2.2 Inside vs. Outside Money
“Neither borrower, nor lender be” — William Shakespeare
Short for inside the private sector, inside money is an asset backed by any form of private credit, an “IOU” that circulates as a medium of exchange.
In monetary economics, inside money is money issued by private intermediaries (e.g. commercial banks) in the form of debt. And in today’s economy, most of the circulating money is inside money. This money is typically in the form of demand deposits or other deposits, and hence is part of the money supply. The money, which is an asset of the depositor coincides with a liability of the bank.
Short for outside the private sector, outside money is either of a fiat nature (unbacked) or backed by some asset that is not in zero net supply within the private sector of the economy. Outside money is a net asset for the private sector. Some traditional examples include: paper dollars & coins, Federal Reserve Deposits and Gold.
Whether one is better than the other is a topic of active debate, but there is strong reason to believe that there should optimally be a mix of both. Modern theory continues to ask:
Inside monies intrinsically carry a risk of default. This means that to be feasible, inside monies require continual enforcement, such as from extremely powerful centralized authorities, or strong bilateral commitments.
The Ample does not represent a circulating credit-debt relationship or IOU within any given economy, it is an outside money. The protocol does not maintain balances, does not retake custody of tokens on contraction, and does not issue new tokens through itself or any intermediary upon expansion. Instead, it absorbs nominal exchange rate information and reflects that information as a global coefficient of expansion.