End of Inflation? The Radical Vision of Futures-Backed Cryptocurrency

Veteran user experience designer James Zdralek is on a mission to reimagine the way central banks run, using cryptocurrencies.

Part psychologist, part accountant, part industrial engineer, the senior executive in charge of user experience at enterprise software firm SAP has devised a way to merge cryptocurrency with modern financial instruments that could make national currencies appreciate in value.

But in exchange for this brave new world of banking, central banks could risk losing the monetary control they exercise when large-scale problems threaten an economy. More than that, they could undermine their own existence.

Simply put, this new breed of national currencies would be backed by cryptocurrencies that are in turn backed by the actual output of a nation’s industries. This network of cryptocurrencies could theoretically result not only in a natural interest rate – reflecting actual market conditions rather than policymakers’ wishes – but also built-in stability, Zdralek told CoinDesk.

“Those two things combined, would be much better than bitcoin, much better than fiat currency,” he said.

Since completing an early version of his research last year, Zdralek has shopped the idea to central banks at SAP’s Executive Central Banking Summit in May and at Sibos in October, and he’s now turning his attention to members of academia to further explore the concept.

If successful, Zdralek believes the campaign within SAP’s experimental Ideation Center in Canada could eventually result in the end of inflation and the movement of the resulting lost value into the hands of the people who actually spend that money.

“This is a beyond-the-edge concept which is uncomfortable for some people,” Zdralek told CoinDesk, adding:

“In my opinion, this is a good warm-up before the big race.”

‘Simple complexity’

The biggest obstacle Zdralek said he’s faced since taking his ideas on the road has been people’s difficulty understanding the proposal.

Originally released to the public in October by the SAP Ideation Center, the 44-page paper lays out how users could interact with the seemingly complex system as easily as they swipe a debit card.

“It ends up being the same simple kind of monetary system on the surface,” said Zdralek. “But behind the scenes, it’s more complex to create a very stable value and natural interest rate.”

Such stability relies on underlying “representative currencies” that function similarly to how government currencies like the U.S. dollar used to be redeemable for gold. But instead, the new currency would be backed by assets traded on a blockchain.

By mitigating the role of a central issuer, these currencies would compete for users in an economy driven by blockchain-enabled smart contracts that automatically trade maturing futures forward.

Specifically, Zdralek’s work would require three asset types to be embedded into crypto-tokens.

The first type of currency is backed by shares representing the ownership of a factory. The second is backed by the inventory of a company, and would give users a stake in what the report calls the “stored output of that factory.”

In Zdralek’s concept, central bankers or other currency issuers would then create a third currency backed by a specific kind of future called a prepaid forward contract that aggregates the futures-backed cryptocurrencies.

Zdralek argued that, like with a mutual fund, this third currency could produce an extremely stable value and natural interest rate, growing the economy without the creation of bubbles. In other words, instead of value being degraded by an inflation rate imposed by the central bank, citizens who hold the currency might actually receive a return on its value – or at least would not lose it…

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