Professor Ian Angell
Department of Management, LSE, London WC2A 2AE | +44 (0)20 7955 7655 | email@example.com
Original of the article appearing in the Financial Times, December
22, 1997. The article was also the basis of a Channel 4 programme
broadcast on January 8th 1998.
The Future of Money
We all know what money is, don't we? Money is the notes and coins that
governments print and mint to facilitate economic transactions. Money is a
statement of faith in the value of instruments of exchange. Bearers of
such instruments believe the promise that, on demand, or soon after, they
may exchange amounts of that money for goods and services to the value
specified, or for alternative promissory instruments to that value.
Most of us in advanced economies assume that every commercial transaction
requires money! But do es it? Barter is primitive! Or is it? Surprisingly,
spontaneous new forms of barter and exchange are occurring, by-passing
money at least in part. A very strange phenomenon has occurred in Kinko
copier stores all over the US in past few years. As customers queued for
copying, printing and other computer-related services, they struck up
friendships with others waiting in line. A community of Kinko users
appeared; friendships evolved. Teleworkers in particular, missing the
socializing of an office environment, would go to the store even if they
had no copying to do!
Often these new friends discovered that they were potential customers for
each other's services. On the basis of newfound friendships, and in their
spare time, they exchanged advice and bartered services. Why bother? The
recipients of such `favours among friends' don't need to dip into their
savings and they avoid the need to pay sales taxes; and the seller was
paid with a promise of reciprocation that carries no burden of income tax.
Bartering is just the start. A shared sense of trust is all it takes to
create a currency. Local communities have such trust in abundance, so they
can issue their own notes of credit that will pay for goods and services
in and around the locality. There are already hundreds of these Local
Exchange Trading Schemes (LETS) in the UK alone: issuing acorns, bobbins,
cockles, cranes, groats, naaris, strouds, trugs. The idea was first
introduced in Canada to kick-start the local economy of a depressed mining
community, which boasted a high degree of internal community trust. They
cut right across the vicious circle of untrusting formality that is the
banking system. Banks work on credit-worthiness calculated on formal
employment status, or ownership of capital goods. When you are not
credit-worthy, the cost of borrowing goes up, and you become even less
credit-worthy. With LETS the uncredit-worthy get credit.
LETS need trust; trust needs a sense of community; social pressures in a
community ensure that all debts are repaid, reinforcing a virtuous circle
of communal trust. A closed community can play this non-profit zero-sum
game for the mutual benefit of all. Everyone starts at zero, and keeps
track of debits and credits by double entry book-keeping of IOU tokens.
Usually measured in hours of work, these tokens assume that an hour's
labour is the same, no matter what the work; baby-sitting, gardening,
window cleaning, hair-dressing, consulting. However, as the market for
such tokens got more sophisticated, some schemes have introduced agreed
differential rates to pay for more highly skilled work like doctoring,
accountancy or advice on computing.
This confused situation is becoming even more confused as new technology
changes the nature of government money. Such money is becoming electronic
information; mere strings of binary bits stored on a smart-card. At
present there are 27 different countries experimenting with such digital
money: in the UK, Mondex is running a pilot study in Swindon. Using the
same technology, now Global Exchange Token Schemes (GETS) are possible.
What constitutes money will no longer be monopolized by national
governments. "Money does not have to be created legal tender by
governments. Like law, language and morals it can emerge spontaneously.
Such private money has often been preferred to government money, but
government has usually soon suppressed it" (Hayek). In the
Information Age, in the age of Internet can government keep suppressing
it? Hayek's vision of the
Denationalisation of Money can now become a reality.
This is not a new idea. It was developed by Chinese family businesses, which
have spread across the globe over the centuries by many diaspora. `Chip
chop' money has been used for generations to bypass the national financial
regulations of their host countries. Otherwise known as Fei-Chien (flying money), a huge underground banking system based on
a code of trust has developed within the worldwide Chinese community.
At a time when so many Europeans are soul-searching over a single currency
and monetary union (in essence solving yesterday's problems), such
alternative currencies can spring up anywhere. With networked tills
accepting digital cash, the transaction costs of exchange will become
insignificant. It will be of little consequence for traders whether there
are one or one thousand currencies in circulation.
Now every corporation can issue its own electronic money. In devising
loyalty schemes, supermarkets are basically the issuing `plastic money'.
Companies can go much further. The real issue is not "dollar bills,
but Bill's dollars"; Bill Gates' dollars. A company can issue a
proportion of its equity as digital cash. Instead of the value of money
decreasing as governments profit from the hidden tax of inflation, the
value of money can actually increase if the company's shares go up in
The LETS (and now GETS) idea can become a mechanism for company money. Then
buying and selling goods and services within the company community,
employees and customers, becomes a form of transfer pricing, which like
the above schemes are invisible to the taxation authorities. Such company
schemes can be computerized and they can go global! And why be restricted
to the globe? Why not go off-planet? A satellite can act as a depository
for digital cash. Customers send not only their digital cash and other
information capital, but also the digital safe that secures it; and they
hold the only key. The term `Capital Flight' will take on a whole new
meaning. The worldwide government conspiracy over the issuing of money
will finally be smashed. Then, like in William Gibson's science fiction
novels, governments will try to ban money. The `control freaks' of
government will have finally lost the plot.
So we all know what money is ..... or do we?
Ian Angell is Professor of
Information Systems at the London School of Economics.