Water Rewards — Information Rich Money
“Finance — the world’s more inefficient industry” outlines the cost reductions available by moving from low information money to high information money. Water Rewards is high information money.
Governments often fund large-scale water infrastructure development with long-term loans. Rather than using long-term loans water infrastructure could be financed with pre-payments of water where investors received a return on investment by using the pre-payments to purchase water at a discount. This approach eliminates the cost of interest and so provides investors with a higher return than regular government loans.
ACT Water Rewards Co-op Proposal
The ACT Water Rewards Co-op is an example of how to implement this lower-cost approach to financing with information rich money. At the time of writing ICON Water have not endorsed the proposal.
Using the approach investors will get a 10% fixed return on the inflation adjusted initial unclaimed capital. It is an attractive investment and is in limited supply. Only members of the Co-op will receive free Rights to purchase Water Rewards. Customers who consume less water get more Rights to purchase Water Rewards. Those who conserve water get rewarded with more Rights hence the name Water Rewards.
In the ACT a Water Rewards Co-operative will administer the allocation of Rights and the purchase and use of Water Rewards. The Co-op decides the rules for the issuing of Rights. ICONWater is the name of the ACT Government Water Authority. Any customer of ICONWater can apply for membership of the Co-op. They receive a personal copy of the Water Rewards app containing the Co-op rules, the Water Rewards rules, and a history of their transactions. Click here to see a mockup of the application.
The ACT government can use the system to repay existing loans of $1.5 Billion dollars and remove 70Million in interest charges from the community. The price of water stays the same and the reduced income from the discount occurs when customers use Water Rewards. Because the government can issue more Water Rewards to upgrade its infrastructure, there is no need to provide for depreciation.
The ACT Government is 100% owner of ICONWater. The Co-op pays for the infrastructure and operation of Water Rewards from a fee on money transfers.
The customers of ICONWater pay the same for water, but they receive Rights to buy Water Rewards. At the present interest rates on long-term money, a discount rate of 10% makes the free Rights approximately the same value as the purchased Water Rewards.
Customers receive $1.5 Billion in Water Rights, and ICONWater increases its profits by 70 million each year. The ACT government debt has reduced by $1.5B. The infrastructure assets of ICONWater are greater than $1.5B, and so the ACT government can raise further funds via Water Rewards to spend on other investments such as hospitals, roads, renewable energy, or schools.
Customers Financing Infrastructure
The ACT Water Rewards Co-op will use an old approach to financing infrastructure. Water Rewards earned by consumers must be used to purchase future water or to invest in water savings or in other ways to supply water.
It is the way societies have traditionally funded community resources by raising funds from the community. The approach has fallen out of favour because suppliers of finance can earn more money through other financial instruments. The objective of financial instruments is to return the greatest amount of money for the least cost. The approach leads inevitably to increased prices because that is the simplest way to increase the amount of money earned. More money is not the same as the greatest amount of value for a community for the least cost. By communities going back to self-financing water infrastructure, they can raise as much money as they need for water infrastructure without going into debt. Self-financing saves the community the cost of interest or capital gains or dividends paid to external parties.
The article High Cost Money expands on the idea.