Why the design of money is going to change

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.