The following article appeared in the The Independent, 29th March 2000.
Members interested in pursuing the matter further may like to consult
THE BUSINESS WORLD
In e-money we trust, all others pay cash
Has the internet freed us of the need for money?
Nowhere is the allure of money more tangible than in the gold vaults of
Bank of England. These vast pillared halls, deep within the huge and
impressive walls of the Threadneedle Street fortress, glitter with rack
after rack of ingots piled high and stretching as far as the eye can
The Government decision last year to sell a small fraction of its gold
reserves was greeted with outrage in many quarters. For many people, not
least the gold producers, the authorities' commitment to gold, in some
sense, signals that its money is not funny money.
But British currency has not been linked to gold for half a century, and
has floated freely with no rigid anchor for 25 years. Nowhere in the
economy is money anything to do with gold or any other real commodity.
fact money has a diminishing physical presence in the weightless world.
Although most people still use crinkly notes and jangling coins in daily
life, the vast majority of financial transactions are in cyberspace. And
the number of transactions is rocketing by the day.
These electronic impulses represent the currencies issued by national
governments, which retain a monopoly over the issuance of money. But
combination of old state monopoly and free-wheeling electronic
The recurrent crises in the financial markets may be a signal about
something unsustainable about the present monetary arrangements. Maybe
is unsustainable is the remnant of corporatism represented by
This is a possibility raised in a fascinating, though dense book, The
Memory Bank by Keith Hart (Profile Books). The author, an
says the internet has made it possible for the middle-class masses to
escape the state monopoly of money. He believes the main beneficiaries
states' issuance of cash are criminals, because anybody shipping large
amounts of cash is more likely to be a drugs or arms dealer than a
with a legitimate purpose.
Mr. Hart joins a handful of radical thinkers in suggesting most national
monies are history. There are many examples of the development of
monies, thanks to new technologies.
My babysitting circle uses paper Monopoly money, borrowed from the board
game, but the obvious electronic one is airmiles, issued by airlines.
Mostly, these are still only used to buy flights, but there are
transactions and United Airlines has used them to pay its advertising
Internet currencies can also be given as gifts for making online
Increasingly local economic networks issue electronic units of account
currency for payment for goods and services. Many Local Exchange Trading
Schemes have these, and in the US there are similar Time Dollars
At this point the level-headed reader will say small schemes like these
all very well, but most people will want to be paid by their employer in
"proper" money, and shopkeepers want currency too.
There are good reasons for national currencies. Money, as basic
tells us, acts as a unit of account, a medium of exchange and a store of
value. So new private electronic currencies will continue to be parallel
One of the big populist selling points for the euro is the absence of
bother of acquiring foreign currencies when crossing an increasingly
notional geographical border. Almost anyone buying over the internet
have paid in US dollars.
Last year's Nobel laureate in economics, Robert Mundell, is an advocate
an ultimate move towards a single global currency, although his argument
does not involve the internet.
He is the extreme of conventional opinion, but almost everybody
since the global financial crisis of 1997-98, that countries face a
choice about their currency.
Either you go your own way with a freely floating exchange rate and
the penalties of having a small and volatile currency in a growing sea
transactions in only the major currencies.
Or peg your currency absolutely and irrevocably to one of the big ones,
probably the dollar or perhaps the euro. For the third way in monetary
policy leads off the edge of a cliff.
The great Maynard Keynes said money in a modern economy was the managed
outcome of the links between states and markets, that it is a social
construct, not a natural phenomenon. The information revolution is
rewriting the interplay between governments and markets.
This is in its infancy, so it is hard to predict what money will be by
middle of this century. Keith Hart, in his book, suggests it will look
like the private bills of credit merchants used to issue in the 16th
century and earlier, a record of mutual obligation and trust between
Whatever shape "real money takes, the gold in the vaults will certainly
up as a tourist attraction adding sparkle to the Bank of England's
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