Unintended implications of using a celestial object as a "weight" for a digital currency?

Question

I have a sci-fi universe that's meant to be astronomically accurate, scaled around cataloged stars and known open clusters/nebulae like the Orion Complex or the Hyades. Space faring civilizations rely on luminous stars for FTL as the more luminous stars generate a special particle* any interstellar civilization needs. Aliens are more alien, but not xenocentric (though they're not relevant here).

In the year 2421 Humans are partially unified (but historically was completely unified) under FAHI-The Federal Association of Human Interests. A notable tenet FAHI has is that the organization claims sovereignty on part of every human being and in theory acts on the part of human interests. In practice FAHI ended up acting on terran interests instead due to poor representation for people living in the colonies. A side effect of FAHI making mass colonization of space one of its main tenets.

In order to make a universal currency for humanity that wouldn't to subject to financial fluctuations, the ministry of finance decides on using the mass of a nearby celestial object to give a set weight to the digitized "universal" human currency. There is a set limit of credit that exists in circulation in order to avoid inflation, of which is set at 100 trillion credits. The currency's value is centered around said celestial object. I am a bit back and forth on what celestial object, but for now assume one of the following possibilities:

• Sagittarius-A* super massive black hole
• The Milky Way Galaxy as a whole
• The Sun
• A Nearby neutron star (Like Calvera)
• Earth

Not sure which one would be the most logical or thematic, but the general idea should be the same. A currency that has its weight not in gold, but in a celestial object of arbitrarily defined importance. The issue is I have no clue if using a cosmic object as a currency weight would actually work in practice given the expansionist nature of my human civilization.

Since I am not really good at economics, can anyone who knows their economics tell me what unintended implications of this idea may entail given the scenario and/or celestial object used? I'm not completely sure where to look.

*Detail: The "special particle" in question is called the "Lux Particle". It exists only in the corona of stars and must exist in plasma. Lux Particles allow ships to not only have FTL, but also fast-as-light travel and teleportation for spaceships. Brighter stars have more lux. I might have intentionally devised lux as a way to screw red dwarves over.

Answer 1

...a credit's value would equal 100 trillionth the mass of the celestial object. –

That makes no sense. A celestial object (say a stable star) would be very useful for determining units of mass and/or units of luminosity. It would allow standardisation over vast distances. However the mass of a star has no relationship to the value of currency - it is just a constant. Value is measured in terms of supply and demand (diamonds are rare and highly valued).

Equating mass to value is like equating apples to headaches - they have nothing in common.

Edit in response to comment

Mass in itself has no value.

Scenario 1.

I walk into a bar in a gold-mining community.

Me: Give me a bottle of beer and I want a room for the night.

Bartender: Show me the color of your money.

Me: Here's 1 gram of gold.

The bartender weighs it and says, "Yes sir!"

Scenario 2.

I walk into a bar in a gold-mining community.

Me: Give me a bottle of beer and I want a room for the night.

Bartender: Show me the color of your money.

Me: Here's 1 gram of dirt that I scraped off my boots.

The bartender looks at it and says, "Get outta here!"

Scenario 3.

I walk into a bar in a gold-mining community.

Me: Give me a bottle of beer and I want a room for the night.

Bartender: Show me the color of your money.

Me: See that star in the sky? I'll give you 1 gram of that.

The bartender picks up the phone and calls the local mental institution to see if an inmate has escaped.

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A star cannot be mined or moved. It has no intrinsic value except as a source of light and heat.

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A planet however could be different. If the planet was made entirely of gold then you could use it as the basis of your currency and measure it in grams of gold. It would be a super version of Fort Knox.

More likely is that the planet has some other valuable mineral resources. However unless the planet is made entirely of that mineral you can't talk in terms of mass. The planet will have an estimated value. Nobody knows the actual mass of the mineral reserves - they put a notional value on it. The planet or parts of it can be bought and sold. It could therefore be used that way.

The downside that you mention in your question comes if scientists discover that the mineral reserves were vastly overestimated. The planet will suddenly lose its value and the currency may crash.

Answer 2

Having a fixed amount of currency (or pegging a currency to something rare like gold) has some advantages (for example it is going to be stable and difficult to inflate), but also some significant disadvantages as well. Generally speaking, unless the economy is relatively static or growing very slowly, a currency which has a fixed value could cause a credit crunch if the economy were to grow quickly, and set a fairly hard upper boundary for economic growth.

If the polity is going to be very hard edged about the amount of currency in circulation, there will be a lot of secondary effects, which the ruling polity won't like very much.

Since currency is limited, there will be lots of "work arounds" being developed in order to have more liquidity (in the form of available currency which can be used for the sorts of day to day purchases that people make). This can take the form of barter, counterfeit currency, or various forms of "self issued" currency, ranging from the classical prison currency of cigarets or drugs to banks or financial institutions issuing script currencies for their own use (think of companies which paid in script that only is honoured at the company store). In addition to all these "monies" being created and circulated, there is most likely going to be one or more forms of crypto currency (Bitcoin analogues) being created as well.

For the polity, this has the effect of destroying any sort of central monetary policy as large or small bubbles will be popping up due to market demand and financed through various forms of unofficial currency. The difficulty is when people try to take their gains and deposit it in the "real" economy (taking real money and converting it into unofficial currencies is the easy part, we always accept legal tender). How do you convert these gains into legal tender, and how will these movements distort the rest of the economy? Issues like taxation, the enforcement of contracts (contractual enforcement in the grey and black economies might actually involve breaking kneecaps) and finding a secure store of value will always be an issue.

Since this is a star spanning polity, the issue will be compounded by latency issues, since there will be a distinct time lag between economic information being gathered at the rim and transmitted back to the central office, having the data analyzed and then instructions sent back to the outlying regions. Time delay between discovering a trend and sending a measure to exploit or mitigate the trend will result in a gradual compounding of errors, and since economies are complex adaptive systems like ecosystems, an activity the central bank does here might have unexpected outcomes that are spacially and temporally removed from the inputs. F.A. Hayek described this as the "Local Knowledge Problem", since information and knowledge is distributed across systems, and local actors can sense and react to fleeting opportunities faster than any centralized or hierarchal systems can.

The alternatives like fiat currency have issues of their own (the ability of governments to freely debase their own currencies being the biggest), so there are no "perfect" answers.

My suggestion for your central banker would be to use some fixed measure of value, but to have it in small and flexible increments so you can have some flexibility to vary the currency base as conditions change. Since suddenly adding a "star" or solar system to the economy would be a rather large, indigestible lump, you might consider incremental changes like using planets or moons to add or subtract value to the larger economy as conditions change. As the economy grows due to increasing population, more planets being developed (new real wealth) and improvements in productivity (another means of creating real wealth), then there should be a means of allowing the currency base to grow with the economy (declaring the value of a Neptune sized gas giant added to the currency base every year or so if the economy is expanding, subtracting a planet when the economy is contracting), so the currency remains sound.

For a growing polity in space, with access to vast quantities of resources and energy, the main issue will be the economy and real wealth will be growing and growing rapidly, so there will be a need to be able to expand the currency base to keep up.

Answer 3

You have successfully created a "gold standard" around a star. However, there is a limit -- what good is a kilogram of the sun? If I wanted to turn in my credits for kilograms of the sun, what do I accomplish? Is the hydrogen of the sun any different than that of any other hydrogen I may come across. If I want to turn in my credits for kilograms of Sagittarius-A, is it even possible to get kilograms of mass out of that black hole for me?

If I cannot redeem my credits for the standard they are allocated against, or if I have no desire to because the standard itself has no particular value, then what you really have done is simply issued a fiat currency with a fixed maximum amount of currency.

I will note: as utopian as it sounds to have no inflation on your currency, there are actually a lot of good reasons to want inflation, which is why nearly all major currencies are fiat currencies, and a lack of inflation is considered "bad."

Answer 4

Well - I'm going to modify my answer!

In fact you can measure the value of a star in terms of mass!

Use Einstein's famous equation E = mc^2

If the star gives out a steady amount of heat and light then that is measurable as energy.

Energy is useful - for example to the inhabitants of the local solar system. If they could somehow rent out the energy of their star to other civilisations, they could derive an income from it. This could be measured from

m = E/mc^2

Important

They are not using the mass of the star as a standard, they are using the mass equivalent of its energy output.

EDIT

Unintended consequences: If the star went supernova then not only would the local population be destroyed but the currency would go wild. Huge amounts of energy would be released for a very short while and then this would die away to almost nothing causing a complete crash of the currency.

Answer 5

Problems with Stellar Precision

A celestial object as any kind of a weight standard is untenable as it lacks the necessary precision and constancy. For example, our sun routinely blows off 1.6×10^12 kg of material once every three to five days (depending on general solar activity). This is a little less than half the weight of Earth's global food production for one year. The sun does this every couple of days. Trying to fix any kind of precision measure to a celestial object is just crazy. Any deficiencies in precision represent opportunities for a clever conman/bank/corporation to exploit the money supply.

Other Problems

There is a set limit of credit that exists in circulation in order to avoid inflation, of which is set at 100 trillion credits.

A monetary system set up this way with a limited cap will cause a larger problem of deflation as the money supply can not grow to match the size of the economy. Deflation makes it difficult to pay debts with significant other effects such as deflationary spirals.

Assuming that there's a 1:1 between USD and Credits, then 100 trillion credits isn't much. The current US Money Supply was about 12 trillion dollars as of late July 2015, so 100 trillion credit money supply for an entire interstellar civilization seems incredibly conservative.

In order to make a universal currency for humanity that wouldn't to subject to financial fluctuations...

An economy needs a unit of currency that fluctuates in value. Fluctuating values is how inflation and deflation are managed.

Alternatives Currency Ideas

Instead of a fiat currency or solar-standard, go with a distributed crypto-currency designed for interplanetary accounting or distributed computing. Bitcoin won't work because it has a limited supply but there are many other crypto-currencies that might work on an interplanetary scale.

Answer 6

The idea reminds me of the Rei—giant stone coins that are too large to move, and treated as monuments rather than portable wealth tokens.

While the monetary system of Yap appears to use these giant stones as tokens, in fact it relies on an oral history of ownership. Being too large to move, buying an item with these stones is as easy as saying it no longer belongs to you. As long as the transaction is recorded in the oral history, it will now be owned by the person you passed it on to—no physical movement of the stone is required.

So it’s a symbolic root of a series of account transactions, which are kept in a log like modern bitcoin. The symbolic root, much like “mining” bitcoin, rations the inital supply, and makes it seem less like fiat because the artifact exists and is “valuable”.

In one instance, a large rai being transported by canoe and outrigger was accidentally dropped and sank to the sea floor. Although it was never seen again, everyone agreed that the rai must still be there, so it continued to be transacted as genuine currency. What is important is that ownership of the rai is clear to everyone, not that the rai is physically transferred or even physically accessible to either party in the transfer.

So using “our sun” instead would still work. It is symbolic, and the real point is that a fixed amount of money is kept track of using double entry bookkeeping. The priest/governer would concecrate the colony’s initial bank balance with a ceromony involving sun worship. Then people are paid from that, and everybody agrees to accept the value for public and private debt.