I recently had the opportunity to speak with Dr. Marc Fleury, one of the pioneers of the open-source software movement and founder and former CEO of JBoss, which was acquired by Red Hat for $350 million in 2006 (Red Hat was recently acquired by IBM for nearly $35 billion). With his polymath background (including a doctorate in physics, a background in Java open-source software development and his own avant-garde, electronic music act), Dr. Fleury was a valuable asset during our multidisciplinary conversation on open-source finance — the powerful movement melding the economics of modern monetary theory (MMT) with open-source software development. As the CEO of a leading financial technology business, previous experience consulting for groups like the World Economic Forum and prominent VC funds, and over 10 years working in software development, I’ve heard many ideas. This one really caught my attention. I believe open-source finance could change the way communities produce value globally.
A relatively new branch of economic theory that extends out of chartalism, MMT seeks to explain the way money works in practice today. With the advent of fractional reserve banking and practices like “quantitative easing,” it’s evident that governments can generate money out of thin air, or to use the fancier Latin term, ex nihilo. On top of this so-called monetary mass (M0), the banking system creates asset-backed money (called M3) through the emission of debt. As MMT researcher Dr. Randall Wray explains, a balanced budget — in which tax revenues always equal government spending — is a fallacy and actually limits full employment and the creation of new value. In fact, I believe we could, in theory, do away with taxes and just print the corresponding monies into circulation, adding to the supply instead of taking out by taxation. MMT describes that it’s not a shortage of capital that limits growth and innovation, but how that money is spent.
What gets especially interesting is that the rise of alternative, digital assets, like bitcoin, has shown that the government may not even be an essential element in the creation of monetary stores of value. Today we have about $250 billion in aggregate cryptocurrency market cap, equal to about 1% of the U.S. equity markets (which is about $30 trillion). Imagine leveraging that 12 times, like the banking system does, and we are looking at $4 trillion, a nontrivial sum to say the least. Communities could generate value and issue new forms of globally accessible, liquid capital for shared interests and project finance. With immutable, algorithmic rules, these new assets could allow communities to trust in mathematics in lieu of the “full faith and credit” of sovereignty. In some ways, this may be superior because it “open sources” the mechanisms of monetary creation, and mitigates the fallibility that centralized institution of humans brings into the equation. Bitcoin, as a prime example, was birthed partially in reaction to central banks’ quantitative easing (QE) post-2008 (both by the US Federal Reserve and the European Central Banks), as a “nondilutive” store of value.
As a practical example, a community interested in solar investments could join together to back a portion of a finite supply of digital units of value — let’s call them Fleury Funds (FF) — with $25 million dollars and emit $300 in narrow money on fractional reserve (again like the banks do), which would then back real-world assets. By doing so, an established exchange rate peg would be set for the new units of value (what economists refer to as either M0 or narrow money). In order to finance a solar panel project, a portion of the remaining units of value could then be sold at the exchange rate for the FF coins, and the cash could be used to purchase solar panels.
Furthermore, the revenues from said solar project could then be directed back into the initial M0 reserves in order to further increase the real assets backing the Fleury Funds. Not only could this fight climate change, but it would also mean real economic value was created ex nihilo, sans government sanction. Such is the potential of cryptocurrencies, to transform digital internet stores of value into real-world creation of value, globally — from scarcity to abundance.
The risk here is that, as we’ve seen with a number of cryptocurrency schemes, bad actors don’t use the funds correctly or invest into new projects of little value (say, the ill-fated ICO boom of 2017), damaging trust and the potential of open-source finance as a whole. To combat these risks, rules of transparency and legal compliance (most notably KYC/AML) and financial management protocols must play an essential role.
In my opinion, if done correctly, open-source finance could allow communities to band together around a common interest, be it financing the solar revolution, green tech deployments, deep tech research, smart cities, a music festival, or the purchase of a revamped U.S. mall, and responsibly achieve their goals without the excessive fees, bank bureaucracy and government restrictions. I believe that this could lead to us as a society toward reaching abundance, where NASA has a budget to travel to the stars and we spent our time creating art, science and technology.
Visionary entrepreneurs like Dr. Fleury see that this moment in history presents a rare opportunity to manifest in our economy a new culture of abundance, a zeitgeist more adapted to the post-scarcity internet age. Despite some of open-source finance’s more complex and mathematical underpinnings, I believe that the limits of this movement are not academic or financial or even technical; they’re psychological — our own ability to believe in our imagination, our will and our power to manifest our dreams.