about every way. A heavy reporting requirement placed on the barter industry would kill most small exchanges, if not all of them, and leave only a couple of major players left, if that. I honestly don’t know if the big boys would even survive if they were forced to comply with money transfer rules.

That being said, I rigorously encourage the industry to self-police. If pirates bring too much attention to the industry, at some point there will be the day of legislation and regulation, and it won’t be pretty.

The letter from the Commissioner of Business Oversight at the CDBO states, according to Financial Code Section 2003(v), stored value means monetary value representing a claim against the issuer. Your barter dollars are a general claim against the membership, but not a specific claim against any one member or the issuer (the barter exchange)….at least in California. State to state, this definition will be different, but in one of the biggest economies of the world, barter exchanges are not money transfer services. Good for the industry!

But also bad for the industry. Because pirates continue to steal the present value of goods and services from their membership.

We in the industry have skated along for decades because we’ve been able to say,  “We are just the record keepers. We don’t and can’t police the value of our dollars!” Never mind that we have a bottom-line, last-buck-stops-here access to the value of our barter currencies…through not pillaging the value through deficit spending.

Barter exchange members may not see their trade dollars as a real store of value, like gold and silver historically are, but they do expect to be able to receive goods and services in somewhat equal proportions to the goods and services they exchange within the membership. So, in a real sense, to your members, your barter dollars are very much a store of value, or they feel that those dollars should be a store of value. It’s our responsibility to protect that store of value for our customers through only giving credit to worthy businesses, through credit line payback enforcement, and through zero tolerance policies for internal and corporate credit lines for exchange owners or employees. These three things will preserve the value of your barter dollar better than any other program, in my opinion.

I applaud any effort to curb industry use of internal credit lines. In a perfect world, no barter exchange would ever spend one more dollar than it earns through providing service.

We don’t live in a perfect world, but we can improve our industry by shaming and shunning those who would devalue their currency and rob their members blind.


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