The Eternal Coin: Physical Endurance or Digital Failure. A Digital Money Event
Dave Birch’s proposition for discussion is that new technology will move beyond a facsimile of current exchange to new means of exchange that are better for society as a whole. Future e-money synthetic currencies for speculative fiction writers shouldn’t be, “that will be ten galactic credits, thank you”, but rather, “you owe me a return trip to Uranus and a kilogram of platinum for delivery in 12 months”. Well, that’s what our payments autodroid bots (i.e., mobile phones) will agree amongst themselves. Dave sets out his stall: “When you digitise something, you have the opportunity to re-engineer it. So it is with money. As money has changed from barter to bullion, from paper to PayPal, it has changed the markets and societies that depend on it. Where next?
Just as the Roman merchant could not imagine money as anything other than silver and the medieval banker could not imagine money as anything other than silver coins, so we think of money as credit cards and tenners and cannot imagine it as anything else. Does digitisation mean the IBM Dollar as De Bono mused? Does digitisation mean smart money, quantum money or private money? At the end of the transition to e-money, the marginal cost of introducing another currency will be approximately zero. Will we move to one currency, driven by low transaction cost pressure, or explode with a plethora of currencies, because new currencies are virtually costless? A technologist might suspect that there will be more different kinds of money, not just more currencies, than ever before. At the end of this period, who knows whether dollar bills or Bill’s dollars (an old joke, beloved of us e-cash types) will be more successful? Ah, but if there are millions of different monies life will be more complicated, won’t it? Won’t mental transaction costs take over once financial transaction costs have fallen to a particular level? Perhaps not: medieval moolah was exchanged without mobile phones and 24/7 F/X markets. As Hayek pointed out a generation ago, people who lived in ‘border areas’ in days of old seemed perfectly capable of understanding multiple monies (and surely we are all on the border now: the border between the physical world and cyberspace) so there’s no reason to think that they couldn’t do again. I’ve already told my mobile phone that I want to collect US dollars because I’m going to go on holiday to New York as well as World of Warcraft gold pieces because I feel like a relaxing weekend of Orc slaughter. With my phone, my mental transaction cost subsequently falls to zero. Equally my mobile phone is perfectly capable of negotiating some complex exchange arrangements with yours. In the post-fiat currency, post-nation state world, all money will be local, because IT means that local is something different. Reed’s Law readies will all be local to someone, so perhaps community currency might be the best description. Whether the community is Totnes or World of Warcraft won’t matter, but the shared desire to minimise transactions costs for ‘us’ at the possible expense of transactions costs from ‘them’, will. Since the overwhelming majority of retail transactions are local, most people’s transactions most of the time will be in their local currency with minimal transaction costs. A small number of transactions will be in ‘foreign’ currencies (i.e., someone else’s local currency). These currencies may not be money in the conventional sense at all but what might be termed ‘near money’: energy or food or communications or some other basic need made into money. A new era of monetary competition will mean that monetary policy will become even less effective than it is now and governments will need new kinds of fiscal policy to manage the economy.”
David G W Birch
Dave is a Director of Consult Hyperion, the IT management consultancy that specialises in electronic transactions. Here he provides specialist consultancy support to clients around the world, including all of the leading payment brands, major telecommunications providers, governments bodies and international organisations including the OECD. Before helping to found Consult Hyperion in 1986, he spent several years working as a consultant in Europe, the Far East and North America. He graduated from the University of Southampton with a BSc (Hons) in Physics. Described by The Telegraph as “one of the world’s leading experts on digital money”, by The Independent as a “grade-A geek”, by the Centre for the Study of Financial Innovation as “one of the most user-friendly of the UK’s uber-techies” and by Financial World as “mad”, Dave is a member of the editorial board of the E-Finance & Payments Law and Policy Journal, a columnist for SPEED and well-known for his blogs on Digital Money and Digital Identity. He has lectured to MBA level on the impact of new information and communications technologies, contributed to publications ranging from the Parliamentary IT Review to Prospect and wrote a Guardian column for many years. He is a media commentator on electronic business issues and has appeared on BBC television and radio, Sky and other channels around the world.
Dr Malcolm Cooper
Malcolm holds a First Class Bachelor of Arts in History from Dalhousie University, a Master of Arts in History from the University of Western Ontario, and a Doctorate of Philosophy in Modern History from Oxford University. His thesis on the formation of the Royal Air Force was subsequently developed into a book, The Birth of Independent Air Power, and published in 1986. His career has included a Research Fellowship at Downing College, Cambridge, management of the research programme of the Institute of Chartered Accountants in England and Wales, equity research management with three different investment banks (none of which, alas, exist today under their original name), and a five year spell as Head of Research for the City of London Corporation. His most recent post was as Head of research for the independent public policy think tank Centre for Cities. Malcolm was the first foreigner to take up coverage of the Istanbul and Athens stock markets and spent most of his investment banking career in European emerging markets, his last post being as Head of EMEA Equity Research for ABN-AMRO (a job he gave up in 2000 – not because he could see the dot.com crash coming, but because he decided he really didn’t want to be on the Central Line at 6.30 in the morning any more). Most of his recent work has been in the UK public policy field but be retains an active interest in the more challenging parts of the world, and is still inordinately proud of having a letter published in The Times pointing out some of the more obvious problems with the UK’s current military commitments in Afghanistan. He has also published several pieces on Turkey, including an article in International Affairs, a written submission to the Commons Select Committee and a contribution to a Chatham House forecast of likely regional scenarios following the second Iraq war.