The future of currencies
Written by Markus Iofcea, Kostas Viskanta and Kevin Kohler, Y Think Tank
“The reality of what actually is exchanged is concealed by our one-dimensional concept of money, where the same currency serves as a unit of account and as a universal means of payment.” 1
The long and diverse history of exchange stretches from the Cowrie shells of 1200 BCE to the gifting of Kula in the Trobriand Islands in early 20th Century and to the decentralized currencies of today’s virtual world. Adam Smith, the father of modern economics, argued that currencies emerged as mediums of exchange due to division of labor 2. As individuals began to specialize and hence depend on each other, barter was used to trade subsistence goods. This system proved to be highly inefficient as it was often hindered by the necessity of the “double coincidence of wants”. In order to ease their trade, some craftsmen would stockpile goods that were constantly in high demand such as salt and metal.
With time, salt and metal were replaced by other, more durable and valuable commodities such as gold and silver. However, transportation and storage of large amounts of precious metals were both cumbersome and dangerous. Around the 11th century the Chinese Song Dynasty introduced paper receipts for deposits of commodities that were stored somewhere else. This representative commodity system rapidly spread across the globe and became a generally accepted means of payment.
Today, our monetary world is dominated by fiat currencies and commercial bank deposits – a system regulated by national governments. Fiat currencies are the modern version of representative money with one caveat. Instead of towers of gold locked up deep in highly protected vaults, the law and trust is what’s backing up the value of such currencies.
The most recent mutation in this evolution are cryptocurrencies such as Bitcoin, which only exist virtually in a decentralized network of computers.
Blockchain technology, the backbone of Bitcoin, as well as other cultural and political developments, seem to constitute all the necessary conditions for a new link in the evolutionary chain of money.
In our previous article on the purpose economy we discussed a futuristic society which is driven by purpose rather than material wealth. To some extent such a society already exists. More and more people are considering and evaluating their potential impact on humanity as one of the central aspects of their lives. For example, according to UBS Investor Watch research only 14% of Millennials – a generation which by 2025 will account for nearly three-quarters (72%) of the global working population – think that being well compensated for what they do is a key sign of being successful 3. If such considerations prevail, the framework in which we interact and do business would be ripe for change.
As was pointed out by Adam Smith, self-interest is the prime driver of economic activity 4. And when competition assumes the role of a regulator and works hand in hand with self-interest, society moves to a point where allocation of resources is linked to their most valued use. That’s the famous invisible hand at work. Nevertheless, the age of abundance associated with the invisible hand has brought problems too, such as income inequality and climate change.
Can a solution to issues that stem partly from money be found in money, or currency, itself?
A potential solution could be an introduction of complementary currencies which would be based on alternative values. Having such currencies circulate in a monetary system would help develop sources of non-financial value.
Imagine a world where shopping for books would mean spending not only regular currency but also ‘EDUs’, an alternative value currency earned by providing or buying education services. This complementary currency would be accepted by participating book retailers or other organisations seeking to incentivize education. These alternative value currencies could be either non-convertible or partially-convertible into the fiat ones. This system highly resembles air miles which are a close cousin of alternative value currencies.
For example, going to the Opera might earn you ‘ART’s, which later could be gifted to a street performer. In exchange, contributors would obtain altruism points which could be used to build up reputation profiles in both offline and online worlds. Same as with the ‘EDUs’, the ‘ARTs’ would be issued by the museums, the Opera theatres and institutions alike who would reward their customers with ‘ARTs’ when they bought their products or services. Instead of spending these ‘ARTs’ on new opera tickets, gifting them to a street performer –which he or she could later use to buy services from the original issuers – would in return reward the customer with reputation points that could later be showcased on a platform similar to that of LinkedIn or Facebook.
When at the restaurant, a choice between filet mignon and Italian risotto would also mean a choice between spending your ‘ECO’s or saving them for that exquisite alpaca wool coat you had laid your eyes on previously.
Alternative value currencies, if used as a complement to the current monetary system would allow economies, nations and communities to orientate and steer themselves towards social, environmental and political aims.
Alternative value currencies are not a completely revolutionary idea. In fact, they have been tested and implemented in a number of industries and communities. One such example is the EU’s Emission Trading System (ETS). By placing a cap, and issuing a fixed but tradable quota, for the heaviest polluters, the EU is in effect putting a price tag on carbon emissions. Through trade, pollution is redistributed and the companies that can make most use of additional emissions have to pay those who are cutting back on it.
To many, this sort of governmental intervention seems reasonable and even desirable. Once we all agree that tackling climate change is our responsibility, even more ‘invasive’ actions will be deemed necessary. And the same goes to income inequality and employment.
Companies like Uber and Google are shedding some new light on how our future society may look like when typically human jobs are automated and replaced by machines. And it seems that this future society is approaching the present faster than we once assumed. For example, Uber’s self-driving fleet is already roaming the streets of Pittsburgh.
With automation and robotization, world economies could face something far more challenging than either the Great Depression or the Great Financial Crisis, or both of these combined. Universal basic income (UBI) is a potential solution for a great number of people who would find themselves unemployable in this new world. One of the problems associated with UBI is whether the society is fine with the fact that some of this money is spent on products and services most would deem socially unappealing.
If, however, the UBI is issued as a complementary currency – which can be only used on services and commodities such as food, housing and education – this problem could be averted
Information about how individuals use alternative value currencies could help build a reputational system aiming to optimize social behavior.
A few years ago the Klout score – a measure of digital social influence – made headlines for playing a role in companies’ hiring decisions 5. In 2015 China had announced the introduction of a large scale social credit system that not only assesses people’s creditworthiness but also takes into an account their general trustworthiness using data related to social behavior 6. And even though beauty may lie in the eye of the beholder, Tinder calculates a desirability score, based on which profile popularity is generated 7.
By the same token, smart contracts could help to expand transactional settings based on non-reputational criteria. Businesses could add customer, category, product, location, unit or time-specific settings to their transactions.
All these complementary currencies, reputation points and smart contracts wouldn’t take up any space in your wallet. Instead they all could be tracked and accounted for in your smart phone, pay chip or any other suitable medium. This for example would help to transform the loyalty-point system into something as seamless as swiping a contactless card at the supermarket.
With technological advancement, establishing such currency systems would become easy. Hence these examples are merely the tip of the iceberg – an iceberg of change that can be brought into the world by individuals themselves. The most important idea here is that our societies and hence everything that comes with them, including notions of wealth, are not constant and evolve over time. The differentiating factor of our age is that while governments are usually the enablers of change when it comes to currency regimes, technology has enabled individuals to become drivers of change as well.
- Pierre Calame 2009, abstract
- Adam Smith, The Wealth of Nations
- The Future Laboratory, UBS Workforce Futures
- Adam Smith, Wealth of Nations
- What Your Klout Score Really Means
- China: When big data meets big brother, FT
- I Found Out My Secret Internal Tinder Rating And Now I Wish I Hadn’t, Fast Company