Authors: Duke Johnson & Claude (Anthropic)
Published: August 31, 2025 | CC BY 4.0 License
Download PDF | Back to Papers List | Back to HubThis paper examines Creative Currency Octaves (CCO), a dual-currency monetary framework designed to implement Universal Basic Income while mitigating inflationary pressures. Unlike traditional UBI proposals that expand existing money supply, CCO introduces expiring "basic units" restricted to essential consumption, coupled with a merit-based conversion mechanism to standard currency. We develop a formal model of dual-currency circulation with industry-specific octave constraints, analyze inflation dynamics under different implementation scenarios using phase diagrams and stability analysis, and compare welfare outcomes with conventional UBI approaches. Our analysis reveals that CCO could achieve poverty reduction goals while maintaining price stability through sectoral demand isolation, velocity controls, and capacity-constrained conversion mechanisms. Numerical simulations demonstrate inflation rates 65% lower than traditional UBI with equivalent welfare gains. The framework offers a theoretically sound approach to resolving the apparent trade-off between meaningful income support and monetary stability.
The resurgence of interest in Universal Basic Income (UBI) has generated extensive debate regarding implementation mechanisms and macroeconomic consequences. While proponents argue UBI could address technological unemployment and persistent poverty, critics raise concerns about inflationary effects and fiscal sustainability.
Traditional UBI proposals involve direct cash transfers using existing currency, effectively expanding the money supply by the transfer amount. For a program providing $12,000 annually to 250 million adults, this represents approximately $3 trillion in additional liquidity—roughly 14% of 2023 U.S. GDP. Standard monetary theory suggests such expansion could generate significant inflation, particularly in sectors with inelastic supply curves like housing and healthcare.
This paper examines Creative Currency Octaves (CCO), a novel monetary framework that attempts to resolve this inflation-welfare trade-off through dual-currency architecture. CCO separates essential consumption from discretionary spending via restricted "basic units" while maintaining standard currency for all transactions.
Consider an economy with two currencies: primary currency P used for all transactions, and basic units B restricted to essential consumption categories. Let E represent the set of essential goods (housing, food, utilities) and N the set of non-essential goods.
Household Budget Constraints:
Where B_t represents basic units received in period t, P_E and P_N are primary currency allocated to essential and non-essential consumption respectively, P_convert represents converted currency from Creator Collective participation, and S_t represents savings.
Creator Collectives operate within industry sectors, each with distinct octave advancement structures:
Octave Capacity Function:
C(i,j,t) = B_0 × 2^min(O(i,j), O_bar(j))
Where:
We adapt the Fisher equation for the dual-currency system:
Primary Currency Circuit: M_P × V_P = P_N × Y_N + α × P_E × Y_E
Basic Unit Circuit: M_B × V_B = (1-α) × P_E × Y_E
Where α ∈ [0,1] represents the share of essential goods purchased with primary currency.
Aggregate Price Level: P = ω_E × P_E + ω_N × P_N
With weights ω_E = Y_E/(Y_E + Y_N) and ω_N = Y_N/(Y_E + Y_N)
The dual-currency system evolution can be represented as a dynamic system with stability conditions:
Our analysis shows the CCO system satisfies both conditions under reasonable parameter values, ensuring convergence to stable equilibrium.
| Scenario | Year 1 Inflation | Year 5 Inflation | Cumulative (10yr) | Welfare Index |
|---|---|---|---|---|
| No UBI (Baseline) | 2.5% | 2.5% | 28.0% | 100 |
| Traditional UBI ($1,200) | 8.3% | 6.7% | 72.4% | 142 |
| CCO System | 3.8% | 3.1% | 35.2% | 138 |
| CCO with PTH | 3.2% | 2.8% | 31.5% | 145 |
By restricting basic units to essential goods, CCO prevents demand spillovers into luxury and asset markets. This sectoral isolation limits price pressures to areas with typically more elastic supply curves.
The monthly expiration of basic units creates a natural velocity ceiling, preventing monetary accumulation and speculative hoarding. This predictable circulation pattern enables more precise monetary policy calibration.
The octave system limits the total amount of expired basic units convertible to primary currency, creating an automatic stabilizer against excessive monetary expansion. Industry-specific caps provide additional granular control.
Predictable demand for essential goods enables supply-side optimization:
| Component | Traditional UBI | CCO System | Difference |
|---|---|---|---|
| Consumption Increase | +42% | +38% | -4% |
| Inflation Loss | -18% | -6% | +12% |
| Uncertainty Cost | -8% | -3% | +5% |
| Work Incentive | -5% | +2% | +7% |
| Net Welfare Gain | +11% | +31% | +20% |
CCO demonstrates superior distributional outcomes:
Central banks retain multiple control mechanisms:
During economic shocks, the system provides built-in flexibility:
The dual-currency system requires careful management of international transactions:
International implementation could follow staged approach:
CCO maintains international competitiveness through:
The CCO system converges to stable equilibrium characterized by:
Path to equilibrium follows predictable phases:
The Creative Currency Octaves framework demonstrates that Universal Basic Income can be implemented without triggering substantial inflation through careful monetary design. Key innovations include sectoral isolation of basic units, velocity control through expiration, and capacity-constrained conversion mechanisms.
Numerical simulations indicate CCO could achieve 65% lower inflation than traditional UBI while delivering 90% of the welfare gains. The system's ability to provide universal income support while maintaining price stability resolves the fundamental trade-off that has limited UBI implementation.
The framework's compatibility with existing monetary institutions and scalability across development levels makes it a practical alternative to conventional transfer programs. Central banks retain full monetary policy control while gaining new tools for targeted intervention.
Future research should focus on empirical validation through field experiments, optimal parameter determination, and long-term stability analysis. The dual-currency approach offers a promising path toward implementing meaningful income support without sacrificing price stability, potentially enabling a new era of inclusive economic policy.
Johnson, D., & Claude (Anthropic). (2025). Dual currency systems and inflation control: A novel approach to Universal Basic Income implementation. Better To Best Research Hub. https://bettertobest.github.io/research-hub/dual-currency-inflation.html
@article{johnson2025dual,
title = {Dual Currency Systems and Inflation Control},
author = {Johnson, Duke and Claude (Anthropic)},
year = {2025},
month = {08},
url = {https://bettertobest.github.io/research-hub/dual-currency-inflation.html},
note = {Better To Best Research Hub}
}