Let’s call it a gBank.

I really do sympathize with the Occupy movement. And I agree in their thoughts about the current banking system and that a radical change is needed. The question is how? The movement itself doesn’t propagate any solution so far, so maybe it’s time to start thinking about how a sustainable banking system would look like and how it could be implemented.

To do so, first we’ll need to define what exactly the purpose of a banking system should be. In my opinion there are a couple of things a banking system should provide. First, a banking system should be a safe place where people can put their earned money (savings) and can rely on it that when needed, they can access the money they’ve put on the bank. Second, because in real life there’s a certain amount of inflation (whatever causes it), we would also make sure that the value of our money keeps up with the inflation rate. So, when I get the money back, I would be able to buy more or less the same products as at the time I’ve put the money on the bank. Normally, this is called the interest rate. Most banks have an interest rate which is on the average and long term more or less equivalent with the inflation rate. So in fact I don’t put money on a bank, but I put a certain value on the bank, and the bank assures I’ll get the same value back. Because we don’t control the bank we must have some trust in how the bank operates and our value is guaranteed. And we now all know that we have too much trust in this.

Now, a bank can only guarantee the value of the saved money if it does something with that saved money. Money itself doesn’t rise in value (normally spoken, only when there’s deflation), so the bank has to do something to make it do. This is called investment. Based on the assumption that only a very small percentage of the savers would get their saved value back at some point in time, the other 90% of the saved money can be invested. By the way: banks were allowed to invest 96% of their assets until yesterdag when this percentage was lowered to 91% in Europe. Which is still very high.

Given that investments are needed to guarantee the value of the savings, we actually should and would have some control about how our savings are invested. And this is the missing part in our present system. Depending on the investments done, a bank either makes a huge profit which isn’t used to increase the value of the savings, but used to increase the income of the shareholders and managers of the bank (value of the bank), or makes losses, which is presented to us, poorly savers, by decreasing the value of the savings. And when this happens, and we want our money back, the bank goes bankrupt because it simply doesn’t have the resources or assets to give back the value of the savings. And leave the savers with nothing (unless of course the state has some guarantee system, but in the end, that’s also payed for by the savers through some kind of taxes).

Another side effect of  this, in times of recession, is that banks are less willing to invest because of the possibility of loss on the investments. And in times of recession, it’s highly important that people start up their own business, or existing business expand and therefore need some investment. If not, unemployment will raise and the economic situation will get worse. This is what happens now. Due to the lack of any trust in investments, banks sit on their money, hardly pay any interest (there’s in fact a decrease of the value of the savings) and business doesn’t grow because they don’t get the money to do so.

So what we need is a banking system in which we, the savers, control the  investments done and have the advantages of very profitable investments and on the other hand, take the losses of bad investments. And because we control those investments ourselves, the only to blame for when things go bad, are we ourselves. And that’s a fair system.

Although this sounds easy enough, it’s a little more complicated. We don’t know what good investments are, we don’t have enough money ourselves to really  make investments. We don’t have time to take a deep look into the investments possibilities or to judge them. That’s what we’ve outsourced to the banks. And that’s why banks bought investment and insurance companies. However, there is a solution for this. A solution based on social networks, which we didn’t have when the banking system was invented.

Let’s suppose there are in the near future around 1 billion users of  a certain worldwide social network. Each individual network consists of a family network, a colleague network, a friends network and so on.   And let’s suppose they all have an average value of 1.000 (not dollars, not euro’s, but a value). This means that there’s a value of 1000 billion available. Now I, as one of those users, want to setup some business and I’ll need 250 thousand in value to start it. I’ll make a business plan, explain what I want to do, how I want to do it, and what the business case is. Then I go to my networks (family, friends, colleagues and so on) who too are users of this new banking system, and propose my business plan to them. Each of my social related then decides if, and if yes, how much he of she will ‘borrow’ me to start my business. If my social network is large enough, and if the people in my network are confident with me, I can raise the value needed to set up my business. No bank is involved, no credit organization, no advice committee, just people who know me and are willing to take a change with me. And of course, if someone in my network if convinced that it’s a good business plan, he or she can forward it to his or her social network. And so a web of trust is created based on personal social networks in which each individual can decide in what he invests in.

So far I’ve been speaking about value. Let me explain how I see value. We have money. The value of money is determined by the products you can buy with a certain amount of money. If money decreases (inflation) in value, you can buy less for the same amount of money, if money increases in value (deflation) you can buy more. In a deflation situation, you should keep your money hidden somewhere or put in on a bank and expect an interest rate of 0% or even negative. No banking system is suited for deflating circumstances.

Because governments and financial institutes are generating money (just giving credit means that money is generated that didn’t exist) usual we have an inflating situation. Which means that our money loses value over time. Besides that, money is traded. Different currencies have different values which aren’t fixed, so gambling on the different inflation rates of the different currencies by buying and selling them at the right time, could generate profit. Profit that is not represented by the amount of money available which therefore also leads to inflation. And, of top of all, the exchange rates of all currencies in the world, are not based on real value of each individual currency, but on how interesting a specific currency is for traders. All in all, a bad system.

Then how to determine the actual value of a certain currency? Well, this problem was solved a couple of years ago with the MacDonald Hamburger index. MacDonald has restaurants all over the world, in each country. And the Big Mac is the same everywhere. The ingredients are the same, the way it is composed is the same, the way the restaurant is driven is the same. For each location. But all ingredients for the Big Mac are locally produced. So, the local price of a Big Mac gives a pretty good figure for the actual value of the local currency.

An example:

A Big Mac costs $4.07 in the US and €3.44 in the Euro countries. If calculated with this Big Mac index, one euro is 1.18 dollar (4.07/3.44). But based on the official exchange rates, one euro is 1.39 dollar which means the Euro is overrated. With that rate a BigMac would only cost € 2.92.

So it sounds reasonable to introduce a new unit for value: the B (for BigMac). 1B is the cost of a BigMac, wherever, whenever. Related to the proposed banking system: if I put 1000B on my account, and 10 years after I withdraw my account, I would get 1000B back, enough to buy 1000 BigMac’s at that time. So, we don’t need money for this system. Only at deposits or withdrawals, we need to (re)calculate the value into local currency, for which the price in local currency for a Big Mac at that time is used. Fair, clearly, transparent. Ideal.

As said, investments are needed to maintain the value of the savings. So, it’s to the benefit off all that investments are made. However, there’s no obligation to invest. Just depositing a certain value would be enough for anyone to keep the value for all. Because the value itself doesn;t change, an account of 1000B will always be 1000B, unless you withdraw value from your account.


Inflation only applies to currencies. But when you deposit 1000B some local currency must be converted into 1000B value, based on the Big Mac Index. Which means that you deposit a certain amount of money equivalent to the 1000B value to the system. Based on the assumption that millions of people would deposit an average of 1000B, there would be enough money (not value) which can be used for trading and the profit made on that will be enough to deal with the inflation rate of the different local currencies. And thus can keep the value of the savings. But if a member wants more than just remain the value, he should invest.

The investment system is not based on interest as the whole system is not based on interest. It’s based on value and that’s a constant so there’s no need for interest. This means that someone who wants to invest, and enough people supports its idea to raise the value needed, he will get that value with the obligation to put the value back, without any interest. The people who raised the value, the lenders, are the ones who take the responsibility for the withdrawn value: it’s there value that’s invested and if it’s a bad investment, they loose value. On the other hand, if it’s a good investment their lent value will return with an additional fee from the one who has used the value, the loaner. This fee could be anything, negotiated when the investment request is made and based on the profit to be expected by the loaner when his business is running. Because the relation between lenders and loaner is based on trust, this will work. First in small trust circles with small amounts of value, but later in with bigger circles of trust and high amounts of value.

Of course, it’s is impossible for individuals to ‘trust’ large investment request. If a company needs, let’s say, 10 million B, it’s very unlikely that people in the social network of this company can put up with this value. The individual investment works fine for relatively small amount of value but not for something bigger.

Therefore, besides individuals, also companies should use this banking system. More, it’s necessary that companies too are involved. And as with individuals, companies can trust other companies and act as lender for companies that need value for expansion, new business etc. The same rules apply: no interest but based on a fee when the investment is successful. By the way: this is not the same as shareholders. A shareholder buys a piece of an organization and he can trade this. Trading shares is something that shouldn’t occur in the new system, therefore there are no shares. No value can be created and therefore there is, at least not in the system itself, any form of inflation. There is no interest, no trading, no debt. Only agreements based on trust that a certain value will be given back at some point in time, and a fee given for lending that value.

Sooner or later there will be organizations that only exists by lending value and make their earnings by fees. There is nothing wrong with that. The profit they could make is reasonable and we all have to earn some value to live. In fact, it could even be that individuals are going to trust some of those organizations and give them the right to use a part of the individual value to lend out, where the individual gets a fee from the organization in stead of the loaner.

In principal this whole new system is based on circles of trust. Within a circle people and organizations trust each other and values are exchanged between each other. Greater circles are circles of trust between smaller circles and so on. And who has invented the principle of circles in social networks? Right. Google. That’s why this system is called gBank. The technology exists. The only thing needed to actual start a global banking system like this is trust in the ideas of others and a institute that provide the banking service.

This is the hardest part. This institution should offer this service worldwide, not limited by local governments or other barriers. Because there is no money involved (remember, it’s based on value) there shouldn’t be any monetary restraints, but there could be some political issues.

Further, people must trust this institution and it’s hard to trust something you don’t know. On the other hand, every individual stays in full control of the deposited value, so the trust in this case only concerns that way the institution protect user data, protect the privacy and insures the value remains, no matter what currencies do. In fact, apart from the protection of our privacy, Google is an example of an institution that can do this. It is important that a large amount of value is available to start and attract people and organizations to deposit and to loan for investments. Again, Google has the means to do so.

After ten, fifteen years being operational and maybe with some 1 billion members, this banking system could let to the disappearance of traditional banks, stock exchanges and other financial institutes because everyone decides for themselves which investments are good enough for him, and any profit made from the investments goes back to those who have lent some of their value for it. It’s a full democratic system, and it’s a fair system. By the elimination of interest and share value, trading based on expectations of rising interest rates or shares, the speculation is eliminated thus reducing risks and thus preventing huge profits by traders and financial managers, for which the paycheck is always given to ordinary people.

This system makes it much easier to start a business based on a good idea and therefore adds to economic growth. No expensive loans with high interest rates are needed, no investment company that in the end has only one purpose: to sell your business at the highest price. This means that quality becomes more important, long term vision in stead of short term profit and involvement of those who believe in the ideas and lent some value to others. This would eventually lead to a better world.

Could this be a solution?