Terra is defined as a standard basket of the most important commodities and services in the global market for which futures markets can be established. For examples: oil, wheat, copper, etc; as well as some standardizable services such as the International Shipping Charter Rates. Conceptually it will be similar to a fully backed gold standard, but Terra is the backing would consist not if one single commodity but of a dozen of the main international commodities, including gold. Because Terra is fully backed by a physical inventory of commodities, Terra would be very robust, strong and even credible in payment unit. Nevertheless, this backing would be possible to convert Terra into national currencies under certain pre-established conditions. For instance, there would be a possibility for conventional money at specific conditions, one of which is a 2% penalty to redeem Terra. Terra is said to be create a more stability and predictability in the financial business sectors by providing a stable international currency for planning, global contracting and payment purposes worldwide. Terra is designed as inflation-proof or inflation resistant. Inflation is always defined as the changes in the value of a basket of goods and services. Therefore, by selecting the appropriate ingredients in the basket such as if desirable, an index capturing residual global inflation not picked up directly by the basket of physical commodities itself, the Terra could be made inflation-proof or inflation resistant. Terra is a currency that is complementary to the conventional national currencies. For instance, it can operate in parallel with them without replacing them. And it does not require any new governmental negotiations or international agreements. It should be understood that Terra can be initiated by the private initiative as a standardization of countertrade transactions. The Terra Alliance would be an organization structure open to newcomers meeting certain pre-established criteria in sense of the similar to the Visa credit card system. Only small scale project would be used in such initiative. Besides that, with TERRA, people today could evolve into an accountancy unit, used for international planning, contractual and even payment purpose. TERRAs would take the form of an electronic currency, and not be issued as notes or coins. Isn't this convenient to the people? Another key features of TERRA which TERRA differentiates it from previous commodity basket currency concepts, is that the storage of the physical commodities would be applied to the bearer of the TERRA. This had cost for holding the currency is estimated at 3.5-4% per annum. This makes the TERRA demurrage-charged currency, the opposite of the conventional positive interest rate currency. This has assured its use mainly as a trading device and it would not be hoarded but always ten to remain in the circulation. It would thereby strongly activate commercial exchanges and investment wherever it circulates. There's possibility to redeem TERRA for conventional money at some specific conditions, one of which is 20% penalty. TERRA alliance will then simply deliver the inventories to the corresponding commodity markets and obtain the conventional currencies necessary for the payment. 2% of the penalty aims at giving an incentive to keep the currency circulating in trade.
How does TERRA works
TERRA mechanism is the creation of TERRAs to their final cash in.
TERRA Creation Process:
Excess Inventory Sale
This is the process where TERRA Trade Reference Currency is created begins with the sales of excess commodity inventory to TERRA Alliance by the one of its backer/members.
Commodity Valuation in Terras
The value of the sales to the Terra Alliance is being calculated at market prices. This is accomplished by determining the commodity prices at the time of the sale for both the inventory in question and the sum of each of the commodities in the Terra basket using a pre-agreed procedure.
Formula for calculating commodity valuation in Terras is :
Commodity value per unit X number of units = Terras
Terra Unit Value
Inventory Balance
The results of Terra may be accomplished through future market transcations or through spot transactions
Terra Creation
Diagram below
Sources : THE TERRA TRC WHITE PAPER
Terra Circulation among users
It enters into and may remain in the circulation for a certain period determined by users:
First User - May pay partially or completely in Terra for projects.
Other User - the other party in turn decides, to purchase in which firm and may decide to pay partially or completely in Terras.
Last User - Each Terra remains in circulation for as little or as long as its various Users continue to use this currency. This process comes to an end only when a particular user determines to cash in the Terras, in effect, become the last user.
Demurrage
This is the form of creation to its final cash-in. It is a time-related charge on money. Demurrage fee acts in a similar manner to a rental fee. The charge increaseing the longer the rental is held onto. Demurrage charge severs 2 functions. (1) it servers a circulation incentive and (2) covers Terra operational cost :
Terra Circulation Incentive is the demmurrage charge that is designed as an incentive to keep the Terras circulating in a timely fashion from one user to another. As Terra demurrage charge fess increases the longer it is held onto as calculations. Demurrage charge insures the Terras' usage as a mechanism of exchange and not as a mechanism of storage.
Terra Operational Cost Coverage is the charges that is calculated to cover the cost of the entire operation of Terra mechanism.
Demurrage fees for Terra transactions are calculated:
(Terra Operation Costs/time unit) X (Terra holding period) X (Terras on account) = Demurrage Charge
Terra Cash in
There will be a transaction fees charged. The transactions fee in charged for 2 purposes
Terre Circulation Incentive is the transaction fee that designed as an incentive to keep in the Terras in circulation and to not cash in its Terras too readily. Thus it continuing the benificial effects of the circulating Terras. Cashing in the Terras now will cost me the same as paying the demurrage fee for more than six months.
Cash-in operational cost is when the last user decides to cash in its Terras, the Terra Alliance sells necessary volume of commodities from its basket to the commodity markets in order to obtain the necessary funds in conventional currency.
Terra will be handed to Terra Alliance and converted to national currency or a volume of Terra commodites to the amount equal to the value of the Terra cashed in minus the transaction fee. Cash-in may take place directly with the Terra Alliance itself or an intermediary bank for examples as there are any foreign exchange transaction today.
Reference Currency
Functions purely as a Trade Reference Currency, a reliable standard of value. This is almost as the same to the gold standard days when two parties agreed on contracts denominated in gold, even if none of a party owned gold or had any involvement in gold mining or processing. The only significant difference with the Terra is that, it is backed not by one commodity but by a dozen or so commodities and services making it more stable a reference than the gold standard.
Recent news on TERRA
carry trade basket
Article
The Euro and Commodity Currencies Rally as ECB Guarantees, Chinese Data Quiet Crisis Concerns
Friday, 11 June 2010 00:35 GMT | Written by John Kicklighter, Currency Strategist
Jun, 03 Risk Aversion, Carry Unwind Stall as Traders Wait to See Whether NFPs, G20 Meeting will Revive Trend
May, 28 Speculative Markets May Finally Watch Volatility with Direction when Liquidity, Fundamentals Return
May, 20 Equities, Commodities and Currency Markets Concede to Risk Aversion and Deleveraging
May, 13 Risk Appetite and Volatility for Broader Markets Temporarily Dormant not Permanently Restrained
May, 06 A Steady Deterioration in Confidence Finally Finds a Catalyst for Panic Selling
Apr, 22 A Potential Greek Default, Upcoming UK Election and Rising Sovereign Debt Risk Threatens the FX Market
Apr, 08 The Climb in Investor Sentiment Fades as Investors Once again Focus on Global Threats
Apr, 02 Risk Appetite Rises through the Week with Outsized Influence Over Commodities and the US Dollar
Mar, 26 Despite a Key Dollar Breakout and Steady Dow Advance, Risk Appetite Trends Have Yet to Recuperate
Mar, 19 Fresh Yearly Highs for the Markets Belie Shaky Confidence, Persistent Uncertainty
Mar, 15 Price Action Points to a Bullish Breakout but Market Fundamentals May Force a Collapse
Mar, 05 Attempts to Jumpstart Trend and Volatility Fall Short as a Clear Drive in Sentiment Alludes Traders
Feb, 26 Volatility Behind the Dollar, Dow and Risk Appetite Increases but a Clear Direction Still Absent
Feb, 19 Risk Appetite and Carry Interest may soon Lose Their Balance as Greece and the Fed's Hike Build Pressure
Jan, 29 As Risk Continues to Recede, the Dollar Rallies and Dow Tumbles
Jan, 22 The Dollar Takes Off and Dow Falters - Risk Appetite is on the Verge of Collapse
Jan, 15 A Steady Build in Risk Appetite Belies a General Lack of Conviction
Jan, 09 Sentiment Behind the Dollar and Markets on the Verge of Breaking, but Which Way?
Dec, 18 Despite the US Dollar's Rally, Underlying Risk Appetite has yet to Break
Dec, 05 Risk Appetite on the Verge of Collapse, All that is Needed is a Catalyst
Over the past six months the principal fundamental concern behind the bear market has evolved. What was originally a mere retracement on a overextended 2009 rally would evolve into fears over the health of the outperforming economies (i.e. China), then uncertainty surrounding sovereign credit risk with ballooning deficits and finally the specific concerns that the next financial crisis could spread from the European Union.
• The Euro and Commodity Currencies Rally as ECB Guarantees, Chinese Data Quiet Crisis Concerns
• Speculative Interests follow the Dow Higher, Fundamental Concerns Rest with Risk Premiums
• Traders Watch 10,000 for the Dow and 1.2120 for EURUSD for Cues on Risk Appetite / Aversion
Over the past six months the principal fundamental concern behind the bear market has evolved. What was originally a mere retracement on a overextended 2009 rally would evolve into fears over the health of the outperforming economies (i.e. China), then uncertainty surrounding sovereign credit risk with ballooning deficits and finally the specific concerns that the next financial crisis could spread from the European Union. Naturally, when confidence improves for the most unstable dynamic for the financial markets, investor sentiment will recovery in kind. And, when all of the major issues are answered at once, the reaction is far more dramatic. This is the scenario we were presented with over the past week: the euro's existence has solidified; China's economic data outperformed; sovereign ratings have been steadied with austerity and stimulus measures; and the capital markets themselves have bled off a significant portion of the speculative buildup through the previous year. With this fundamental health trickling down to the speculative masses, the response from the markets has been significant. The most recognizable improvement comes from the Dow Jones Industrial Average's spectacular performance on Thursday whereby the index put in for its biggest rally in two weeks and subsequently rose above the psychologically important 10,000 (a level that is considered the threshold to a more committed bear wave for the equities market). Other capital markets have performed with similar zeal through the week. The benchmark 10-year Treasury note yield has risen 14 points and NYMEX-based crude oil futures have rallied to their highest levels in a month north of $75.50. In the currency market, the performance of yield-heavy pairs like AUDUSD and NZDJPY is obvious. More sober is the rebound from EURUSD from four year lows. Having broke a steady selling trend, the pair is now looking to once again overtake its historical midpoint at 1.2130.
The reason EURUSD makes for a better reading on the currency market's fundamental health is that its roots run deeper than a highly volatile response to the demand or lack-there-of for yield. For this particular pair - the most liquid in the currency market - its performance is a smoothed reflection of the concern over the financial uncertainties that are always present in the market. Even in the best of times, there are lingering threats to stability and capital appreciation. It just so happens that these concerns are more prevalent nowadays and the grandest of these threats can be traced back to the euro itself. Having just recovered from the worst financial crisis in modern history this past year, the masses are highly sensitive to the likelihood of another global shock. For months now, Greece and various other European Union members have been at the center of this renewed uncertainty. Should one of these economies default on their debt, it would breech inflexible rules for the region which could send the region into a crisis and perhaps even trigger a slow death for the currency itself (the second most prolific in the world). Today these fears were diminished significantly with the ECB's vow to continue to buy bonds and thereby provide member government's with liquidity and the announcement that three unlimited fund facilities would be performed over the coming three months. This - along with the EU Presidents promise to increase the size of the financial rescue plan should conditions tax the current 750 billion arrangement - has significantly diminished the threat of a financial implosion. On the other hand, all is not good. The side effects of the fiscal extensions Europe is putting itself under is greater sovereign credit risk. The US, UK, Japan and others are under similar pressure. Furthermore, China and the outperforming emerging market economies are still at risk of stalling and pitching into a tail spin due to debt obligations. Yet, where sentiment goes, so does the market.
Risk Indicators:
Definitions:
What is the DailyFX Volatility Index:
The DailyFX Volatility Index measures the general level of volatility in the currency market. The index is a composite of the implied volatility in options underlying a basket of currencies. Our basket is equally weighed and composed of some of the most liquid currency pairs in the Foreign exchange market.
In reading this graph, whenever the DailyFX Volatility Index rises, it suggests traders expect the currency market to be more active in the coming days and weeks. Since carry trades underperform when volatility is high (due to the threat of capital losses that may overwhelm carry income), a rise in volatility is unfavorable for the strategy.
What are Risk Reversals:
Risk reversals are the difference in volatility between similar (in expiration and relative strike levels) FX calls and put options. The measurement is calculated by finding the difference between the implied volatility of a call with a 25 Delta and a put with a 25 Delta. When Risk Reversals are skewed to the downside, it suggests volatility and therefore demand is greater for puts than for calls and traders are expecting the pair to fall; and vice versa.
We use risk reversals on USDJPY as global interest are bottoming after having fallen substantially over the past year or more. Both the US and Japanese benchmark lending rates are near zero and expected to remain there until at least the middle of 2010. This attributes level of stability to this pair's options that better allows it to follow investment trends. When Risk Reversals move to a negative extreme, it typically reflects a demand for safety of funds - an unfavorable condition for carry.
How are Rate Expectations calculated:
Forecasting rate decisions is notoriously speculative, yet the market is typically very efficient at predicting rate movements (and many economists and analysts even believe market prices influence policy decisions). To take advantage of the collective wisdom of the market in forecasting rate decisions, we will use a combination of long and short-term, risk-free interest rate assets to determine the cumulative movement the Reserve Bank of Australia (RBA) will make over the coming 12 months. We have chosen the RBA as the Australian dollar is one of few currencies, still considered a high yielders.
To read this chart, any positive number represents an expected firming in the Australian benchmark lending rate over the coming year with each point representing one basis point change. When rate expectations rise, the carry differential is expected to increase and carry trades return improves.
Is Carry Trade and risk appetite rising or falling? Discuss how to trade yields and market sentiment in the DailyFX Forum
Additional Information
What is a Carry Trade
All that is needed to understand the carry trade concept is a basic knowledge of foreign exchange and interest rates differentials. Each currency has a different interest rate attached to it determined partly by policy authorities and partly by market demand. When taking a foreign exchange position a trader holds long position one currency and short position in another. Each day, the trader will collect the interest on the long side of their trade and pay the interest on the short side. If the interest rate on the purchased currency is higher than that of the sold currency, the result is a net inflow of interest. If the sold currency's interest rate is greater than the purchased currency's rate, the trader must pay the net interest.
Carry Trade As A Strategy
For many years, money managers and banks have utilized the inflow and outflow of yield to collect consistent income in times of low volatility and high risk appetite. Holding only one or two currency pairs would invite considerable idiosyncratic risk (or risk related to those few pairs held); so traders create portfolios of various carry trade pairs to diversify risk from any single pair and isolate exposure to demand for yield. However, even with risk diversified away from any one pair, a carry basket is still exposed to those conditions that render this yield seeking strategy undesirable, such as: high volatility, small interest rate differentials or a general aversion to risk. Therefore, the carry trade will consistently collect an interest income, but there are still situation when the carry trade can face large drawdowns in certain market conditions. As such, a trader needs to decide when it is time to underweight or overweight their carry trade exposure.
The New Article on TERRA
Hayek's Plan for Private Money
Mises Daily: Monday, July 18, 2005 by Robert P. Murphy
The most famous Austrian economist is 1974 Nobel laureate Friedrich Hayek. Because of his moderate views excusing State interventions in various circumstances, hardcore Rothbardians tend to regard Hayek as less-than-pure in many areas.
However, one area where Hayek is certainly more radical (though perhaps not correct!) than even Murray Rothbard is monetary institutions, as detailed in his fascinating (1978) pamphlet, The Denationalisation of Money.
When it comes to the free market's handling of money, the typical Austrian argument is over fractional reserve banking. Some think FRB is perfectly legitimate (so long as the banks do not receive special privileges from the government), while others consider it inherently fraudulent. But both groups agree that fiat money is a horrible creation of the State, and that the free market would always settle on a commodity (such as gold) as the underlying base money.
Inasmuch as many of the participants in the FRB debate are far more radical than Hayek on most policy issues, it is quite surprising then that Hayek's proposal calls for privately issued, competing fiat currencies. That is, Hayek proposes that individual firms issue pieces of paper that are not backed up by any production or consumption good. In a sense, Hayek wants to privatize central banking.
As the reader can imagine, this proposal strikes almost everyone - even modern Austrians - as absurd; we will deal with some of the major objections below. But partly because of this near unanimous rejection, and partly because the analysis in any case is instructive, I will attempt in this article to give Hayek's case the best possible defense.
Hayek's Proposal
Hayek argues that, if only government obstacles were removed, the free market would provide the optimal quantity (and variety!) of monetary products. Just as the forces of competition lead to low prices and superior quality in every other line, so too would competition in the "fiat money industry" lead to monies that were infinitely better than their government-produced counterparts. For example, the private monies would be far more stable in their purchasing power, would be harder to counterfeit, and would be available in more convenient denominations.
Although one can imagine an equilibrium situation given that the public is already holding vast quantities of such private currencies, it is difficult to conceive of how they would "get off the ground" in the first place. Here is the most ingenious part of Hayek's proposal (which naturally I am adapting for a modern exposition):
A private firm could initially print up, say, one million pieces of paper (that of course would be difficult for an outsider to reproduce) with a cute picture of Friedrich on them. The firm then contractually pledges to redeem each "Hayek," at any time, for either US$10 or 80 Chinese yuan. Assuming that the firm has substantial assets and that everyone is fully confident of their redeemability, the Hayeks at auction will sell for somewhat more than $10. This is because they will always be worth at least $10, but they might (in the not too distant future) be worth more, if and when the Chinese government lets the yuan appreciate against the dollar. (In that case, investors could redeem each Hayek for 80 yuan, which would exchange for more than US$10.) For the sake of argument, let's suppose that the firm initially auctions all one million Hayeks for $12 each.
Thus far the proposal involves nothing too radical; each Hayek is really just a derivative asset. How then would the issuing firm get the public to start treating the Hayeks as money? On the night of the initial auction, after the market price of the Hayeks had been ascertained, the issuing firm would specify a commodity basket (consisting of bread, eggs, milk, and other goods relevant to consumers) that cost, say, $60 at Wal-Mart. Then the firm would announce to the public the following non-binding pledge: "We will use our firm's assets to adjust the outstanding supply of Hayeks such that 5 Hayeks will always (insofar as it is humanly possible) have the purchasing power to buy this specified commodity basket."
Now as time went on, the US dollar and the Chinese yuan would depreciate vis-à-vis real goods and services. In particular, the dollar price of the specified commodity basket would increase. So long as the Hayeks were still being valued solely because of their tie to dollars and yuan, their value as well would begin to drop; the Hayek-price of the commodity basket would start to rise from 5 to 5.05, etc.
At this point the issuing firm would need to prop up the value of its fiat currency. It would need to enter the market and buy back Hayeks from those marginal holders who were most anxious to sell. In this way, the issuing firm could (at least temporarily) maintain the purchasing power of the Hayeks, such that 5 Hayeks could still buy the relevant commodity basket at Wal-Mart, even though the dollar price of that basket had risen above $60 (as the US government continued to print new dollars).
Here is where the theory ends and we are stuck with an empirical question: Would the firm eventually buy back all one million of the Hayeks? Or, at some point before this happened, would the record of stability of the Hayek (in terms of its purchasing power vis-à-vis the specified commodity basket) allow for a self-fulfilling prophecy, in which people begin holding Hayeks not because of the underlying legal redeemability, but because of its expected purchasing power in the future?
Problems
Hayek's proposal was understandably treated with suspicion. Murray Rothbard[1] argued that it violated Mises's "regression theorem," which demonstrated that all money - even government fiat currency - must ultimately derive its purchasing power from a historical tie to a commodity that was valued in a state of barter. However, this objection overlooks the fact that Hayek's proposal does contain an initial link to an underlying asset in order to get off the ground.
Rothbard also objects that not all government functions should be privatized, in particular tax collection, torture of prisoners, and the issuance of fiat currency. The point may be conceded, but Hayek's proposal would certainly be legally permissible in a libertarian society. Even those who consider fractional reserve banking as fraudulent could find no violation of property rights in Hayek's proposal;[2] they would simply have to argue (and a compelling argument it is!) that any firm attempting to circulate its own fiat currency would go bankrupt.
A different problem is that, in the world Hayek envisions, there would be no single money, and hence the benefits of a common medium of exchange would be curtailed. To this I would respond that it is possible that even under a 100 percent commodity standard, some groups use gold, others use silver, and others use cows as a medium of exchange.
Yes, there would be forces tending to promote the emergence of a single money throughout the entire world, but this would not be instantaneous, as conditions differ greatly from region to region. So long as each of the local monies could be freely exchanged against one another, modern currency markets (aided by computers) would significantly reduce the transactions costs involved. By the same token, we cannot say that the benefits of a single money outweigh all other considerations, and that therefore Hayek's system must be rejected.
Another objection (raised by Selgin and White) is that a private "central bank" would, just as its government counterpart, always find it most profitable to hyperinflate. It is true that this would cause the public to abandon the currency, but so what? If 5 Hayeks currently exchange for so many eggs, milk, etc., why not print up two billion of them and buy as many real goods as possible? Surely this one-shot move will earn more than the present discounted value of responsible management of the supply of Hayeks.
This fear overlooks the fact that the Hayeks (in our example) are always legally redeemable for $10 or 80 yuan. That places a floor below which their value cannot sink (without draining the reserves of the issuing firm).
Pete Canning acknowledges this fact and refines the objection by pointing out that, eventually, the government currencies will have depreciated so much that this check will soon be impotent. Ironically, here is where another of the alleged deficiencies - namely the multiplicity of currencies - comes to the rescue. Precisely because each issuing firm will only provide the money held by a fraction of the public, one firm's decision to hyperinflate would not be nearly as disastrous as when a monopoly government does so.
Moreover, if a major firm ever did decide to hyperinflate, the public would demand measures to prevent a recurrence. For example, in addition to pledging to redeem Hayeks at any time for $10 or 80 yuan, our hypothetical firm might also legally pledge, "We will never increase the supply of Hayeks by more than 100 percent per year."[3]
Benefits
Let me close by pointing out some of the overlooked benefits of Hayek's scheme. First, in principle privately issued fiat currencies could prove more stable than even commodity metals in terms of their purchasing power. The whole job of the firm issuing Hayeks (in our example) is to closely monitor the financial markets to fine tune the exchange value of the Hayeks, such that 5 of them always purchase the specified commodity basket at a major grocery store. This is not true when it comes to gold; the exchange rate between gold and the commodity basket would be far more volatile (though of course much more stable than the exchange rate between government currencies and the basket).
Another benefit is that the firms could change the composition of the commodity basket to reflect the preferences of the holders of their monies. For example, some people may not care about the price of eggs and bread, and would prefer a money that had stable purchasing power in terms of a basket of aluminum, platinum, etc. A firm could fill that niche.
Another interesting feature of Hayek's system is that holders of money would themselves reap the advantages of inflation of the currency, rather than the issuing firm. Consider: If the public ever did accept Hayeks (and Lachmanns etc.) as media of exchange, over time the market would increase the production of eggs, butter, etc., and hence there would be a tendency for their Hayek-price to fall. Therefore, in order to maintain the stated purchasing power, the issuing firm would need to print up and distribute additional Hayeks periodically.
Now if the firm were a monopoly, naturally its owners would spend the new Hayeks themselves. But because of competition, the firm can only keep the public using Hayeks if, in addition to the incredibly stable purchasing power, holders of Hayeks receive new units in proportion to their holdings. That is, the firm would have to periodically increase the supply of Hayeks at large in order to maintain a constant purchasing power, but it would need to give the new units to its customers. (An easy way to achieve this would be for the firm to also act as banker and pay dividends on deposits.)
Finally - and I admit this is quite fanciful - suppose that in the distant future, humans develop the Star Trek capacity to reproduce (within limits) any type of physical item. In that case, no commodity could serve as a useful medium of exchange, because people would simply mass produce it at virtually no cost. In such a world, money would probably become mere numbers on computers.
Yes, if governments were expected to responsibly run such a system, all would be lost. But it is at least worth exploring whether a system based on Hayek's ideas could provide sound media of exchange in that futuristic environment.
BENEFITS of TERRA
There are two different types of TERRAs benefits which are
General Benefits
Robust International Standard of Value
Reduces the need for expensive hedging countrmeasures to lower the cost
Enables greater opportunities including investment that to develop countries, by providing stable alternative mechanisms by which to conduct commerce
And it also offers a dependable and cost effective reference mechanism for global trade
Cycle-stabilization - Improving the overall stability and predictability of world's economic system
Terra automatically tends to counteract and fulctuation of a business cycle. Which thereby improve the overall stability and predictability of the world's economic system. When business cycle is weak, corporation customarily will have an excess of inventory and need for credit. The excess inventories will be sold to the TRC alliance who would place the excess inventories into the storage. TRC Alliance would pay for the excess inventories in Terras and provide corporations with a means of payment. These corporations would immediately spend the Terra's, to pay their suppliers, to avoid demurrage charges which will accumulate over time. Suppliers will then have a similar incentive to pass on the demurrage-charged Terras as a medium of payment. The spread of this currecy with its built-in incentive to trade would automatically activate the economy at this point in the cycle. When business is in a high demand period, the demand for goods and services goes up and both suppliers and corporations have increase the needs for inventory. Terra would now be cashed in with the TRC for 2% transaction fee and now need inventories would be taken out of the storage and delivered to the respective commodity markets to obtain the conventional currency required. This will result reduce the amount of Terras in circulation when the business cycle is at its maximum, counteracting an inflationary boom phase.
Terra-denominated exchanges would stabilize the business cycle by providing additional monetary liquidity that counterbalances the pattern observed in the money-creation process of conventional national currencies.
Realignment of Financial Interests with Long-term Concerns
The demurrage feature of the Terra would provide a systematic financial motivation that realigns financial interests with long-term concerns. This is in direct contrast with what happens today with conventional national currencies. The discounted cash flow of conventional national currencies with positive interest rates systematically emphasizes the immediate future at the expense of the long-term. The same discounted cash flow with a demurrage charged currency produces the exact opposite effects. The use of the Terra for planning and contractual purposes will therefore reduce the conflict that currently prevails between the stockholder's financial priorities and the long-term priorities of humanity as a whole.
Specific Benefits
Humanity as a Whole
As long as the business is foccused on short term profits, chances are small that any long-term sustainability is possible. Unavoidable, it will be the humanity as a whole that will end up paying for a failure in sustainable development. The introduction of the Terra with its demurrage functionally makes the long term profitable and therefore, long term sustainability will be much more likely. The bust of the business cycle will decrease creating a more dependable economic enviroment. Which will translate into a reliable job employment opportunites and less job instability. By applying Terra mechanism today, world's major economies are in a downturn is the best timeing for its introduction because the additional economic stimulus would be beneficial to the public.
Multinational Corporations
The advantages Terra offers to corporation included it make it cpossible to convert inventories of illliquid assets such as major raw materials into lique ones. This has a significant advantage that give inventories are otherwise a cost item to busniness. Over time, such storage cost can become substantial. Besides that, it provides working capital at a lower cost than with conventional national currencies. As Terra demurrage fees only for particular user if Terras are not spent. And it makes available to business to increase international standard of value with a consisten value in real terms for international contracts. Therefore no party would lose out because of monetary instability or currency fluctuations. By reducing the need for expensive currency heding and providing a dependable, low cost insurance against uncertainties deriving from international currency markets will end up lower the cost of doing business. It also also a more dependable and cost effective reference mechainsm that conventional corporate barter. Develops new markets and enables greater opportunities by which to conduct global commerce, including investing in developing countries, by providing a stable international currency. This situation has limited the creation of new markets, because entire continents remain too poor to participate in the global marketplace. Last but not least, it saves money and vital resources. Corporations, as a result of the boom and bust business cycle phenomenon, are often under-equipped and looking for qualified staff, or over-equipped and over-staffed. The costs of training people, for example, are considerable (only to then fire them afterwards). Expenses incurred in plant and equipment over-investments or under-investments are also considerable. And, it is well known that political instabilities often occur during, and result from, economic downturns. Such instability is not contributing to a healthy climate for businesses either. The Terra counteracts such downturns.
Benefits to Financial Services and the Banking Sector
There are three main advantages of the Terra mechanism for the banking system:
Currently, the banking system has no role at all in the fast-growing countertrade field. Banks will be able to provide traditional foreign exchange services utilizing the Terras, which can then be converted into any and all other national currencies. They can, as well, provide their customers services such as Terra account management, as they do today with any foreign exchange.
The counter-cyclical impact of the Terra mechanism will stabilize the value of banking loan portfolios. There have been numerous major banking-related crises around the world over the past two decades, in which borrowers can't repay their loans, while the collateral upon which the loans were based depreciates. These conditions are aggravated by the boom/bust cycle and currency fluctuations. Therefore, as the Terra mechanism helps to stabilize economic cycles, the number and severity of crises in bank portfolios would also be reduced.
The task of central banks would also be made a bit easier with the Terra mechanism in play.
Less Developed Countries (LDCs)
The Terra mechanism helps to address these problems and offers two distinct and important benefits to LDCs:
A stable international currency enables greater opportunities by which to conduct commerce and make investments in developing countries. As noted earlier, because of the instability created by floating exchanges, there has been approximately a 33% decrease in investments to Less Developed Countries.
LDCs that produce commodities (i.e., raw materials such as copper that are components in the basket of the Terra) would be in a similar position as any producer member of the TRC Alliance. By virtue of the fact that the Terra is a commodity-backed currency, LDCs would find themselves in a position similar to gold-producing countries during the gold standard days: What they extracted - gold - was in fact directly an internationally convertible currency.
Major Challenge of TERRA
Sustaining a common currency may be more tough that adopting it. Hence Terras face a couple of challenges though. There are four constraints:
Diversity in the level of economic development across countries
It is important to be updated that the importances for the adoption of a common currency among other countries is that relative prices and outputs accross them should have a high co-movement following an economic shock, not so that the levels of income should be more equal across them. If the countries in a monetary union have perfect equality of per capital incomes, and the co-movement of relative prices and outputs across countries are low, conducting a common monetary pilicy fot the union as a whole is going to be tougher.
Weakness in the financial sectior of many countries
It is difficult to have a large centralized budget at the union level to make resources transfer among countries. The greater the mobility of production should reduce the need for large fiscal transfer over the medium to long term. Moreover, the short run labor mobility cannot be relied because to take care of the asymmetric shocks among countries in a currency union. A country specific fiscal policies can be used to face the asymmetric shocks among countries that within union.
Inadequacy of region-level resource pooling mechanisms and institutions required for forming and managing a curreny union
An inadequate mechanisms for regional reserve pooling as well as the absence of regional institutions can also be another sent of problem on monetary cooperation and common currency among the East Asian countries.
Lack of political preconditions for monetary cooperation and a common currency
If the economic advantages of a regional monetary union are large, it is also possible that countries may make political compromises so as to the economic benefits.
Importances of TERRA
Basically, TERRA is useful to be able to quantify the impact of it, in order to measure its effect on specific countries or industry. TERRA is able to make availables to busnesses a robust international standard of value and it also reduces the possibility or seriousness of a global recession by countercyclical on the business cycle. TERRA helps to resolves conflict between longterm sustainability and financial problems.
