Has anyone seen ‘Bastille Day’?
I had the "pleasure" of watching the (deservedly) poorly-reviewed film on a flight recently.
For those of you who have been spared the 1 hour and 32 minutes of questionable entertainment, the main premise of the movie is a gang of robbers who, rather than stealing gold from a bank vault, pull out a thumb drive and download $500m in digital currency. The main character proclaims that they will “be on a plane to Brazil, and they’ll never catch us with this”.
While I took very little from the film itself, it does pose an interesting question: is this our digital future?
The box office flop would certainly not be alone in suggesting that alternative currencies is the shape of things to come.
In fact, David Birch believes that money could be replaced by ideals and identity (how many Starbucks Rewards for one loaf of bread?), rather than sovereign currency. Another popular theory on the future of money, the utopian view, suggests that problems in the current payment system can be solved with cryptocurrencies.
Both of these perspectives highlight issues with the way we make payments today, and are worth a closer look to determine what the future of money will look like.
A utopian future?
Simply put, the utopian argument claims that problems with today’s payments system - including transparencies around foreign exchange rates and the time it takes to make international payments - could be solved by adopting a global currency.
Picture this: you’ve decided to have a weekend away and pop across to Paris on the Eurostar. You’re excited to get on the train, but at the last minute remember you need to exchange your pounds to euros. As a result, you start your journey frustrated with the inconvenience, and significantly short-changed from the exchange process (in other words, less money to spend on wine and brie!)
In a utopian world this wouldn’t be a problem, or so the argument goes. Cryptocurrencies, like bitcoin, would reign supreme no matter where you went.
Keeping it local
Birch recognises the same problems as the utopians. But he believes that, rather than one overarching global currency, the solution will be many different localised ones controlled by communities. In this world, we would be paying with Starbucks Points or the Brixton Pound, rather than Pound Sterling, for example.
Whilst both arguments have their merits, they leave out one important part…
The reason why our future won’t look exactly like either of these theories comes down to the politics behind payments.
This is because the world’s central banks are set up on a national basis, to control their local currency and respond to issues such as inflation and unemployment. Establishing a global currency that can easily adjust to these national challenges will be difficult. It’s unrealistic to think that the technological drive to solve problems in the payment system is so strong that these political economic drivers will be abandoned.
What’s more, the world’s central banks have come together a number of times in the past to address global systemic issues in the foreign exchange and other markets. The introduction of SWIFT, proposed to help improve the way money is moved between banks across the world, is just one example of this. Central banks will respond to the challenges brought up by both Birch and utopians, in line with their allegiance to the national political system.
So what is the future of money?
While we can learn from both theories, the importance of politics means that national currencies won’t disappear anytime soon. Rather, I believe we will end up with a mixture of everything, including some localised, national and global currencies.