Chapter 337: Chapter 164: The Alchemist, Part 2

"This is difficult, Arthur." Leo looked at the line. "This means I’ll have to convince the other mayors to switch to a type of scrip that currently only exists in your head."

"I know it’s difficult."

Arthur’s tone remained calm.

"But as your financial architect, I don’t consider the political difficulties of actual implementation. My only responsibility is to design the most sound system."

"Logically speaking, only through this kind of mandatory supply chain lock-in can we give this piece of paper real value. Only when it can be used to buy coal and pay for shipping does it become more than just an IOU."

"Difficulties are meant to be overcome, Mr. Mayor. If we don’t do the right thing just because it’s hard, then what are we experts for?"

Leo didn’t respond.

He just nodded, gesturing for Arthur to continue.

Arthur looked at Leo and continued, "To give this system the true properties of a currency, to make it rock-solid, we need a third anchor—the top-level anchor."

"This will require you to use your administrative authority."

Arthur wrote a word at the top of the pyramid.

Tax.

"You must push for an executive order."

Arthur’s voice echoed in the conference room.

"Announce that the Pittsburgh City Government, and all other city governments in the alliance, will unconditionally accept this ’Accounts Receivable Equity Certificate’ for the payment of local taxes and fees, administrative fines, and public services."

"And, it will be fully deductible at a 1:1 ratio."

The room fell silent.

This was the real clincher.

One of the main reasons a currency becomes a currency is that the government accepts it as a means of paying taxes.

If you can use this paper to pay taxes, then it has the quality of legal tender.

It’s no longer just a worthless piece of paper; it’s an extension of the government’s credit.

"As long as the government recognizes it, it’s money. As long as businesses need to pay taxes, they will need to hold these certificates."

"This forms a perfect closed loop."

"Businesses exchange products for certificates, use the certificates to pay upstream and downstream suppliers, and finally use the certificates to pay taxes to the government. The government then collects the certificates and cancels them."

"In this process, cash is locked up, and liquidity is created."

Leo sat in his chair, his fingers drumming a rhythm on the tabletop.

He stared at the large word "Tax" on the whiteboard, his brow furrowed.

"Arthur, the risks involved are too great."

Leo finally spoke.

"If the government accepts these certificates as tax payments, how do we handle our budget proposals? Our financial statements show revenue in US Dollars, but what we’re actually taking in is a bunch of electronic code."

"I can’t use this code to pay police salaries, nor can I use it to pay taxes to the Federal Government."

"Moreover," Leo’s gaze sharpened, "the most crucial point is, will this violate Federal law?"

"If we define these certificates as being acceptable for tax payments, then in a sense, they acquire the properties of a fiat currency. The Federal Government has an absolute monopoly on the right to mint currency. They won’t allow any local government to issue its own currency to replace the US Dollar."

"Once we’re identified as attempting to establish an independent monetary system, it’s no longer a simple administrative violation. It’s a federal felony, and I could end up rotting in prison."

Leo looked at Arthur.

"You have to give me an explanation that will hold up in court."

"An explanation that will allow me to face a Federal prosecutor’s questions and still say with a straight face that this is not money."

Arthur smiled faintly, as if he had anticipated Leo’s concerns all along.

"That’s why we need those expensive lawyers."

Arthur gestured toward the legal advisors sitting nearby.

"Mr. Mayor, we will not declare in any legal document that this is a currency, nor will we claim it can replace the US Dollar."

"We will use different phrasing."

"Legally, this falls entirely within the scope of a local government’s fiscal autonomy. We have the right to decide whose taxes to waive, and we have the right to decide what forms of deduction to accept."

Arthur paused, as if weighing his next words carefully.

He had originally thought these details were too tedious and technical to bother the Mayor with at this stage, but seeing the probing look in Leo’s eyes, he decided to lay it all out.

"However, Mr. Mayor, there is one department we can’t avoid: the Internal Revenue Service of the United States."

"The IRS won’t care what we call this thing. They only care if it can generate federal tax revenue for them."

Arthur wrote the words "Barter Trade Principle" on the whiteboard.

"According to IRS guidelines, they will treat the exchange of these certificates as a barter transaction. The core rule is that a business must include the fair market value of the goods or services received in its gross income for the year the transaction occurs."

Arthur gave an example: "Let’s say Company A repairs a road for the city government and receives 10,000 US Dollars’ worth of credit notes. In the eyes of the IRS, Company A’s income is now a solid 10,000 US Dollars."

"When Company A uses those 10,000 in notes to buy steel from Company B, the IRS will consider Company B to have sold 10,000 US Dollars’ worth of goods, thus generating 10,000 US Dollars in taxable income for Company B."

"And here’s the problem." Arthur’s voice turned serious. "Although Companies A and B have exchanged things within our closed loop and never saw a single real US Dollar from start to finish, they still have to pay federal income tax to the IRS in US Dollars."