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The e-Fiat Story: From the Physical Cheque to the Digital IOU.

I present to you the following scenario.

Day 1: Single IOU

Let’s say you walk into your bank in America and present $ 100,000 to the bank, and ask them to make a Cashier’s Cheque for you. No problem they say! The teller types one up, and charges you $ 10 extra for it and then ask you:

Sir, what beneficiary name would you like on your cashier’s cheque?

No name. Please leave it blank” you say.

Sorry Sir, I need a name. I cannot leave it blank!” the Teller replies back.

Sure you can. There is no law that says there has to be a name on it right now? is it? Ask your manager and he (or she) will confirm!” you reply back with confidence.

So the teller walks over to the Manager who walks in. The Manager is a very seasoned banker and she asks you…

Sir, do you know if I offer a blank cashier’s cheque to you, anyone, and I mean anyone who walks in with a valid ID and the name that is scribbled where the beneficiary’s name is – I will have to cash the cheque. Regardless! Do you understand that?” she quizzes you!

Yes, I do! and that is exactly what I want,” you reply back.

Okay! In that case, please sign the indemnification here, and I will have it issued to you, and oh, we will charge an extra $ 15 for it”.

No problem!” you reply back, as you sign the indemnification document.

You walk out of the branch that day! Smiling. You are holding in your hand what is essentially a bearer financial instrument. Whomsoever holds it  – holds the money.

The Manager is thinking, what a weirdo! Roaming about with an open-ended IOU of the bank. Anyone who gets a hand on that piece of paper and scribbles their name on it – gets the money! Even if the instrument is stolen or lost – whomsoever brings it in, this bank will cash it! and only this bank can cash it in.

But no worries. They are covered by the indemnity and they have the $ 100,000 with them anyways.

Day 2: More IOUs Please…

You walk back into the bank branch, the Teller is mildly surprised to see you back here again…

How may I help you sir?” she says with a smile!

Well, you know the cashier’s cheque I made yesterday, for a $ 100,000 with no name on it?

Yes, of course! Would you like to change it? Perhaps with a name on it this time?” she says with a tad bit of sarcasm!

Nope. I’m quite happy with that!” You deposit another $ 100,000 on the counter and tell the Teller “I would like TEN cashier’s cheques for $ 10,000 each. Beneficiary details to be left blank

Let me get this straight. Same deal as yesterday, except 10 cheques, for $ 10,000 each, beneficiary details to be left blank?” says the Teller with a slightly confused look.

Yes!” you reply!

I need to call the Manager for this again!” she replies and turns away to call the Manager.

Whilst walking back to the counter she quickly updates the Manager with your request.

So,” says the Manager, “If I read you correct, you want 10 cheques, for $ 10,000 each, beneficiary details to be left blank? Correct?

Yes!” you reply back with confidence.

Okay! Your money! We will charge $ 150 for this arrangement!” she says and you quickly reply back “Fine!

Half an hour later, you’ve signed the indemnification document, and are holding 10 cashier’s cheques, IOUs essentially,  for $ 10,000 each.

The bank, on the other hand, was very happy to take your $ 150 and the $ 100,000. Easy income!

Day 3: Pandemonium

You walk in the branch and this time, both the Teller and the Bank Manager happen to be next to each other when they see you enter the bank. Their eyes following your every step as you slowly come closer.

You approach the counter and plunk $ 100,000 in deposit and say…

Hello, ladies. I would like a repeat of yesterday. Except for one slight change. I would like 100,000 cheques of $ 1 each” you say without breaking a sweat.

Jaws drop and both the ladies raise their eyebrows and say in unison “Excuse me!

I would like 100,000 cheques and…”  you are then interrupted by the Manager “Yes! I heard you the first time around —— but I am afraid that is impossible!” she says.

Why?” you ask.

Because there is no way we can give you 100,000 cheques today. I don’t even think the entire county has 100,000 cashier cheques.

The teller quick on the calculator then says… “Just to type them up would take what, 2 minutes per cheque, 200,000 minutes???? — what is that?

138 or so days, working 24/7!” you reply back.

Okay! Break!

Reflect on what has just happened.

What seemed like a normal day on Day 1, turns into somewhat of an impossible day on Day 3. The issue at hand here is the physical nature of the financial instrument.

Had the gentlemen asked for 200,000 cheques for 50 cents each, the problem would have worsened.

If you had asked the branch manager if it was possible to get a sub-account opened in the bank  with $ 100,000 transferred to it – it was not an issue. The only issue would be the sub-account in their core banking software would have to belong to someone?

But let us assume that was not an issue. Let us assume that there was a way for the bank to issue an electronic cashier’s cheque. Then the only thing standing in our way between one cheque worth $ 100,000 and 100,000 cheques for a $ 1 each.

Quantity processing issue.

Assuming that the bank can issue an electronic IOU, instantly, now if we want one for US$1 or 10 cents or $10,000 – that is immaterial. It can be done.

The electronic IOU can only be exchanged at the bank. Not any bank, just this bank.

De-Tethering the IOU

Even if the bank issues a ‘digital’ IOU, it exists in the bank’s core banking system only. It is tethered to their computer system and cannot be freely traded or exchanged.

Imagine if I walked up to the bank and said, listen, let us, the Bank and I, agree on a system that the bank is not only comfortable with, but also has full tracking capabilities, etc. and with that in mind, let us de-tether the IOU and make it available like a digital coin or more correctly, a trackable digital coin.

The bank at all times has:

– Access to the total number of coins in circulation
– Complete access to who and whom exchanged/traded the coin
– Complete KYC of the coin holders
– Only the bank can cash the coins out
– Bank earns a fixed income on all the buys/Sells
– The coins are backed by 100% deposit that the bank is holding at all times (on which it earns float income)
– There is no counter-party risk or default, as the tokens are traded on a closed loop system.

This is essentially what a Stable Coin is. It is a digital cryptocurrency, that is based 1-to-1 with a real-world fiat asset.


The fact that a physical IOU (cashier’s cheque) can easily be issued by the bank in Physical form and can be traded with relative anonymity by anyone holding the physical instrument is nothing new to the banking system. It has been a regular occurrence since the early days of banking itself. A bearer instrument simply denotes, whoever is the bearer (carrying) of the instrument is the owner of it and can redeem it.

Between the issuance and cashing out of the instrument, it can exchange hands many, many times (just like cash) and the bank would have no transactional knowledge/data about what was happening with the instrument.

The only two entities that are known to the bank is the entity to which it was issued and the entity that will cash it out (both could be the same as well).

Everything in between is not recorded nor privy to the bank.

When a digital token is issued, the same can be said of it. It behaves no different from the physical token. The only exception here is that with the digital token, we can indeed keep an audit trail of where the token has moved (in and out of wallets) from the date of issuance to the date of cashing out.

Hence, digital IOUs are inherently more secure and traceable than cash, bearer or semi-bearer financial instruments. All that is required is for banks to understand this fundamental difference and embrace eFiat issuance rather than be afraid of it.

In the next article (Trading with Digital IOUs), I will discuss how Digital IOUs can be traded around the world in a secure fashion and why they are necessary for our growing digital economies.

This page was last updated on September 1, 2022.