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In this system, rather than purely bartering or using a representative currency, most people would use blessings, a collection of coins (bits), banknotes (clips), and virtual currency (surges) that each hold a small sample of magic that can be exchanged for goods and services. The basic guidelines I've put down so far:

  • Only the magic stored in the currency holds value--the bits and clips themselves are mostly worthless and would serve as an IOU at best.

  • The magic in question could either be used to create those goods and services (eg. help power the generator of an apartment or fertilize a plot of land to grow better crops) or be exchanged for an already existing good or service, which the recipient could use to go on and do the same (eg. buying a loaf of bread or a potion). Likewise, depending on the establishment, change could be returned in the form of lower value blessings or the partially or completely "drained" blessing for the buyer to "recharge" themselves.

  • Counterfeiting successfully would be fairly difficult, as real currency would be enchanted with a seal or composed of a specific substance only craftable through a costly alchemical process.

  • Exchange rates are dependent on each country's individual blessing value--for example, a bit in one country could be equal to one unit of magic (which in itself is subject to change), while a bit in another could be equal to ten units. In areas where a traditional bartering system is used, a given item's value in blessings is estimated by the amount of magic it actually has, and would subsequently be exchanged for the equivalent amount.

So far the main worry I have with this system is that it has very loose limits--the amount of magic one could charge "blank" currency with varies from person to person, and an especially powerful magician could easily exploit the system. I know next to nothing about economics, so I'd love to see any solutions for loopholes in this system.

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  • $\begingroup$ Can everyone here use magic, and is the magical ability uniform, or does it vary in power from person to person? $\endgroup$ – HDE 226868 Jun 15 '16 at 22:43
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    $\begingroup$ Everyone here can use magic, but the ability definitely varies from person to person. And I wouldn't quite call it /ability/--here, the production of magic is an inherent trait of different /species/, eg. larger species tend to naturally produce more magic than smaller ones. A creature could probably practice making the most out of their bodies to make more magic, but in any case the use of magic should be balanced between having energy to do actual work and putting it into money. $\endgroup$ – Hawkpelt Jun 15 '16 at 22:54
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    $\begingroup$ If a bit in one country is worth 1/10 a bit in another country, is that based on raw units of energy? From this, is this purely based on nature of the energy stored in the bit, the physical container for the bit, or...? What would cause a country's bits to be worth 1/10th the value of another if it's stored raw energy? Could someone take a depleted bit from a wealthy nation and "charge" it in an un-wealthy nation? Or would we assume that a wealthier nation's citizens naturally produce more magic power? How would the mix of currencies work with that? $\endgroup$ – Thebluefish Jun 15 '16 at 23:03
  • $\begingroup$ Hmm, now that you bring it up, that /is/ a big issue...originally I never really thought about energy unit conversion before I wrote this question. But, I'd imagine it's like exchanging currencies in our world--the bits and clips of one currency in one country would be exchanged for the equivalent value of bits and clips in another. For example, if you have 10 bits worth 10 units, you could exchange it for one bit worth one unit in another country, since one unit of energy in that country = ten units of energy in yours, if that makes any sense. $\endgroup$ – Hawkpelt Jun 15 '16 at 23:32
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    $\begingroup$ For a more interesting world, don't have easy universal measures of the magic on a coin. Have each nation have its own "preferred" magic, which is great for doing things that nation wants to do, but less ideal for things other nations want to do. $\endgroup$ – Cort Ammon Jun 16 '16 at 3:48
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Here's a brief(?) overview of currency and banking relevant to your system.


There's two basic types of currency. Fiat money, in which the money has no intrinsic value but people accept it as legal tender. Almost all money today is fiat money. It's very convenient, and it's universally accepted. Its value can be indirectly controlled by adding or removing currency from the economy. The amount of currency can be expanded along with an expanding economy avoiding deflation. The disadvantage is poor fiscal policy can devalue your money, sometimes beyond worthless.

Commodity money is when the money itself has value. It can be a valuable item which becomes accepted as a standard-ish form of currency: in a pioneering society this might be livestock, steel blades, alcohol, candy... anything that was a needed commodity and came in fairly standard units. Or it can be coins made of precious material minted by an authority. The advantage is it always holds some value. The disadvantage is that value will fluctuate with the market and region. It can be very inconvenient to carry. People might not accept your money if they don't need, say, chickens... but coins will always be accepted. And the amount of currency cannot easily be controlled by a central bank to regulate inflation and deflation, even with coins you only have so much precious metal.

Representative money is like a combination of commodity money and fiat money. Instead of carrying around a chicken you carry around an IOU redeemable with some authority (a bank or government) for a chicken. Its value lies in both the value of the chicken, and the trust that the authority will give you your chicken should you ask for it. Representative money effectively operates as fiat money with the option of cashing it in in case the value of the money drops. It's intended to limit the amount of money which can be printed to control inflation. US silver certificates were representative money.


What you're proposing is, essentially, commodity money. They're equivalent to minting coins out of precious metals. You can exchange them for goods and services, or you can "melt" them down to use as material for doing work. Replace "magic" with "fuel" or "electricity" and you see how there's a generic utility to the commodity.

However, the bit and clip itself is worthless. It has to be charged and can only be charged by authorities. You are effectively creating prepaid debit cards, but backed by commodities rather than fiat. Once charged, the magic can be transferred between clips, presumably in increments, without the authority. Unlike a prepaid debit card, it can be "melted down" and used directly like a battery.


Allowing people to transfer magic/money between clips on their own is fine. The amount of magic in the economy remains the same. Individuals are prevented from adding magic to the economy, the only way they can add magic to their clip is from another clip.

Money can be added to the economy the same way we do now, via a central bank. The central bank authorities are allowed to make and charge clips creating new money. They then loan them to banks to add that money to the economy. They can also borrow money to remove money from the economy. By controlling the interest rate at which they loan and borrow money they can indirectly speed up or slow down the economy.

This is fine for fiat money, or even representative money, but yours is commodity money. That means people are allowed to remove money from the economy by using the magic contained within it. While some money is always lost in any system, this happens at a fairly predictable rate. Your system adds a wildcard to the monetary policy. Certain economic conditions will cause more people to turn their money into magic causing deflation. How this works out depends on how magic works in your world and under what conditions people are likely to start using money as magic instead of as money.


Then there's the problem of international currency exchange. With fiat money this is controlled by market forces relating to the strength of national economies, but yours is commodity money. That complicates things. There is the face value of the money, and then there is the commodity value of what it is made of (ie. the magic).

If the face value is higher than the commodity value, you're ok. Currency will be traded on the exchange according to market forces. The problem comes when the face value is less than the commodity value. This can happen because your economy is undergoing inflation, or because the value of the commodity has increased. Now you have a problem. Speculators will enter the market, buy up the undervalued currency, "melt it down", and sell the commodity.

On the one hand, your government just subsidized someone else's Get Rich Quick scheme and lost a lot of money at a time when their economy probably isn't doing so well. On the other hand, a bunch of surplus money was just removed. Reducing the money supply should hopefully increase its face value, while also increasing the magic supply to lower the price of magic.

Since it's international there's opportunities for arbitrage: making money off price differences in different markets. If magic is cheap in one place, but expensive in another, people might buy up currency at the cheap location, melt it down, and sell the magic on the other market for a good price. Eventually the prices will equalize, but meanwhile the money supply is being messed with.

Finally, authorized commodity money like coins or your system acts as a price cap for the commodity in question: the central bank creating the coinage is effectively selling magic at the face value of the money. The value of magic (or gold, or silver, or whatever) will never go above the face value of the money. If it does, people will buy money instead and melt it down. This can have serious consequences on any industry which relies on or creates magic. By keeping the price below where it would be by market forces, it can further restrict the magic supply in a time when the suppliers should be increasing production causing shortages.

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Point is, commodity money can complicate the international currency markets. You might be better off going with fiat currency and using magic to implement the transfers and prevent counterfeiting.


Whew. Well, that's currency economics 101. Hope this helps!

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  • $\begingroup$ You should make clear the distinction between value as non-transactional utility (what can I use it for?) and value as transactional utiltiy (what will someone give me for it?) Much discussion of the subject confuses the two. Fiat money only has transactional value, but commodities have both. Gold, the classic monetary backing, is important in part because its non-transactional utilitiy is so low. That is, if it is not used as money it doesn't get used up, as opposed to (for instance) cattle or "useful" metals. Its "intrinsic" value is almost entirely transactional. $\endgroup$ – WhatRoughBeast Mar 3 '17 at 17:14
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I have to say, the most logical way to do different values between countries is to have different schools of magic in the coins them selves, and the different countries valuing different magics more. This was touched on briefly by another poster, but it warrants bringing up again. So, a school of magic such as Alteration that is useful for altering objects in the real world is coveted by this one nation who is a production giant, while this other nation loves Divination magic, the school of projecting your senses to see in other locations or times. Illusion would be loved by a country whose economy is heavily based in entertainment, and so on. It seems to give you a little clue into what each country finds important merely by what currency they consider more valuable.

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Why bother? Instead of everyone carrying around complicated magic batteries, that might be volatile or heavy, why not carry around IOUs / access tokens that grant the barer ownership of magic stored at the bank?

Pros of magic currency:

You don't need to trust a third party to store the value ( energy) the backs the currency. Good if there is not a strong government.

You can't counterfeit it for less than then its value(it either has the right amount of energy or not) so a "fake" with the right charge is as valuable as and official one.

Any mage could make currency,

Cons:

The currency may be expensive to create as you want to make tons of batteries. If the cost to create the currency is near the value of it you lose value. The penny in the US costs more to make than 1 cent.

You lock your money supply to the battery manufacturing rate. A improvement in manufacturing will cause sudden massive inflation, if a plant is damaged there will be sudden deflations. See what happened to Spain when they got a ton of gold and silver

You lock up a bunch of energy in currency. The energy sitting in the currency could be used to do other things.

It might be difficult to carry around a lot of wealth this way, to buy a 10,000 chip castle I have to haul a wagon with 10,000 chips. The batteries might be unsafe, what if you break one does magic energy explode out?

Non mages would have a hard time verifying or using the currency.

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In part this hinges on the limitations of magic in this world relative to the rate of magic production of its denizens.

If sufficient quantities of magical power can be used to do/create anything, and the average magic user produces enough magic to satisfy all their basic needs, this creates a post-scarcity economy that opens up entirely different lifestyle options for people. The conflicts that would remain in such a world are likely to be more about personalities than resources or nature.

If magic is less capable, but people still produce lots of it, it can lose some of its effectiveness as a currency. This is just a consequence of supply/demand, as Schwern has already said.

On the other hand, if magic itself is capable of anything, but magic users don't produce enough of it to survive without other means, you run into the situation you've mentioned where there are issues of concentration of wealth in powerful magic-users. Historically there are a number of ways people combat concentration of wealth.

One option is the cooperation of the creatures producing less magic to have a larger pool from which to combat the influence of more powerful magic users. Think labor or credit unions.

Another option is redistribution of wealth. This could work for example as a "farm" of less powerful magic users being utilized as a massive battery for someone (Matrix style). Willing subjugation to a common government is another example, though it is not unheard of for the powerful to twist such governments in their favor. Compelling charities are another.

Finally, there's inflation, as Shwern has also mentioned. In a situation where magic can do anything, however, the worst impact of inflation is to devalue the currency to the worth of what that magic can do; that is, the value of achieving the same ends by non-magical means for that amount of magical power.

At the universe level, there's the option to increase resource scarcity (and limit inflation) by limiting the total amount of magic in the universe. That is, the universe could be such that magic users didn't actually create magic, but rather siphoned it from the universe at different rates. In this case, if everyone saved all their magic, everyone would also eventually stop being able to produce it, until some of it was spent and "released" back to the universe again. This actually accentuates the power of users who can siphon magic faster, as they get a larger share of the pie each time any magic is spent; I suspect this would make direct conflicts between the less powerful and more powerful much more likely.

As another tweak, it would also be possible to create different "flavors" of magic power. That is, maybe one kind of magic power is used to relocate matter, one kind is used to create matter, one kind is used for mind control, etc. This could create different currency values based on the underlying type of magic power. This could result in conflicts arising as a result of those different levels, for example if creation was worth much more than relocation, unscrupulous users might use the relocation powers to steal matter other users had rightfully created.

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The simple answer is that your system is unworkable, unless.

Unless every person has the ability to determine exactly how much magic is contained in a given blessing.

As stated, bits and chips are analogous to sealed envelopes which might or might not contain money, and the money contained might be anywhere from a dollar bill to a thousand-dollar bill. Or perhaps the analogy would be with a credit or debit card with an unknown balance. Such a system is simply unusable, and for quite obvious reasons.

If, on the other hand, everybody can immediately know the magical balance contained in a blessing, then it simply becomes equivalent to any other commodity currency (see Schwem's answer), except that by definition counterfeiting is impossible. If powerful mages can interfere with the perceived magical content, then the utility of the blessings is inversely proportional (in the loose sense) to the number of bad blessings floating around, just as non-magical currency is affected by the presence of counterfeit currency in circulation.

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