Kilowatt Cards are gift cards that work for saving and trading kilowatt-hours (kWh) of electricity. They can be redeemed here to pay for 10 kilowatt-hours each, in any residential electricity account, almost anywhere in the world. Electric utilities don't accept them - we do - and send payment to each utility at the rate it normally charges customers for that amount of electricity.
This system is run by the non-profit Kilowatt-Hour Card Corporation, to provide fixed-value paper as a demonstration project, not as a business. It is run by one person, so while Kilowatt Cards may have fixed value, they are not really safe to hold for retirement yet.
Kilowatt Cards are backed by assets and issued in barter for tangible things (e.g. firewood, rental properties) which are held by the corporation, and later sold to pay for electricity as needed. Being gift cards, they can be redeemed by anyone to pay for household electricity worldwide, resulting in a store-of-value (underlying assets) and an international medium-of-exchange (gift cards for electricity).
So, the paper notes pay for electricity and the electricity is bought with investment income or asset sales, if necessary. These assets are real things, not debt, equities, options, insurance, or some new type of ficticious capital like pollution credits.
A kilowatt-hour of electricity is a physical constant, like a kilogram of pure water - one can judge intuitively what that is worth. The net result is a liquid asset having objective value that is not easily debased by inflation.
However, there is no promise to supply electricity itself. That is the problem with deliverable futures contracts, which are hybrids, securing both price and supply. With Kilowatt Cards a Unit is not redeemable FOR supply but rather in payment for supply. It secures price, but not supply.
This financial instrument separates the users of capital (e.g., renters and property managers) from the owners of capital (holders of fungible kilowatt-hours). It is a form of collective ownership that can fund housing and commercial real estate at lower rents, so that the occupants (users of capital) can operate at higher profits. At the same time fungible kilowatt-hours represent a stable asset that can be saved or invested. Their value does not depend on debt or on economic "growth."
Resource producers can benefit by exchanging their commodities for kilowatt-hours during down markets, rather than selling them at low prices. This is done by bartering with an organization like this one to create tradable kilowatt-hours, then selling those instead, while stockpiling the goods as our agent. Because such transactions relate to energy inputs, the values in kilowatt-hours remain constant compared to cash markets dominated by speculators with leverage. For instance, one cord of maple firewood contains about 750 kWh of energy, and so is worth at least 750 kWh in paper form, now and forever.
The system preserves the value of labor and shows how paper can represent the value of goods and labor in a way which cannot simply be taken by inflation, or even by war. For instance, Kilowatt Cards retain some barter value even in places without electricity, which may be useful to refugees.
Although using Kilowatt Cards in barter can be difficult, it has been done successfully on Craigslist.com as follows (mostly with people who happen to be economists):
I would like to propose a barter. Please trade your ________ to me for electricity gift cards from Kilowatt Cards, which can be used by anyone to pay for electricity at www.kilowattcards.com.
My offer is 120 kilowatt-hours. That is, twelve of the W10 Kilowatt Cards, which is about one weeks' supply of electricity for a small house or apartment.
Each W10 gift card pays for enough power to run a 100 Watt light bulb for 100 hours, exactly (100 Watts x 100 hours = 10,000 Wh = 10 kWh). A fixed amount of electricity is a physical constant, like a kilogram of pure water, and cannot lose value to inflation. These gift cards will pay for the same amount of electricity anywhere.
Because energy is needed to produce or to use all goods and services today "the ability to consume electricity" is a meaningful definition of wealth. While some people want gold and silver, everybody wants light, heat or transportation. Kilowatt Cards show that paper notes can be redeemed for something useful. But we do not produce or deliver the electricity; we only pay for it with national currencies, supported by investment income.
One purpose of Kilowatt Cards is to promote stable commerce and reduce the boom-bust inflation cycle, by letting people save and lend in a form that cannot be diminished by currency inflation, since if electricity cards stay redeemable at face value they cannot loose their barter value as energy.
Traditional currencies have the attributes of being: (i) portable, (ii) difficult to counterfeit, (iii) limited in supply, (iv) non-perishable, and (v) easy to recognize. While electricity itself meets none of these criteria, electrical capacity meets criteria (ii) to (v), while paper cards representing payments for electricity supply attribute (i).
Kilowatt Cards are gift cards not currency, but since they will pay for anyone's electricity, they are useful to barter for other things - and as a store of value - worth a fixed amount of energy, regardless of electricity prices. They have fixed value because 10 kilowatt-hours is a physical constant - a standard amount of work (in the scientific sense) that one can evaluate intuitively: 10 kWh = 10,000 Watt-hours, enough energy to run a 100 Watt light bulb for 100 hours (exactly), and roughly enough to drive a Toyota Prius 25 miles. The typical price for 10 kilowatt-hours is about US $1 - $3, while 10 kWh = 34120 BTU.
A Hedge against InflationTraditional currencies suggest that price and value are equivalent concepts, but that is not always true. For instance the price of food may be going up because the purchasing power of money is dropping, not because the value of food is rising. This shows why inflation is so dangerous: rising prices matter little to people with extra money, but impoverish those without it. If electricity gift cards stay redeemable at face value, then one cannot loose the savings to inflation (but one can, for example, save a stable asset that is less expensive than land).
The world's money supply grows at least 15% annually. That new cash buys political influence and assets every year at essentially no cost. And it causes inflation. One reason workers are politically weak is the economic disadvantages that come from earning money though labor alone, rather then creating and deploying it by fiat.
Economist Joseph Stiglitz has spoken about past failures of the gold standard and the coming failure of the "dollar standard," predicting that all national currencies will eventually fail due to inflation, and be replaced by private currencies from competing companies, backed by gold and their reputations.
But electricity offers a unique alternative. It is a standard and pure product (120V, 60 Hz; U.S.) that is widely used by individuals. But it need not be owned, produced or delivered by the gift card system itself, as we demonstrate.
While the price of electricity is not stable, its value as a source of light, heat and motion is very stable to people. Unlike shiny gold, electricity does "work." Its value is objective because kilowatt-hours can be expressed in terms of light, heat, motion or fuel, by the conservation of energy principle (e.g., 1 kWh = 3412 BTU). As examples: reading at night, or traveling by train, uses about the same amount of electricity every time. So no matter its price in money, a fixed amount of electricity has the same value to individuals. "Savings" should have value to people.
If kilowatt-hour notes were registered as securities they could be issued in exchange for national currencies in different countries. At present we only barter them for tangible items that hold value, such as firewood and food grains. The assets are then sold to pay for electricity as needed while protecting the system itself from currency inflation. Thus, Kilowatt Cards represent the underlying tangible goods in liquid form.
We safeguard their value by linking the issuance of new kilowatt-hour gift cards to acquisition of goods, like wood and food grains, because these are visible things - which embody labor and energy - and so something more significant than a fiat currency is involved in their creation.
Kilowatt Cards may also be viewed as a type of insurance product. Instead of pooling money to guard against physical losses, we can pool tangible goods to guard against currency losses. This approach to hedging may outperform trading between currencies because they all devalue together (more or less) and currency traders often loose. But as with any risk pool, it is important not to have too many claims at once. Circulating Kilowatt Cards are being redeemed at the rate of about 1% of the total per year. We expect this rate to rise to at least 10% as people begin paying their electricity bills this way.
Paper notes backed by gold fix the total number of notes in circulation (because the amount of gold in a system is finite) but not their worth, since the barter value of gold is subjective and variable. In contrast, the electricity standard fixes the worth of each note (as a physical constant) but not the total number in circulation, since competing systems may coexist, each offering to pay for the same electricity with its own assets.
Counterfeit Cards Easily Foiled
Kilowatt Cards are printed on plain paper but cannot be effectively copied because value resides in both the six-digit serial number and the coupon together. One can prove that a card is real (and active) by AUTHENTICATION, a process that alters the serial number. If it is active, two new digits will be returned that should be written on the card by hand, forming the end of a new six-digit serial number (as the first two digits are cancelled). Thus, nobody holding a Kilowatt Card can use copies of it, since every copy will have a cancelled serial number after any one of them has been authenticated. In this way plain paper can be traded widely, yet proven unique by anyone (with access to the internet) before accepting it. No need for special printing methods - just a secure server.
The six-digit serial numbers are printed on blank Kilowatt Cards (i.e., un-numbered card images) using a desktop printer. Because the serial numbers are generated from our database remotely, the un-numbered cards may be shipped safely and then activated with a printer.
Anyone can GET SOME Kilowatt Cards FREE (plus postage) for testing. Anyone who pays for electricity may test the system by REDEEMING these gift cards to pay for all or part of a residential electricity bill.
Portable Wealth in an Unstable World
In principle any electric company could issue its own kilowatt-hour notes, but the chances for a system failure by war or fuel shortages are high. In contrast, delocalized systems like Kilowatt Cards transform these physical risks into financial risks, which can be analyzed if the data are published. Because delocalized redemptions do not depend on any particular electric company, Kilowatt Cards are a stateless medium-of-exchange, which may be useful to refugees.
Rising and falling oil prices have very little effect on the barter value of Kilowatt Cards. Look at your own electricity bills. The price per kilowatt-hour (including taxes and fees) did not rise as oil went to $150/bbl, and did not drop as oil dropped to $50/bbl. But looking to one's personal cost for electricity is not how to value them anyway.
W10 Kilowatt Cards are worth about $3.00, because that is just below the (relatively high) price for electricity paid in populated places such as Maine, Alaska, Puerto Rico and the Dominican Republic ($3.50/10 kWh), where Kilowatt Cards could be redeemed if you tried. The fact that electricity is cheaper elsewhere is relevant, but not controlling.
Imagine selling a used Toyota in Detroit where Japanese cars are unpopular. If the national price were $10,000, but the top offer in Detroit was $5,000, that would not mean your car was worth only $5,000. It would be worth $10,000 minus your cost to move and sell it elsewhere, perhaps $9,500.
We presently pay up to $3.50 for redemptions because about 90% of people buying electricity pay $3.50/10 kWh or less. By setting a top price, anyone may discount the barter value of Kilowatt Cards knowing the local cost of electricity and their own ability to trade elsewhere. And the cards maintain some value even in places without electricity, provided they might someday be traded to someone on the grid.
Retail prices for 10 kilowatt-hours of electricty in the U.S. range from $0.53 to $3.40, depending on location and time of year. But the trading price for Kilowatt Cards should always be near the high end of the range anywhere, since they can be redeemed in a high-cost utility district if desired. See the COST OF ELECTRICITY ACROSS THE UNITED STATES.
If the cost of electricity were to climb very high then Kilowatt Cards should become more valuable. But the effects of rising electrcity prices on this system are difficult to predict. For instance, would national currencies hold their values in the usual way (i.e., 2 - 15% annual inflation) or go into hyperinflation? Would electric grids continue serving the developed world 24 x 7, or would people rely more on private generators to cope with unreliable power supplies? If so, the premise of Kilowatt Cards might become unrealistic and we wouldn't be living in such a comfortable society anymore, but that's life.
Kilowatt Cards don't need to be redeemable everywhere to have some value everywhere, because even though redemption is not possible in some places, the cards can eventually be traded to someone in a more developed country who can redeem them, just like "hard currencies" were used in the Soviet Union.
Compare Prices in Energy Units
Two things to be gained by trading kilowatt-hours are: 1) a stable store of value, and 2) a way to compare values independently of fiat currencies. Three variables go into a typical pricing calculation: a) what is the item worth? b) what is the money itself worth? and c) what is the buyer worth? (since well-off buyers may carelessly overpay).
Using kilowatt-hours as the medium-of-exchange gives a clear answer to question b).
For instance, a lawyer billing $300 per hour gets 30,000 hours of light per hour (at a typical rate of 10 cents/kWh and 100 Watt bulb). Now is that necessary to motivate good work? Not really, but it happens - because electricity prices are low - and because the value of money is so abstract.
The U.S. minimum wage is $6.55/hour, providing 655 hours of light per hour (from a single 100 Watt bulb). Some might say that that rate is also too high. The point is that by expressing wages in terms of energy we might reestablish a link between them and the value created by different types of work - a link that was lost somehow under Stigliz's dollar standard.
The thermal energy content in one gallon of gasoline (U.S)is 36.6 kWh. If burned to make heat the amount of energy released would be about 30 kWh (at 80% efficiency). The cost of electricity in Virginia is 11 cents per kWh, while in New York it is about 18 cents/kWh. So if the price of electricity is taken as the true cost of heat energy in these places, then gasoline should cost from $3.30 to $5.40 per gallon for its heat content alone. And the energy used to produce and distribute it (plus a profit) should be added. Yet gas is sold for less than $3.00/gal in the United States, so it is apparently being dumped. While some people say that this policy promotes high productivity, it also promotes waste. Pricing in kilowatt-hours may help us become more productive with energy.
Another example: had you 500 kilowatt-hours in hand, you could call that $100 worth of electricity (e.g., in NY or CA) or, more meaningfully, about 3 weeks of electricity" (anywhere). Likewise a 4' x 4' x 4' stack of firewood (64 cubit feet) is worth about $100, but is better described as "1/2 cord of wood; about 2 weeks of heat."
Another use of electricity gift cards is Islamic finance. One might lend Kilowatt Cards at 0% interest to someone who could trade them for money (or something productive) and eventually repay the debt by exchanging money for Kilowatt Cards. That might require more money then than the debtor originally got for the loaned energy. However, though Islam forbids payment of debt interest, it might allow extra payment for currency inflation if the real debt were defined as energy. So the lender would get nominal interest in terms of money, if not real interest in kilowatt-hours.
Because they have stable value, Kilowatt Cards may also be used as collateral for a conventional loan of money. And if Kilowatt Cards themselves are loaned at interest (with interest paid in kilowatt-hours) then the real rate of return will be positive, no matter how high the monetary inflation rate.
Inflation Protection linked to Food and Energy ProductionSome ask: How can Kilowatt Cards protect itself from inflation? Answer: The same way others do, by holding tangible goods and land, not cash. If money itself were used to back the issuance of new Kilowatt Cards, it would need to be converted into wood, food stores or land. Such tangibles would store value and be liquidated as needed to pay for electricity. Since prices for firewood and food tend to rise with energy, such commodity stores should survive hyperinflation. And the wood may be burned to produce electricity and sold to the grid, providing cash for electricity redemptions worldwide.
In addition to buying food grains at market prices we could pay farmers to plant, and then collect the grains at harvest time, offering farmers an alternative to bank financing. Infrastructure finance (e.g., wind turbines, water treatment plants) is also possible if the outputs can be sold to fund electricity payments.High monetary inflation forces everyone to save assets in thing which display economic "growth." That, in turn, causes over-consumption, because businesses must convince more people to consume more products in order to grow. Electricity gift cards offer a store-of-value to save without need for growth, and so promote sustainable development.
Variable Electricity Prices and Financial Stability
Because electricity is very costly in some places (e.g. Barrow, Alaska; $11.70/10 kWh; ten times the U.S. average) one could theoretically buy circulating Kilowatt Cards in a low-cost area, then sell them for much more money in a high-cost area. In fact such arbitrage works, but we limit the top redemption price paid to one based on the world-average price for electricity, weighted by population. So that places with very high electricity rates but small populations like rural Alaska cannot threaten the stability of the system. Presently the top redemption rate is $3.50/W10. So a great majority of people in the world can redeem Kilowatt Cards at face value where they live.
Q: Does your ability to pay electric companies depend on selling new Kilowatt Cards? A: no. Payments are funded by selling assets. New Kilowatt Cards are issued only as barter for tangible goods.
Q: If redemption funding did depend on selling new Kilowatt Cards, would that be a new pyramid or Ponzi scheme? A: possibly yes, which is why we don't do that. Pyramid schemes promise to pay returns to all investors. Mr. Ponzi said "Give me your money now, and I will return (a lot) more money to you in the future." But Kilowatt Cards pay no interest, and promise no return at all unless redeemed; then pay for only the face amount of electricity, and pay only someone else - a power company.
These are simply gift cards, but for something everyone needs. If the overall redemption rate remains a fraction of the total cards in circulation, our obligations can be met by maintaining high reserves. Kilowatt Cards is not itself a growth business, but a store-of-value.
Q: If you can do this, then anyone can do it. What will happen if other kilowatt-hour systems compete? A: That should be a good thing. Competing cards might be used to trade for circulating Kilowatt Cards (if those systems were trustworthy) then redeemed. So any redemption failure could become public knowledge, hurting our reputation, so we wouldn't let it happen. But as more people begin to pay their bills with kilowatt-hours, any failure in any system should be news and competing systems should keep each other honest, like competing private bank notes did in the U.S. before 1862.
Q: Instead of acquiring wood and food stores, could Kilowatt Cards pay for wind or solar electricity projects only, and thus support a zero-carbon energy cycle? Answer: yes in principle, but no in reality, and for exactly same reasons that wind and solar plants are so rare today.
Depending on location a 100 foot-tall wind turbine may cost $3 to $5 million. Land in a windy place, near an existing grid, with roads, must be leased, and the zoning changed, while a yearlong test of wind speed done to project power output and aerodynamically optimize the blades. If tax credits are involved they must be sold to a business that can use the tax credits; then bank loans and municipal bonds floated, insurance paid for the towers, insurance paid for the bonds, maintenance services provided for the equipment, etc., etc., etc.
Financing all that is the essence of every wind project. They are more about making money than electricity, which is why we don't have very much wind power yet. A town we know in Maine wanted three wind turbines but was cautioned to build only two because if something went wrong, three turbines could bankrupt them.
If we are serious about reducing fossil fuel usage then wood can really help. While it is not "zero-carbon," it is net zero-carbon, and it has the least potential for government interference. Try building a nuclear plant and see what that takes.
Q: Kilowatt-hours may become more expensive relative to labor-produced goods (if electricity prices rise). Will they then have the same problem of deflationary pricing that gold notes have? A: Maybe. But since electric grids cannot be "cornered" or transferred away from a community the way shiny gold can, electrical capacity remains where it is, in a peaceful society.
Yet deflation of some labor-produced goods is inevitable as energy prices raise, because so much of modern life is possible only because of cheap and abundant energy. Once that is gone, many things will become uneconomical, and relative deflations will occur no matter how prices are expressed. The asset collapse of 2008 being a good example.
Q. Are there any larger gift cards amounts than W10? A. Yes, there are W100 (i.e., 100 kWh) and W1000 (1,000 kWh) cards, that work with 7-digit and 8-digit serial numbers, respectively; but these are not in circulation yet.
We began in July 2007 by giving away 12,000 kWh at the Rainbow Gathering. You too can get some Kilowatt Cards, just by asking, and get even more for barter. Our goals are to establish a trusted store-of-value; to eventually redeem them on site (rather than only on the web), and eventually to exchange circulating cards for local currencies on the secondary market like a broker, as law permits.
Today anyone can barter with Kilowatt Cards (craigslist.com has worked), give them away,gamble them, pay for electricity, lend them at interest (3% annual interest paid in kilowatt-hours seems fair), invest them in a growth business if you must, or even save them for retirement.
Yes, if the system fails Kilowatt Cards will be worthless - But money is forever!
You may doubt that wealth can be equated with electricity gift cards - or liken it to the illusion that wealth can be equated with gold - or feel that power grids are so vulnerable that savings should not depend on them. But think of how much wealth already depends on continuous access to electricity such as nearly every building and business on earth.
Name an asset of yours that doesn't require light, heat or motion to retain its value. Consider what happens to any retail store during power failures: the cash registers are off and the staff can't take any money, even cash. The store is effectively closed. Imagine trying to sell that business when energy flows are in doubt,say during an oil embargo. With costs rising and customers using rationed gasoline most buyers could not get bank financing - a forced liquidation could follow.
On the legal status of Kilowatt Cards, they may be regarded as gift cards or like frequent flyer miles. All business transactions involving Kilowatt Cards are taxable and subject to money laundering laws and regulations.