A few posts ago, I brought up the possibility that one could create an electric monetary system simply by having a big database with a fixed number of entries. Cash transactions would entail assigning an entry in the database to a new owner.
This program would be similar to the cash in your wallet. You will notice all those crisp hundred dollar bills bear unique serial numbers. (Well, there is only one lonely five dollar bill in my wallet ... that's a different story).
As the entries in the database are fixed, this system would not be subject to the counterfeiting problems of paper money.
I decided that in the Open Source Real Time eXchange that I would have a cash account that was just that, a database of real live cash. If you bought $100 in the cash account, it would point to a specific hundred dollar bill.
Speaking of hundred dollar bills: When I check books into the library, I tell the clerk that I use $100 bills as bookmarks. They know I am lying, but, like clock work, they thumb through the books I check in to see if I left a bookmark.
The cash account brings up an interesting thought experiment:
If I took a billion dollars out of my checking account, put that money in a super safe place under a rock at the bottom of the ocean, then sold shares of that money on the NASDAQ; we could learn a thing or two about the market.
One would think that my billion dollars would be worth a billion dollars. The shares in the IPO would sell for less than a billion dollars because of the transaction cost.
After the IPO, something really strange would happen. People who think they've found an investment that will grow at a rate faster than cash would start shorting my billion dollars. They would short my billion dollar cash account with gusto. The shorting would continue until the shares of the cash account were selling at about have a dollar a piece.
The thought experiment on trading a cash account is important. The value of a cash account should stay closely in line with the cash value of the cash. If traded on the OSTRX, this would happen. A pure cash equity on the NYSE or NASDAQ would be shorted.
This shorting of a cash account has essentially the same effect on the economy as counterfeit currency, it floods the market with bogus paper that pushes down the value of the real paper on the market.
In weighing market regulations, I think the regulators should examine questions like the viability of a billion dollar cash account. If the account isn't viable, then there is something wrong with the regulations.