Recently we proposed the Stella – a commodity basket backed currency – as a tool the facilitate the trade among space settlements. In this post we will further explore the use of the Stella as a reference currency.
We recall that the value of the Stella depends on a certain set of widely traded commodities. The basket formula allows everyone to calculate the value of the Stella in his own (local) currency.
Alongside the Stella Alliance – the organization responsible for issuing the Stella – we propose the establishment of the Inter-Settlement Exchange System or ISES. This is a platform which will allow import/export firms in different space settlements to trade with each other.
Each participant in the Inter-Settlement Exchange System, will have an account which records all transactions within the system. The unit of account is the Inter-Settlement Exchange Credit (ISEC). One ISEC equals one Stella ( 1 ISEC = 1 STL ).
Though ISES uses the Stella to express the value of goods and services, its participants do not have to posses any Stella. All firms that operates in this system, will start at zero.
Suppose that Alice has an import/export firm in Settlement1. She exports 100 STL worth of apples to Bob in Settlement2. The transaction is duly record in ISES. Now Alice’s account reads +100 ISEC, and Bob’s will read -100 ISEC. In plain language this means that Alice is entitled to 100 STL worth of goods and service from the Inter-Settlement Exchange System, while Bob has to deliver the value of stuff to the system.
Subsequently Bob exports 100 STL worth of wheat to Carol in Settlement3. Next Carol exports 100 STL of tomatoes to Alice. Now all accounts are in balance. This trade is illustrated below.
Theoretically there is no need to express the Inter-Settlement Exchange Credit in Stella, or for that matter in any currency. However, since the Stella is based on a commodity basket, traders are now able to easily understand the value of the goods and services traded within ISES.
The main advantage of the Inter-Settlement Exchange System, is that traders do not need to buy foreign currency in order to do business. Additionally this system does not charge interest.
A major vulnerability of this system is, however, that participants could import large quantities of goods and services, while not offering anything in return. Such exploitation will undermine the inter-settlement exchange system. Hence counter-measures should be implemented.
One measure would be to impose a limit on how much debit (negative balance) a trader could accumulate. Once a trader has reached this limit, he has to start exporting stuff in order to be able to import. Also exploiting traders should be expelled from the system.
Another measurement could be to require traders to pledge assets as a security for their debits. If a trader would accumulate too much debit, while not selling anything these pledged assets could be forfeited in order to settle the deficit.
Since the Inter-Settlement Exchange System is closely related, the Stella Alliance could play a role in managing this platform. However, this not an absolute necessity. Space settlements should determine how they want to shape this trade system.