Date: 28th August 2022
New Financial Model proposes to introduce the concept of Future Money (FM), a new financial mechanism that provides consumers with a monetary incentive for purchasing eligible final goods and services while simultaneously creating long-term financial savings. At present, entrepreneurs and businesses use a variety of market-based strategies—such as discounts, advertisements, promotional offers, festival sales, and other marketing programs—to encourage consumption of their products in the short run. Similarly, governments and central banks use fiscal and monetary policy tools—such as government spending, taxation, interest rates, and quantitative easing—to influence aggregate demand and economic activity. The New Financial Model introduces Future Money as an additional mechanism designed to complement these existing market-based and macroeconomic policy tools, to influence present consumption in the short run while simultaneously creating long-term financial savings.
This dual effect is the central innovation of the New Financial Model. By linking present consumption with long-term financial savings, the model seeks to strengthen aggregate demand in the short run while simultaneously creating long-term financial resources that can become available for investment.
Important things for the economic unit implementing the concept:
How it will work: Consumers will get a monetary incentive on buying the eligible final goods/services. When a consumer having a unique consumer number will purchase eligible final goods/services, future money (monetary incentive) will be deposited in his FM account automatically.
The Amount of Future Money will depend upon the FM rate f (% of final goods/services price), minimum-maximum limit/range of which will be decided by the FM council.
For example: Suppose you go to buy a thing. Say the price of that good is $100 and $5 is future money (5% is FM rate). When you buy that thing, you will get the $5 as future money in your future money account.
Important thing in this concept is that this future money will not be available to consumers immediately, but after the retirement or N number of years or time decided by the FM council, market forces as proposed by this model.
Who will deposit the Future money?
Future Money may be deposited into a consumer’s Future Money account by sellers, entrepreneurs, distributors, governments, consumers themselves, or through a shared contribution mechanism among these participants. It is up to seller/entrepreneur/government/consumers to give incentives or not (if no minimum limit is set by regulating authorities). An important question is whether funding Future Money will impose an excessive financial burden on the contributing participants, particularly sellers and entrepreneurs.
However, contributors are not required to deposit the full face value of Future Money immediately. Only its present value must be deposited into the consumer’s FM account, where it will grow at the prevailing interest rate over the maturity period to reach the Future Money amount. The financial implications for each participant will therefore depend on the funding structure, FM rate, prevailing interest rate, and maturity period.
Let’s see example.1 again. Final Goods Price (C): $100, FM rate (f): 5%, N (number of years): 30 years. Future Money (FM) will be = $5
Now this $5 will be available after 30 years, not today. Amount which entrepreneurs/Sellers/Governments/Consumers will deposit in the consumer’s FM account will depend upon N (number of years) and prevailing interest rates. See the amount need to be deposited in the FM account from the below table:
| Table.3. Suppose Final Goods Price: $100, FM rate: 5% So Future Money will be = $5 | |||
|---|---|---|---|
| Future Money | N (number of years) | Interest rates | Required deposit |
| $5 | 15 | 3% | $3.21 |
| $5 | 15 | 6% | $2.09 |
| $5 | 30 | 3% | $2.06 |
| $5 | 15 | 5% | $2.09 |
| $5 | 15 | 10% | $1.2 |
| $5 | 30 | 5% | $1.16 |
| $5 | 20 | 4% | $2.28 |
Important Points from the above table
1. Entrepreneurs/Governments/Consumers do not have to deposit the entire amount of Future Money immediately. Instead, they have to deposit the present value of Future Money in the consumer’s FM account. The present value of Future Money depends on the prevailing interest rate and the number of years until maturity and is calculated using the following formula:
Future Money (FM) = Present Value of FM * (1 + r) ^ N
Present Value of FM = FM / (1 + r) ^ N
Where Future Money = Final Price of Goods (C) * FM Rate (f)
So, Present Value of FM = C * f / (1 + r) ^ N ----- [Equation (1)]
2. Future Money will not be available to consumers immediately but after the number of years. The table also shows that, holding other variables constant, an increase in either the interest rate or the number of years reduces the present amount required to fund a given Future Money claim.
So above is the Concept of Future Money. Using this concept, New Financial Model is introducing following new things:
New Financial Tool: Future Money which will help central banks, corporates, governments manage aggregate demand & ensure the sustainable economic growth which is important for the employment generation. (Read chapter 7th, 8th and 9th of New Financial Model for detail)
New Universal Pension System: which will ensure is Old age security.
New Income-Output Equation: The New Financial Model proposes an important change in the relationship between consumption, saving, investment, income and output. In new Income-Output equation, income of $100 at individual level generates output of more than $100 at aggregate level. Because of the consumption multiplier, more value is being added on both sides: consumption as well as investment in the economic unit.
For detail, you can download New Financial Model from the below link
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