James Leroy Wilson's one-man magazine.

Friday, April 25, 2008

Gasoline as Money

You may have seen this image floating around:

While I'm not crazy about $5 gasoline (unless it's because of taxes, and all other taxes were substantially lower), there's something else about the image that I like: gas as money.

Let's say a consortium of oil companies and gas station chains come out with a gas debit card. Most people expect prices to reach $5/gallon in a couple of years; today, it's $3.50. My vision is that an individual can pre-pay for gas using the debit card at, say, $4/gallon, but your "account" on the debit card will be in gallons of gas, not dollars, so when you swipe the card when getting gas, the number of gallons in your account will decrease.

Why buy gallons using the card? Because if you buy a lot of gallons today, you will have saved money once gas does top $4. You can buy gallons for the card now, but still pay cash for gas now, and only use the card once the pump price exceeds $4. A corporation can buy a million gallons now for $4 for its company vehicles. If gas does reach $5.00, they will have saved something up to a million dollars

But the price of gas on the debit card is not fixed either; once pump prices reach $4, the debit card price of gas might rise to $4.25. The difference is, you can purchase an unlimited amount of gas with the debit card. The sooner you buy and the more you buy, the more you will save.

Here's the next phase: this consortium reaches makes agreements with other businesses and retail outlets so that these debit cards can be used at their stores as well. Prices of other goods do not rise as quickly (or fluctuate) as gasoline does; the bottle of soda at the convenience store that's $1.25 today was probably $1.25 last year and will probably be $1.25 next year as well, even as gas zooms from $2.50 to $4.50 during that time. So it would work this way: each day, the new national average gas price is updated in each store's electronic payment systems. When somebody buys something with a gas debit card, its dollar value is converted to a percentage of the price of gas that day, and the card is deducted that amount of gas.

For simplicity's sake: Let's say a widget is $1. Overnight, the price of gas goes from $3 to $4. You buy the widget with the gas debit card. Yesterday, it would have cost you one-third of a gallon of gas; today, it costs you just one-fourth. The widget seller's own gas account is then credited one-third a gallon of gas.

The more gasoline you already own on the debit card means that the more gas prices rise, the more of other things you can purchase; the "price" in gallons will go down. The gallons of gas on the debit card will serve as an alternative form of money.

Next stage, employers offer to pay a portion of their employee's income in gallons via gas debit card. For instance, an employee could take the option of being paid $80/week less but have 20 gallons added to their gas account. An employee could thus save up gallons for a vacation road trip, when prices will probably be much higher than $4. Or, as gas prices rise, he will have more purchasing power with the gallons on his gas debit card, than he would in dollars.

What would be the advantage to this for the gas stations and oil companies?

If people people rush to buy these gas cards at a higher price than gasoline is today, oil companies will have more cash on hand, enabling them to better secure future supply and production of gasoline. Second, this will help keep prices down, which will actually profit them. If people buy gas at $4, but the pump price never reaches $4, they will make a killing. And if people are not willing to purchase at $4, that price can be lowered.

What advantage would this be for the people?

It guards against inflation. If gas prices go up, they could purchase their goods and services in "gallons" instead of dollars. If gas prices go down, they could purchase other goods and services in dollars - or buy more gas in cash at a lower price.

If there's over-production, gas prices go down. If supplies are limited and prices go through the roof, owners of gas debit cards will see prices of everything else fall.

Perhaps even governments would accept gas gallons as payment for taxes. After all, they use a lot of fuel, too.

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