Wednesday 2 April 2014

Why Hullcoin is so irritating, and other adventures in a multi-currency world

For getting on for two decades now, I’ve been predicting a multiple currency world and multiple currency lives.

There is evidence here and there – euros in phone boxes, the rise of local currencies – but, generally speaking, it steadfastly refuses to happen.  Though I’m still convinced that it will.

It doesn’t help that I happen to live in the most boneheadedly conservative nation on earth when it comes to thinking about money.  Most English people seem to feel it was created by God around Day Six of the Genesis and hasn't changed much since.

Then along came bitcoin.  It was clear evidence that I had been on the right track, but I’m afraid I found it almost as irritating as it did before.

Not only is bitcoin doomed to be an inflationary speculative flash in the pan (I humbly submit) but its origins and structure and means of creation are the very opposite of transparent.  Its inventor remains secret, for goodness sake.

But most irritating of all, it seems to have prodded a whole rage of misunderstandings to emerge, and there was another one on Monday in the Daily Telegraph, which I've just been shown (thanks, Jock).

It says that Hull City Council has started ‘mining’ their own digital currency in order to pay to volunteers, on the grounds that HMRC doesn't recognise digital currencies until they get converted into cash.

It is quite difficult to know where to start on this one, but let's have a go.

1.     It isn't true that HMRC doesn't recognise digital currencies.  For years, they have reserved the right to tax air miles and a range of other local currencies, if they are a major source of income.  In fact, the Fininish government began taxing time credits to volunteers last September.

2.     There are already very successful means of paying volunteers, in the form of time banks and time credits operating all over the country without the need to resort to complex 'mining'.

3.    Paying volunteers is anyway a ticklish business.  You have to make sure that it doesn't dampen their basic altruistic motivation, which means that credits need to be mere recognition of people’s efforts, and in no way exchangeable for any other kind of cash - because that would undermine their motivation in the medium term.

4.    Hullcoin will find that the existing tax and benefits regulations apply to them, which means that – if their currency just recognises volunteering – then earnings will not be subject to tax and benefits, unless they are used to buy goods and except in the case of incapacity benefit.  Nothing to do with digital disregarding digital money.

5.  In fact, it comes under the EU e-money directive, and has done for years.

This is irritating partly because it is another example of a local authority which seems not to have asked advice before getting involved in new kinds of money (Isle of Wight County Council was prosecuted in 1997 for minting its own ecu coins).

I might be wrong: the Telegraph report might be wholly inaccurate.

But it is mainly irritating because it encourages the fantasy that some digital currencies are an unregulated area, a virgin territory ripe for exploitation.

My fear is that this will encourage the great Napoleonic controllers (Bank de France, Bundesbank spring to mind) to clamp down on what is a vital area of innovation: new kinds of money.

Because there is no area of modern life where we need innovative thinking than in money, and there is a long way to go.  Where we are heading is unknown but I would be prepared to lay a bet that bitcoin will not be there.

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Upozi said...

There are two regular forms of currency in common use in the UK which, from time to time, spectacularly increase in value compared to the pound. They are called first and second class stamps.

Anonymous said...

If you're truly interested in the possibilities of multi-currency economies, perhaps this book will be of interest "Money Emission for Everyone" - it also mentions postage stamps as a prime example of authentically emitted currency!