Premise

Throughout modern times, keeping money safely and conveniently for future use has depended on banking institutions. Specifically on commercial banks together with central banks being run in a sound and impartial manner. Today, by holding Smartbonds, it has become possible to safeguard wealth without relying on any third party to hold it or manage it on your behalf. This has a number of crucial implications.

Sound Credit: Credit without Shallow Promises

Commercial banks are entrusted to store customer funds, but they on average only keep 10% +
  • Euro area: 6.9% (2013)
  • US: 11.8% (2013)
  • UK: 5% (2012)
  • World average: 10% (2013)
Source World Bank, latest as of Apr 2015
of these funds, while the bulk of the money is awarded to lenders, or spent on investments. As such, the money in a bank account is very different from the cash you keep in your pocket – it is rather cash which you are time-sharing with 10 other people. When too many customers ask for withdrawals at once (the infamous bank run), the bank's promise of safe keeping funds is shown to have been shallow all along.
The Smartbond system avoids such mismatch between the terms of assets and liabilities. Every Smartbond is owned directly by its holder (as with cash), and the fact that there are no more Smartbonds in existence than allowed by the set interest rate can be publicly verified. Moreover, the full amount required to honor the price floor protection, even simultaneously for all users, is kept in cash at all times.

Safety of Funds: Avoiding unwanted Risks

By spending most of their deposits + Bank capital and reserves as a proportion of total assets.
  • World average: 10% (2013)
  • Euro area: 6.9% (2013)
  • US: 11.8% (2013)
  • UK: 5% (2012)
Source World Bank, latest as of Apr 2015
on loans or investments, commercial banks expose customers to risks which they were neither informed of nor consented to. Over the last 40 years, this has lead to 147 cases of countries suffering nationally widespread banking crises, + Source IMF Working Paper while there were 157 bank failures in the United States during 2010 alone. + Source FDIC Historical Statistics on Bank Failures
(the 157 count includes 3 savings association failures)
Insurance against deposit losses in rich countries causes the costs of these bad investments to spread beyond those having money in a failed bank. State support for banks has already cost European governments €170 Billion since 2008, + Source Eurostat, covering up to 2013 (as of April 2015) as additional debt dragging down the value of the Euro. While deposit insurance in the US has cost $77 Billion since 2008, + Due to over 1 in 15 insured banks failing.
Source FDIC
primarily funded by premiums from other banks, which pressures them to raise lending rates and lower deposit rates for customers. Holding physical cash on the other hand incurs the cost of forgone interest, which even in the very low interest environment since 2009, adds up to over €27 Billion and $10 Billion for the Euro and US economies respectively.
Smartbonds resolve this dilemma since they are controlled exclusively by their owner, without any intermediary, and all accounts automatically earn their interest of 6% per year.

Limited Money Supply

As with any asset, the value of currencies is subject to supply and demand, with the size of the money supply being especially important in determining its long term value. Overwhelmingly, money supplies of economies keep increasing, + Across the 20 largest economies and within the last 15 years, the money supply increased from year to year in over 93% of instances. at a current rate of over 7% a year, on average across the world's largest economies. + Looking at economies in the top two thirds of global GDP and over the last 5 years, up to year end 2014. These experienced annualised money supply growths as follows, which average to 7.8%, weighted by GDP.
  • US: 10%
  • Eurozone: 5.5%
  • China: 9.5%
  • Japan: 4.4%
  • UK: 5.2%
  • Brazil: 7.4%
Sources: Fed M1+Savings, ECB M1, IMF M1, BoJ M1, OECD M1, IMF M1 (respectively)
Interest rates normally both drive this growth and act to offset the resulting loss in purchasing power of the currency unit. However, in the half of the global economy which has engaged in quantitative easing policies, + Including the US, Eurozone, Japan and UK - which constitute over 50% of global GDP. central banks set their official interest rate to effectively zero while creating new money. This new money is primarily used to buy government debt, from either existing owners, or the government directly, rather than being dispensed across currency holders in the form of interest. Were it to be paid as interest, the amount of money created would correspond to a rate of (again) over 7% a year on average. + Based on the size of QE programs in easing economies (disregarding Sweden) as a proportion of their money supplies, counting from the last time their benchmark rate hit its lowest level on record, up to Nov 2015.
  • US: 6.5%
  • Eurozone: 8.3%
  • Japan: 8.4%
  • UK: 4.6%
  • Average: 7.3%
At its fixed rate of 6% a year, growth of the Smartbond money supply does not exceed that of major economies, allowing it to sustain its price against fiat currencies in the long run. The Smartbond system is also made to realise this increase in the money supply exclusively through interest payments (at the 6% rate in aggregate) to users.

A Strong Currency to Benefit Holders

Independent central banks around the world have a mandate to maintain price stability, measured based on domestic consumer prices. At the same time, they overwhelmingly follow a policy seeking a 2% or more annual inflation rate. + As of Sep 2015 This implies purchasing power being cut in half every 35 years, which is hardly a compelling form of price stability. In reality, central bank policy is not focused on preserving the capital of currency holders, but variously supports the interests of exporters and borrowers, in the aim of optimising certain economic statistics.
Currency debasement or devaluation is a common monetary policy mechanism to reduce the burden of debtors (in particular the government) or boost exports. A number of central bankers have even publicly expressed interest in weakening their currency. + “In the present context, an appreciated exchange rate is a risk to the sustainability of the recovery.” - Mario Draghi, ECB President
“Negative interest rates in Switzerland make holding investments in Swiss francs less attractive and will help to weaken the Swiss franc over time.” - SNB Press release
“Further depreciation [of the Australian dollar] seems both likely and necessary, particularly given the significant declines in key commodity prices.” - Glenn Stevens, RBA Governor
In contrast, the Smartbond system has no scope for debasement, since the money supply is predetermined, and it follows procedures to actively support the value of the currency.

Low Cost: Eliminating Spending Fees

Most money today is kept in electronic form, + Notes and coins proportion of the money supply:
  • USD: 10.1% (using MZM)
  • EUR: 17.6% (using M1)
  • GBP: 4.6% (using M1)
All sources for year 2014
as numbers on computer systems. Although the cost of information processing has roughly halved every 2 years for the last several decades, the cost of transacting money electronically has kept steady.
When using a credit card, transaction fees are charged directly to merchants, averaging over 2% of each payment in the United States, which adds up to $43 Billion annually (in the US alone). + Average merchant fee rates: Kansas City Fed (10th District Federal Reserve Bank)
Purchases volume: Nilson
These fees push up prices for all customers, including cash users, since merchants worldwide are restricted from having a higher price limited to card users. + Referred to as “surcharging” within the credit card industry, this is prohibited at the state level for over a third of the US population (payments to government entities are often exempt however).
Moreover the largest credit card provider Visa has stated that:
“Visa’s Operating Regulations also continue to prohibit surcharging outside the U.S. unless there is a local law or variance that requires merchants be permitted to engage in the practice.”
Competition from newer payment systems have unfortunately not driven these costs down, for example the average of Paypal fees is over 3% + Based on 2015 full year results:
  • PayPal revenues for 2015 were $9.24 billion
  • PayPal total payment volume was $282 billion in 2015
Source Paypal
of transactions.
Innovative technologies advertising lower spending fees often just impose their costs in a less visible way. For example, Bitcoin swaps payment fees for monetary inflation, currently at a rate of 10% a year – newly created coins serve to cover the high cost for the system's security, + Estimated at $785 Million a year.
Source Coindesk
but debase the value of every coin.
A Smartbond transaction carries an ultra-low fee (under a cent) without hidden costs, using superior blockchain technology to secure the platform.