I promised to go on a bit about the future of money, and I've just spent a fascinating lunchtime speaking at a seminar in London organised by the Centre for the Study of Financial Innovation. So now I can't stop myself.
I was talking alongside my colleague Leander Bindewald, of Community Currencies in Action, digital money guru Dave Birch and the great Australian new economics pioneer Shann Turnbull, who ought really to get a whole blog to himself. I can't say what everyone said because of the rules, but I can say what I said. It was a prediction for money innovation.
They used to say, in financial circles, that - if governments had controlled transport - we would still have subsidised stage-coach routes. It isn't true, of course. But the really odd thing is about financial innovation, where we have the equivalent of stage-coaches.
The problem was that we put bankers in charge of it. As a result, we have had a head-spinning number of innovations in financial instruments, derivatives, eurodollars and all the rest. But the basic design of money has stayed the same since the 18th century, exactly when stage-coaches used to ply their trade.
Yes, we have had tweaks in 1945, in 1971 and in 1979, but that was all about the financial architecture of the world, not about the basic design of money.
As a result, we have deeply conservative people overseeing what is otherwise a wild and innovative system, but presiding over an antique design, ignoring the possibilities of new technology - mainly in this case mobile phones.
As a result, as well, we have had the history of the design of money airbrushed out, as if money descended from above fully formed around 1689.
We have forgotten the currencies that emerged in the Great Depression, and still exist in Switzerland. We have deleted all memory of the 'black money' for ordinary people in the medieval period, which lost value (negative interest) to encourage spending - and seems to have financed the great gothic cathedrals.
We have censored any historical memories that might provide clues to a solution to our new dilemma - how to raise interest rates in London and Berlin without impoverishing Toxteth or Gorbals or Athens. And how to finance small business at reasonable interest rates when the banks have lost the ability.
But I think that technology will finally corrode that conservatism - there is not an internet millionaire in California who isn't dedicated to doing so, and some will succeed. We also have the new currencies for small-scale entrepreneurs, issued through Brazil's community banks and backed by their central bank. We have the new currency for small business in the city of Nantes, organised by the man who is now the French prime minister.
Things are shifting.out there, and we will soon have a diversity of different currencies to choose from for different aspects of our lives - local currencies backed by local authorities, Scottish currencies and euros for use abroad, pounds to pay taxes with, and a range of rival internet currencies too. Some will be designed for poorer people and will have disadvantages for the rich (they lose value if you try and save them); some will be designed the other way round.
Nothing can stop this innovative hurricane - but it is scary to conservative types. That is why even Franklin Roosevelt vetoed Senator Bankhead (Tallulah's dad) when he introduced his bill for a trillion dollars worth of negative interest money issued through Congress in 1933. That is why the Nazis and their conservative predecessors clamped down on money innovation in Europe in the mid-1930s.
It is also why the prize for bone-headed conservatism has to go to the officials of the Kenyan central bank, who have not just judged the innovative project Bangla-Pesa illegal - though it is an attempt to design a pro-poor currency along the lines of those promoted by the Brazilian central bank - but they are also prosecuting the organisers for forgery.
When 97 per cent of the money in circulation is already created by commercial banks in the form of mortgages and loans, that accusation is completely bizarre, and does no credit to Kenya. It also gets in the way of the innovation in money design that we so badly need.
You can support them in their fight to escape jail here.
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7 comments:
Interesting. I heard a proposal on Monday that the Bank of England could issue money to pay of the debt incurred on NHS PFI contracts, hence leaving the different PCTs considerably more solvent. What do you think?
What a good idea - we could save the NHS at the same time!
As noted at the time, I agreed with the thrust of your talk, although I think it is rather inconvenient to carry multiple currencies. To use a parellel from linguistics, it is possible to have a dual language system, in which the globally connected (i.e. elites) use a different language for interaction than they use in their locale, but it is rather inefficient to have multiple languages commonly spoken in the same locale.
I'm also extremely interested in continued conversation about the monetary innovation necessary for the construction of Gothic cathedrals...
Joel, I think the work on this has been done by an Italian historian called Luca Fantacci. I'll have a look online now.
It was a pleasure to run into you and other friends and acquaintances equally monetarily geeky.
I think that pervasive instantaneous connectivity - particularly using mobile devices - changes everything, in ways which are inadequately understood.
Nowhere is that more evident than in the field of monetary systems, and their component elements of value accounting; unit of measure for value; time (ie credit= time to pay) and so on.
There is no longer any need for an intermediary middleman - whether Public (Treasury/Central Bank) or Private ('for profit')- to come between the sources of credit and the users of credit.
In my analysis, there are two bases or sources of credit. Firstly, there is the capacity of people, individually or collectively (public and private entities) to provide goods and services.
Secondly, there is the use value or production over time of a productive asset. Indeed two thirds of money in existence today is backed by the capitalised use/rental value of land.
The former is the basis for the credit which enables the circulation of goods and services and the creation of new productive assets.
Credit card systems like VISA and Mastercard essentially guarantee the credit of buyers obtaining goods and services from sellers. Both sellers and buyers pay in one way or another for the use of the system and settle credit in fiat currency, but note that THERE ARE NO DEPOSITS. Merely by existing, these systems drive a coach and horses through mainstream economics.
There are other means of people-based credit creation and clearing, and these currently involve centralised issuance of a complementary currency. The best example is the Swiss WIR, which essentially uses the Swiss Franc as a unit of account but SETTLES credit in goods and services, with a framework of trust based upon security over property.
Complementary currencies like the Bristol Pound do not create new credit and surplus value - they simply keep existing value local, which is great but doesn't get us too far.
The new Sardex initiative in the economic basket case of Sardinia aims to build upon the WIR, and I recently outlined at a brilliant University of Cagliari workshop how that may be done by extending the Sardex system from businesses to individuals. The key to this is a new framework of trust - a Guarantee Society - and the use of generally acceptable currencies, particularly local land-based currency consisting of prepaid rental credits, and non-local energy currency consisting of prepaid energy units returnable in payment for energy use.
It is in fact possible to introduce a P2P credit creation and clearing system with no central issuer and currency at all, where P2P credits are settled through the generation of 'chains' A>B>C>D>A.
Anyway: if anyone has read this far, they might be interested in the recent presentations I prepared for a recent Schumacher institute gig in Bristol re 'social contracts'
http://www.slideshare.net/ChrisJCook/social-contracts-clearing-union
http://www.slideshare.net/ChrisJCook/social-contracts-green-deal
Thank you, Chris. That's a really useful contribution - and thanks so much for taking the trouble to write it here!
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