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G l o s s a r y

August 29, 2005

accrued-interest-only (AIO): 1. One of the secondary payment streams on the inflation-indexed instruments, which represents the inflationary adjustment on the accrued principal (or RPO strip). 2. One of two payment streams that are stripped from the RPO payment stream, the other being the NPO payment stream. 3. The payment stream that is stripped off and sold to provide a monthly cash payment stream for the present value assets, thereby enhancing their value. 4. The payment stream, along with the RIO payment stream, which the Internal Revenue Service currently deems taxable to taxpayers.

accrued principal: 1..The term used by the U.S. Treasury to represent both the nominal par value of the TIPS, plus the inflationary adjustment. 2. The amount on which the Treasury pays the real rate of interest semi-annually on the TIPS. 3. The amount which the Treasury adjusts for inflation daily, and pays at maturity along with the par value of the TIPS. 4. The RPO payment stream.

AIO: See: accrued-interest-only.

bad money: See: Gresham’s Law.

barter: The trade of goods and services without money. When money is used the transaction is typically called a sale. Barter, usually associated with primitive societies, can be used in complex societies when inflation becomes uncontrollable. When participants in the marketplace lose confidence in their currency, or monetary system, barter can become commonplace. In international trade, barter can occur when government-issued currencies are found to be unacceptable by the parties, due to their weak or shifting purchasing power.

base-line-date : 1. The date on which one real monetary unit equals one nominal monetary unit (typically the government-issued fiat monetary unit.) Inflation (or deflation) is then tracked from this date, using the inflation index, to give us an inflationary adjustment factor. 2. Just as physicists can find no center of the universe, there is no specific date upon which a real monetary unit must equal the nominal monetary unit. Therefore, the issuer of a real financial instrument, such as the TIPS, typically selects the date the instrument is issued as the base-line-date. As an example, each of the 17 TIPS series (or due dates) has a different base-line-date, when the accrued principal value equals the par value (i.e. no inflationary adjustment has taken place yet.) This means that every TIPS series has a different inflationary adjustment factor, since it has by definition a different real monetary unit. (The U.S. Treasury does not reference a real monetary unit per se; yet, it is implied by the mathematical formula for the indexed ratio. The indexed ratio is simply an inflationary adjustment factor.) 3. One of the benefits, of the master real currency (MR$) unit, is that every real financial instrument with a different base-line-date can then be traded in the MR$ unit; since all of the real monetary units with different inflationary adjustment factors can be indexed to the base-line-date of the MR$. 4. The base-line-date of the Millennium Dollar is January 1st, 2000.

best efforts: When one party agrees to do its best, when undertaking a task for another party. When the promise-to-conserve is made upon the issuance of the private currency, it depends upon many factors that may be beyond the control of the issuer and sponsor, such as the performance of the inflation-adjusted assets supporting the private currency. Hence, the promise-to-conserve is made on a best-efforts basis. As an example, the issuer, and the sponsor, would not be in a position to cover any major default by the U.S. Treasury on the TIPS; which may then adversely affect the promise-to-conserve the purchasing power of the private currency backed by the TIPS.

BLD: See: base-line-date.

BLS: See: Bureau of Labor Statistics.

Bureau of Labor Statistics: An agency of the U.S. Department of Labor, which tabulates the CPI-U monthly. The BLS has been tabulating inflation indexes since 1913.

capitalization rate: 1. The rate used in a present value analysis to determine the value of a payment stream. The capitalization rate is used along with the number of periods, payment per period and future value of the payment stream to calculate the present value. 2. If we create a private currency, that is designed to hold a constant level of purchasing power over time; then we would use the rate of inflation (or deflation) as the capitalization rate to confirm that the present value of the assets securing the currency are equal to the indexed value of the currency issued and outstanding. We call this the present value test.

cash investments: Investments with a term of 12 months or less. Some of the assets backing the issuance of the private currency will be cash assets. This is necessary for a number of reasons. First, there will be a continuous stream of USD coming into the sponsor as the MR$ notes are sold. This cash will be pooled, until the proper present value assets can be purchased. Secondly, the sponsor will be offering monetary conversion services to convert MR$ into USD. While the sponsor has the right to hypothecate the present value assets to fund the monetary conversion services, it may be more cost efficient to simply use the recent cash obtained in the sale of the MR$ notes to perform monetary conversions. Finally, the sponsor may invest in some cash investments for the purpose of greater liquidity and/or to encourage the broader use of the MR$ notes. As an example, the company may purchase bank certificates of deposit to encourage banks to issue loans, and other services, in real terms. Nonetheless, the sponsor is required to make up any shortfall in the inflationary adjustment on the cash investments to meet the present value test. The sponsor is also liable for any default on the cash investments; whereas, it is not responsible for any default on the non-cash inflation-indexed assets. See: non-recourse.

concept of whole numbers: 1. When using arithmetic, each successive integer (0, 1, 2, 3 . . . etc.) must represent one additional whole unit without which we lose the ability to add, subtract, divide and multiply; which is to say, we lose the ability to count. The foundation of arithmetic, which is the foundation of mathematics; which is the language of science. When the monetary unit on our nominal currency note violates the concept of whole numbers, economics fails as a predictive science; as participants in the marketplace lose the ability to account for the purchasing power of their money over time. When this happens; it forces everyone to trade for position each day, eschewing long-term financial and economic planning. In the process, the stream of data flowing from the marketplace becomes unpredictable, and economics as a predictive science is forfeited.

Consumer Price Index for All Urban Consumers: 1. An inflation index tabulated monthly by the Bureau of  Labor Statistics, as an agency of the U.S. Department of Labor. 2. The inflation index used to index the Millennium Dollar^®, as a private currency, to the purchasing power of the USD. 3. The inflation index used by the U.S. Treasury to index the accrued principal of the TIPS to the purchasing power of the USD. 4. The inflation index that will be used by all inflation-adjusted assets use to secure the issuance of the Millennium Dollar^®. 5. Recently, the BLS has been releasing the CPI-U index on the 22^nd day of each month for the preceding month. It may be obtained at: http://data.bls.gov/cgi-bin/surveymost?cu. Simply check the box at the top of the list for: U.S. All items, 1982-84=100 - CUUR0000SA0; then click the Retrieve data button at the bottom of the page. If desired, the CPI-U index can be obtained back to 1913.

CPI-U: See: Consumer Price Index for All Urban Consumers.

currency exchange rate: The rate of exchange of one currency for another in a monetary conversion; which may be fixed, or may float, in the marketplace. This should not be confused with the indexed value of the private currency, which measures the ratio of the purchasing power of the private currency to the government-issued currency. As such, the indexed value of the MR$ may be $1.15, but the floating currency exchange rate for USD may be $1.10. While we ask the merchant to accept the MR$ at $1.15 for the purchase of goods and services, we might also agree to convert the MR$ for $1.10 in the government-issued currency. The difference, between the currency exchange rate and the indexed value, then provides the currency exchanger a financial incentive to provide the monetary conversion service; thereby compensating him, or her, for holding USD to meet the monetary conversion request.

demurrage charge: As used herein, a charge made by the sponsor to spur the use of the Millennium Dollars^® in commerce. The demurrage charge would be announced in advance, thereby encouraging people to spend their MR$ before the payment of the charge comes due. In effect, this is meant to be a counterweight to Gresham’s Law, where people may be hoarding the private currency as “good money” that holds its value better than the government-issued currency. Such hoarding is not good for society, since it reduces employment, as well as reducing trade and tax revenues. In addition, the sponsor requires a certain volume of monetary conversions in order to fund the operating costs of the liquid-payment market, which preserves the present value of the assets securing the issuance of the private currency. By spurring trade in MR$, monetary conversions would presumably increase. If the announcement of the demurrage charge has the desired effect of spurring trade, then the charge itself could be waived by the sponsor before it comes due.

dual currency: A situation whereby, two currencies are circulating in a marketplace at the same time; such as the USD and the MR$. A dual currency situation, according to Gresham’s Law, can give rise to a situation whereby the “good money” is hoarded and the “bad money” is spent. This implies substantial demand for the good money, but may adversely affect trade. See: demurrage charge.

fiat currency: 1. Any currency that is issued at-will without any asset-backing whatsoever. Today, every government-issued currency in the world is a fiat currency. 2. Nominal currency.

good money: See: Gresham’s Law.

Gresham’s Law: The response of Sir Thomas Gresham, master of the mint, to Queen Elizabeth I, who asked about the desirability of a dual currency situation. Gresham’s response was: “Bad money drives good money out of the marketplace.” As a merchant, Gresham observed that merchants might accept both the good money (such as gold coins) along with the bad money (such as a paper currency) during the course of the day. However, that night, the merchant would then hoard the good money, since it held its value better; while using the bad money to give change to his customers the next day. Hence, the bad money drives out the good. Gresham’s Law implies substantial demand for our private currency, but this can also create some problems. See: demurrage charge.

IAF: See: Inflationary Adjustment Factor.

indexed ratio: See: inflationary adjustment factor.

indexed value: 1. The ratio of the purchasing power of the Millennium Dollar^® to the U.S. dollar, which is tracked by the percentage change in the inflation index from the base-line-date. If the indexed value of the MR$ is $1.15, then it would take 1.15 USD to purchase the same a quantity of goods and services as 1.00 MR$. 2. The value at which merchants are asked to accept the MR$ for the sale of goods and services. 3. Please note: the indexed value is different than the currency exchange rate. See: currency exchange rate.

inflationary adjustment factor (IAF): 1. One plus the percentage change in the inflation index from the base-line-date. 2. The conversion factor used to convert MR$ into USD, such that MR$ x IAF = USD. 3. The inverse factor by which USD can be converted into MR$, such that USD/IAF = MR$. 4. The IAF is meant to express the relative purchasing power values of these currencies, which should not be confused with the currency exchange rate. See: currency exchange rate. 5. The indexed ratio; which is the term used by the U.S. Treasury for the TIPS, instead of inflationary adjustment factor.

inflation index: 1. The index used by the private currency to measure inflation and deflation, which is the same index used by the TIPS. 2. The Consumer Price Index for All Urban Consumers, which is tabulated by the Bureau of Labor Statistics.

issuer: Virtualmoney, Inc., a Minnesota corporation.

liquid-payment market: A private market created by the sponsor, using patent-pending technology; which permits it to strip off and sell the inflationary adjustment (or AIO strip) on the assets securing the issuance of the private currency. The liquid-payment market changes the characteristics of the assets by altering their cash flow, which enhances their value; thereby permitting the sponsor to meet its promise-to-conserve.

medium of exchange: See: money.

Millennium Dollar^®: 1. The private currency indexed to the USD on January 1^st, 2000, and then secured by assets on a present value basis. 2. The private currency issued by VMC and sponsored by RMRI.

monetary conversion: 1. The conversion of one currency into another currency (such as MR$ into USD), which is optional between the parties. 2. One of three options of the MR$ recipient (i.e. to convert to USD, to pay creditors in MR$ or to hold as a store of value.)

monetary redemption: 1. When a payment instrument is issued, such as a check, money order or credit card receipt, the contractual act of redeeming the payment instrument in USD. 2. At one time, currencies were issued as a promise-to-pay, which meant that the currency could be redeemed on demand; typically in gold or silver. Today, there is not a single government-issued currency in the world that is redeemable in anything; except for some, that may be redeemed in other non-redeemable currencies. 3. The Millennium Dollar^® is not issued as a promise-to-pay, but as a promise-to-conserve; hence there is no obligation by the issuer or the sponsor to redeem the MR$ in USD. However, MR$ holders may request a monetary conversion of the MR$ notes into USD at the prevailing currency exchange rate; which the sponsor may provide, if it deems that such an activity would not adversely affect its ability to meet the promise-to-conserve.

monetary unit: 1. The integer printed on the paper currency note. 2. The only part of the original currency note that survives, when we use paper, plastic, electronic and other forms of monetary equivalents to transmit or record money. 3. The only part of the original currency note that survives, when we create financial instruments such as mortgages, bonds, etc. 4. In the nominal monetary system, the vector that carries inflation (and deflation) throughout our monetary system, when it violates the concept of whole numbers by representing less (inflation) or more (deflation) purchasing power over time. 5. In the real monetary system, a real, constant or whole unit of purchasing power, which is adjusted for inflation and deflation over time.

money: 1. Money has been defined in many different ways, but it generally serves three primary functions; including as a medium or exchange, a unit of account and a store of value. 2. When the monetary unit on the currency note violates the concept of whole numbers, then the primary functions of money are destroyed, as we begin to lose the ability to count. 3. An abstract representation of purchasing power, which may be represented in many different forms.

money transmitter: One who transmits money from one party to another; such as Western Union, or the U.S. Post Office when it issues money orders. Initially, neither the sponsor nor the issuer, will function as a money transmitter, which is an activity involving three parties. (The sale of the private currency to the buyer is a two party transaction, which does not involve any subsequent monetary redemption.) At such time as the sponsor, or the issuer, elects to engage in monetary transmissions, then the money transmitter licenses will be applied for as deemed appropriate.

MR$: 1. This term was originally created to symbolize the master real monetary unit, to which other real monetary units with varying base-line-dates (and different inflationary adjustment factors) could then be indexed. 2. When the private currency’s real monetary unit was created; the “MR$” symbol was used by the private currency to represent the Millennium Dollar^®, since it is meant to be a master real currency unit. See: Millennium Dollar^®.

nominal: 1. Any monetary unit, currency, interest rate (yield) or other financial instrument, that is not adjusted for inflation and deflation. 2. The opposite of real.

nominal monetary system: A monetary system that uses fiat currencies. The United States, and global, monetary systems are currently nominal monetary systems.

nominal-principal-only (NPO): 1. One of the secondary payment streams, which is included in the real-principal-only payment stream. 2. The payment stream representing the par value, or the nominal amount paid for the instrument upon its original issuance. With bonds, such as the TIPS, the nominal-principal-only is paid when the bond reached maturity. 3. Part of the accrued principal, along with the inflationary adjustment (or AIO payment stream).

non-polynomial (NP): See: P = NP?.

non-recourse: 1. When the only recourse of the holder of a financial instrument is to accept the assets securing the instrument in the event of a default. This is in lieu of any right to seek legal compensation from the other party. 2. The securities, issued by the Real Monetary Reserve, Inc. to Virtualmoney, Inc. in return for the original issuance of the private currency, are issued on a non-recourse basis with respect to the inflation-indexed assets. As an example, the initial inflation-indexed (or non-cash) assets, backing the private currency, will be the TIPS RPO strips. If the U.S. Treasury should default on the TIPS, Real Monetary Reserve, Inc. would not be liable to either Virtualmoney, Inc. or the holders of the MR$ notes. Please note that this non-recourse clause will not apply to the cash investments, which may also be securing the issuance of the private currency. Real Monetary Reserve, Inc. is responsible for the performance of the cash investments.

NP: See: non-polynomial.

NPO: See: nominal-principal-only.

P: See: polynomial (P).

P = NP?: 1. A class of mathematical problems deemed virtually unsolvable; whereby “P” represents polynomial time, or the time we have to complete the problem; and “NP” represents non-polynomial time; or a period of time far greater than P time. P = NP? problems typically arise when there is a relatively simple task, such as stripping the AIO strip from the NPO strip for a given period; but the number of such tasks that must be completed to solve the problem is an NP time period. The challenge in solving a P = NP? problem is simply, can you resolve an NP problem in P time; which is to say, can you make P = NP? 2. The stripping problem is a P = NP? problem, since the monthly stripping over 20 years would double with each period rising to 4.4 x 10⁷¹ strippings in the final period alone for each initial instrument being stripped. The stripping problem has been resolved with patent-pending software; thereby allowing the sponsor to strip off the AIO strips to enhance the value of the assets on a present value basis to match the indexed value of the MR$ notes issued and outstanding. Without resolving the stripping problem, the sponsor could not offer the private currency as a promise-to-conserve, while covering its expenses and earning a reasonable profit at the same time.

payment instrument: A financial instrument, such as a check, credit card, debit card, traveler’s check, money order, etc.; which transmits money (typically USD) from one party to another through an intermediary such as a bank or a money service business. (A currency, such as the USD or the MR$, is not a payment instrument; but constitutes monetary payment upon receipt without the assistance of a third party.)

per diem: Each month the MR$ notes are adjusted for inflation by the percentage change in the Reference CPI-U. This percentage change is then prorated over the number of days in the given month, which then accrues with each additional day of the month. This daily adjustment is called the per diem.

polynomial time: See: P = NP?.

present value: Today’s value of a future payment stream, based upon a capitalization rate. If one wishes to earn 5% on a payment stream; then by using a 5% capitalization rate along with the number of periods, payment per period and future value of the payment stream; one can calculate the present value of that payment stream; or what one should pay for that payment stream to earn 5%. When we want to design a private currency, that holds a constant level of purchasing power over time; then we would use the rate of inflation (or deflation) to determine the present value of the assets that must secure the issuance of the currency.

present value assets: 1. The assets that will be tested on a present value basis to determine whether they match the indexed value of the indexed value of the Millennium Dollars^® issued and outstanding. 2. The TIPS RPO strips and cash investments. 3. Eventually, the RPO strips of other inflation-indexed investments used to secure the issuance of the private currency.

present value test: 1. A mathematical analysis, using the rate of inflation (or deflation) as the capitalization rate; that tests whether today’s value, of the assets securing the issuance of the private currency, equals today’s indexed value of the currency. 2. The annual audit on the present value assets, and the MR$ notes issued and outstanding; which confirms, or denies, that the private currency has met its promise-to-conserve the purchasing power of the currency holder’s capital.

private currency: 1. Any currency that is issued by the private sector, as opposed to being issued by the government. 2. Private currencies are legal in the United States, and most other countries around the world; provided that, they do not misrepresent themselves as the government-issued currency. While private currencies are not legal tender; legal tender laws generally say that you must accept the government-issued currency, but do not restrict the use of another currency if it is acceptable to the parties of a transaction. 3. The Millennium Dollar^® is a private currency.

promise-to-conserve: The Millennium Dollar^® is issued as a promise-to-conserve the purchasing power of the holder’s money. This is achieved by backing the private currency with inflation-indexed assets on a present value basis. The promise-to-conserve is not a promise-to-pay and neither the issuer, nor the sponsor, is required to redeem the private currency in USD or any other currency; since the acceptance of the Millennium Dollar^® is deemed to represent payment in full. The MR$ holder may request a conversion of the MR$ into USD at the prevailing currency exchange rate; but neither the issuer, nor the sponsor, is required to comply with this request, if they deem that such an activity would adversely affect their ability to meet the promise-to-conserve.

promise-to-pay: 1. The commitment made by a currency, monetary equivalent, payment instrument or other instrument; which represents a contractual commitment to pay the holder in a hard asset or a currency. 2. When the United States was on the gold standard, the U.S. dollar was a promise-to-pay gold upon demand at $35 per ounce of gold. When the Unites States went off the gold standard, the U.S. dollar ceased to be a promise-to-pay. Today, the concept of government-issued currencies as a promise-to-pay is obsolete, but has been replaced by monetary equivalents that offer a promise-to pay in the government-issued currency (which promises nothing.) 3. A promise-to-pay requires the issuer to meet any and all demands for conversion on a current basis, which dictates that the money must be invested in highly liquid investments. 4. A short-term commitment that is the opposite of a promise-to-conserve.

real: Any monetary unit, currency, interest rate (yield) or other financial instrument that is adjusted for inflation and deflation. 2. The opposite of nominal.

real-interest-only (RIO): 1. One of the primary payment streams on the inflation-indexed instruments, which equals the real rate times the accrued principal value (or the NPO strip plus the AIO strip). 2. The payment stream that becomes a byproduct when the RPO payment stream is used to provide the present value assets for the issuance of the private currency. 3. The byproduct that can be sold by the sponsor to cover expenses and a reasonable profit. 4. The means by which the sponsor can sell the private currency on a wholesale basis like any other product.

real monetary system: A monetary system whereby the government-issued fiat currency circulates side-by-side with one or more private currencies, which are indexed to the fiat currency and secured by present value assets. The real monetary system does not replace the original nominal monetary system, but represents the logical evolution of the original system.

real-principal-only (RPO): 1. One of the primary payment streams on the inflation-indexed instruments, which includes the nominal-principal-only (or par value) and the accrued-interest-only (or inflationary adjustment). 2. The securitized component of the TIPS that is used to provide the present value assets to secure the private currency, thereby leaving the other major component (the real-interest-only payment stream) as compensation for the sponsor’s efforts.

reference CPI-U: 1. The CPI-U index on the base-line-date of the private currency, or on a subsequent date; whereby the percentage difference in the reference CPI-U indexes is used to measure inflation or deflation. 2. The Reference CPI-U index for the Millennium Dollar^®, which is 168.2. 3. The reference CPI-U index for the day on which you wish to calculate the indexed value of the Millennium Dollar^®.

RIO: See: real-interest-only.

RMRI: See: sponsor.

RPO: See: real-principal-only.

sponsor: The sponsor of the Millennium Dollar^® program is Real Monetary Reserve, Inc., a Minnesota corporation.

store of value: See: money.

stripping problem: The problem that occurs when we attempt to strip off the AIO strip from the RPO strip. The AIO strip represents the inflationary adjustment. Each payment period that we strip off an AIO strip, it begins to earn an inflationary adjustment itself in the next payment period; which must then be stripped. This creates a P = NP? problem; whereby the number of strippings doubles with each additional payment period, except the last payment that is made in cash. This problem is resolved by the creation of a liquid-payment market with the patent-pending technology. See: P = NP?.

Treasury Inflation Protection Securities: 1. Inflation indexed securities issued by the U.S. Treasury since January, 1997. As of, July 31st, 2005, there were $278.3 billion of TIPS issued and outstanding, which had accrued an inflationary adjustment of $27.3 billion for a total accrued principal value of $305.6 billion. This represented 7.49% of the marketable Treasury securities, and 3.87% of the total public debt outstanding. (The non-marketable Treasury securities are largely IOUs to the Social Security Administration, which do not trade publicly.) This information can be updated each month at: http://www.publicdebt.treas.gov/opd/opddload.htm . Simply download: Entire Monthly Statement of the Public Debt (MSPD), which is currently 12 pages. The TIPS information is shown on page 5. 2. The inflation-indexed securities, which are securitized and stripped to provide the present value assets to secure the issuance of the Millennium Dollar^® currency, along with cash investments.

TIPS: See: Treasury Inflation Protection Securities.

Unit of Account: See: money.

United States dollar: 1. The monetary unit printed on the paper currency issued in the United States. 2. The fiat paper currency issued by the U.S. Treasury, which is designated by law as legal tender in the United States. 3. The nominal monetary unit that denominates monetary equivalents, which are exchanged by paper, electronic, plastic or other means, which is not legal tender. 4. 3. The nominal monetary unit that denominates financial instruments, such as mortgages, bonds, etc.

USD: See: United States dollar.

verify: 1. To use a present value calculation (or test) to see that the value of the assets match the indexed value of the private currency on a 1:1 basis. 2. To verify the monetary unit by (1).

VMC: See: issuer.

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