Wealth creation is not just complex theory, its main advantage is that its a concept that can be easily implemented by central bank staff and tested for its outcomes.
It brings many benefits to the work central bankers do. Central banks will be shown how they can:
Have a new revenue stream
To begin with it creates a new revenue stream for a central bank. When fiat or paper money is issued it usually costs the central bank substantial amounts of money to supply money. However, when a central bank issues digital money for wealth creation it does so at a wholesale fee estimated at 1.1% of GDP in the wealth creation business model.This is not a small sum by any measure.
In terms of the central bank’s revenue position it is more advantageous for the central bank to facilitate wealth creation and use this to support credit creation. The two financial products complement one another in that wealth creation, by creating a new revenue stream, makes it easier for the central bank to manage credit creation. In Zambia’s case wealth creation could potentially create a significant new source of revenue for the central bank which can be applied to enhancing its country-wide operations and greatly improve conditions of service for staff.
Ideally, aside from personnel and equipment it should cost a central bank next to nothing to supply digital currency, the lower the supply cost the better. The basic cost of digital money is the personnel, computers and other hardware required for the central bank to “mine” or create it, monitor and distribute it at a wholesale price. The ability to create a central bank digital currency (CBDC) is consequently of great benefit to a central bank’s operations.
Have greater control of the exchange rate
Zambia today is prone to inflation due to over dependence on the stock of foreign exchange. A central bank will face difficulty countering depreciation of the Kwacha because it has only two fundamental means of controlling inflation, that is, either withdrawing Kwacha in circulation or injecting US dollars into the economy. However, Split Velocity makes controlling inflation and depreciation a piece of cake.
Split velocity increases the efficiency of money supply consequently strengthening the value of the domestic currency. This gives the central bank a new financial tool with which to internally regulate the exchange rate. Something it could not do in this way in the past.
Have increased control of inflation
Sterile money is incapable of creating growth. Money is by default made sterile by subtraction. A flaw in the design of every economy that makes money inefficient in transactions. It makes no difference whether this money is introduced through Open Market Operations (OMO) or Quantitative Easing (QE). The fact that money is sterile forces businesses to depend on cost plus pricing or marking up products to survive. (Watch Episode 3 Where this is explained). Since businesses charge more for a product than it is worth every product sold in the economy by default generates an inflationary push. Furthermore, every business in the supply chain is forced to cost-plus price a product for its own survival to escape the economy’s zero growth position before selling it off to the next buyer in the supply chain consequently, whichever direction the present economy is approached it remains inflation prone. Split Velocity is the only known technology that directly stops inflation by plugging the inefficiencies caused by subtraction. This means each business in the supply chain has the potential of lowering cost for the product it sells to the next buyer in the chain. This creates greater resilience against inflation.
Split Velocity ensures every business in the supply chain is lowering price due to the increase in efficiency in money supply. This creates an economy highly resistant to inflationary pressures caused, for instance, by inadequate supply of forex.
In addition to this through split velocity a central bank gains new tools and the capacity to manipulate the direction in which money flows. Since every business in the economy would be expected to operate a split velocity model this gives the central bank the ability to manipulate either demand or supply independently for the first time. If household demand is either too high or too low money flows from corrected subtraction in this specific direction can either be increased or reduced. The same applies to output.
The central bank therefore has much finer control of inflation and deflation. This kind of dexterous articulated control of the economy was not possible before wealth creation.
Increased Price Stability
In a split velocity model businesses lose the incentive to raise prices. They can now charge cost price or reduce prices, in some cases by as much as 30%. Meanwhile this balancing act includes the income required to purchase their products. These two aspects combined create a sustained explosion of growth that keeps the economy persistently in a boom state in which businesses of all types thrive due to a persistent surge in demand backed by purchasing power, in turn backed by equal and simultaneous investments in output.
Augmented split velocity allows the central bank to create unparalleled price stability. This is due to the fact that output and money supply are constantly being balanced with every transaction. For every unit of output on the shelf there is a automatically a corresponding unit of finance to facilitate its purchase. This trait is unique to this technology. This means that once price levels are established they are likely to stay the same or decline rather than increase over time. This is possibly the most advanced system for managing price stability available to governments.
The need to lower economic risk across the world
The truth is that no government in the world today should be operating in an economy where growth is at R=1 or zero growth; where the economy functions in direct conflict with businesses. This is far too close to the edge and precipice of economic failure, the danger of recession becomes ever-present and the risk factor within every economy becomes too high due to volatility. R=1 entails that a domestic and/or global recession is always potentially about to occur and can be triggered by any adverse natural or man made economic condition that perseveres. Ideally, the lowest rate of growth for any country should be R=2 where 100% of the losses from subtraction are recovered and annual financing is equivalent to GDP as long as population growth rates maintain an equivalence with this rate of growth.
Having as much as 100% of the financial resources lost to subtraction recovered through Split Velocity is a tremendous buffer against risk that allows governments and the economies they manage to withstand diverse economic shocks.
Have fast & guaranteed growth
Now that we have knowledge concerning the Scientific Origin of Poverty/Wealth at hand, guess work of how to make the economy grow is taken out. Wealth is predetermined by the circular flow of income. Aspects such as whether a government should invest in cashew nuts or fisheries to grow are important, but remain secondary and can be made more successful by addressing subtraction taking place below the circular flow of income.
Split velocity at its weakest application finances economic growth with a financial strength equivalent to GDP at constant price (R=2). Growth at this kind of pace has never been possible before. A government can access as much as 100% of the financial losses from subtraction to grow per annum. Therefore, if the central bank and Ministry of Finance announce that the economy will grow by 46% in a quarter or year it means financing being lost to subtraction will be recaptured by 46% therefore GDP is practically guaranteed to grow by this figure due to the fact that it will be financed to do so. GDP growth rates will no longer be left to chance.
Businesses whether they are mining giants or small businesses will be able to take on bigger projects than they could have imagined possible before.
A better environment for businesses
Businesses today operate in an economy that works against them. Money is rendered sterile by subtraction. The economy tries, through this sterility, to shut businesses down. Consequently businesses have to fight back against the economy. They are forced to mark-up or cost-plus-price their products to survive. This conflict between businesses and the economy leads to mediocre economic performance or very low growth rates where GDP is often as low as 3% or 4%. When the central bank introduces wealth creation to the economy this conflict is resolved. Losses being caused by subtraction that cause businesses countless problems are removed. Regardless of a businesses size, as much as 100% of these losses can be recaptured and restored to businesses allowing them to thrive.
Create an environment where Commercial Banks can thrive
By far one of the most progressive advantages of split velocity is the ability of commercial banks to issue loans at lower cost. In this new and more efficient model the public can borrow money without any interest charges, however, commercial banks’ earnings improve significantly. This is achieved by applying split velocity to credit creation. Accelerating credit at constant price will allow banks to become more robust, become more profitable and issue credit at much lower risk. This will allow central banks to meaningfully improve credit creation and the quality of related services commercial banks offer. They will be able to offer their clients services they could not provide before. The income earned by commercial banks will certainly increase significantly allowing them to offer improved services that take commercial banking to the next level.
Wealth creation generates tremendous financial resources equivalent to GDP that have a major impact on internal short term growth of businesses, however, these finances are so widely dispersed businesses soon realize they have limited long term value. These finances are huge to the economy in general but small to individual businesses especially where their plans for long term growth are concerned. Consequently, their demand for loans from banks increases significantly. This is coupled with the fact that wealth creation improves the financial position of businesses thus making credit more affordable. Wealth creation also significantly reduces the risk of default as a result of operating in an economy where what they do is being accelerated. A more robust and more stable economy allows commercial banks to issue more loans with much lower risk which may in turn allow them to provide loans with less of a dependence on collateral.
Wealth creation complements credit creation by increasing the demand by businesses for loans from banks. In essence borrowing becomes more affordable flanked by businesses taking on bigger and more ambitious investments in the country.
Ease of Implementation
Wealth creation is designed to be distributed alongside credit creation by commercial banks and other non-bank financial institutions. For a country like Zambia this means wealth creation can be implemented countrywide in 6 months or less.
Eliminate unemployment and poverty in a country
A central bank is one of the most powerful financial institutions in an economy. But it needs the tools to be able to provide the best possible service to a country. Wealth creation offers staff in a central bank a powerful means for transforming the lives of citizens.
Correcting subtraction through augmented split velocity releases tremendous amounts of financial resources at constant price. These resources are directly in the hands of industry. Consequently, the capacity for increasing output grows offering a natural solution to unemployment, poverty and the many problems citizens in an economy must endure due to scarcity. The technology behind augmented split velocity directly breaks up scarcity below the circular flow of income thereby freeing financial resources currently being wasted by the inefficiency of money supply at any point in time consequently spelling the end of poverty. Poverty as it is understood today simply cannot withstand the pace at which useful resources are being rescued from subtraction and restored to the economy. The standard of living of citizens should begin to increase dramatically from the time wealth creation becomes available as a new financial service.
The beauty of wealth creation is that central bank staff can easily understand how augmented split velocity works and the process itself is straight forward allowing them to apply it and to have its outcomes tested.
A pilot will prove all of these basic attributes.
For simplified explanations of how technology makes this possible watch the episodes.
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