A new economic and financial theory of money

TL;DR

This paper proposes a comprehensive reformulation of economic and financial theories to incorporate electronic currencies, emphasizing macroeconomic valuation, system control, and advanced AI methods for risk management and stability.

Contribution

It introduces a novel macroeconomic valuation framework for electronic currencies, integrating multi-scale risk models, system control, and generative AI techniques, contrasting with traditional microeconomic approaches.

Findings

Electronic currencies can be valued based on macroeconomic principles.

System control methods using genAI can stabilize complex sub-economies.

Multi-scale risk models improve decision-making accuracy.

Abstract

This paper fundamentally reformulates economic and financial theory to include electronic currencies. The valuation of the electronic currencies will be based on macroeconomic theory and the fundamental equation of monetary policy, not the microeconomic theory of discounted cash flows. The view of electronic currency as a transactional equity associated with tangible assets of a sub-economy will be developed, in contrast to the view of stock as an equity associated mostly with intangible assets of a sub-economy. The view will be developed of the electronic currency management firm as an entity responsible for coordinated monetary (electronic currency supply and value stabilization) and fiscal (investment and operational) policies of a substantial (for liquidity of the electronic currency) sub-economy. The risk model used in the valuations and the decision-making will not be the ubiquitous, yet inappropriate, exponential risk model that leads to discount rates, but will be multi time scale models that capture the true risk. The decision-making will be approached from the perspective of true systems control based on a system response function given by the multi scale risk model and system controllers that utilize the Deep Reinforcement Learning, Generative Pretrained Transformers, and other methods of Generative Artificial Intelligence (genAI). Finally, the sub-economy will be viewed as a nonlinear complex physical system with both stable equilibriums that are associated with short-term exploitation, and unstable equilibriums that need to be stabilized with active nonlinear control based on the multi scale system response functions and genAI.