[Dave Birch] It was freezing when I left England yesterday and freezing in Toronto when I arrived for the first Digital Money Unconference here. I’m pretty sure it will be freezing in New York when I get there later in the week. Ice everywhere. I’m sure most readers will be familiar with story of the North American ice trade. In the 19th century there was a vigorous export trade, centred on New England, cutting blocks of ice from frozen lakes and sending them, packed in sawdust, in sailing ships, to London, New Orleans, Calcutta and all points in between. Barges loaded with Canadian ice packed in sawdust were taken down to the Caribbean, where entrepreneurs gave out cold beer to build demand for the product.

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Dave Birch from Consult Hyperion.
Sincere thanks to MaRS for their hosting of the Toronto Digital Money Unconference 

When refrigerators were invented, the ice traders sensed a terrific new business opportunity: now they could make ice all year round instead of having to wait until the winter. So they began to manufacture ice instead of harvesting it from inland waterways. And then they packed it in sawdust and loaded it onto sailing ships.

Meanwhile, other inventors, entrepreneurs and visionaries were sending refrigerators around the globe so that everyone could make their own ice. In a decade, everyone could, and the global ice trade was gone.

This all happened a century before money as we know it today was was born (on 15th August 1971) when Richard Millhouse Nixon ended the external convertibility of the US Dollar into gold. Before that date, old money was linked, however tenuously, to something tangible. Since that date, money has been imaginary. That’s why it’s amusing to hear people talking about “real” money such as Canadian dollars and “virtual” money such as World of Warcraft Gold Pieces. Neither are real.

Now it is in its forties, money is having a bit of a mid-life crisis. It doesn’t know what it’s for any more. Is it to facilitate commerce? Is it to fund government spending? Is it to establish national identity and sovereignty? Is it to control inflation and deliver stability? Perhaps it is trying to be too many things at once, and this is why it is stressed. Perhaps its existential crisis began when it realised that it is imaginary. This must be most unsettling. We tried buying it a sports car, or “quantitative easing” as some people call it. In the UK, the printing presses were running flat out to put more than £200 billion into circulation. (Metaphorically, since only a tiny fraction of Sterling is in the form of cash.) Money should have been happy, but it’s still sulking (inflation is high), and it’s been refusing to come to work (economic growth isn’t).

According to the Bank of England, its policies have, over the last couple of years, transferred tens of billions from the cautious and sensible to the profligate and reckless to no avail. Perhaps it is time to begin a national debate on how money should work. It’s not a law of physics, unchanging and immutable. It’s the product of technology, culture and business: the current institutional arrangements could, and should, be changed so that money serves the community rather than undermining it.

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Howard Hall from CHYP USA.
We really appreciated the support from the Royal Canadian Mint, Don River and ACT Canada who helped us create a terrific event.

There are a great many candidates for post-fiat currency, the next new money. People have been talking about time dollars in the US, the Lewes Pound in the UK and the WIR in Switzerland as potential successors for years, but there’s a new factor that is re-energising these discussions about community-based currencies. Technology and the financial crisis are like biorhythms in synch at last. Cash is on the way out, and it won’t be replaced by plastic cards or paper vouchers but by mobile phones.

Money will become a menu on the mobile, and the consequences extend far beyond the ease of redeeming fast food coupons or collecting loyalty points in every store. When choosing between Toronto Thalers or Vancouver Values in your local shop is simply a matter of a menu on a mobile phone, your relationship with currency will shift. Instead of being forced to hold depreciating national money, you’ll be able to hold any number of different kinds of money and technology will continue to lessen centralised control, to the point where it vanishes.

Now, when people have talked about “community currencies”, “money with values”, “local exchange” and the like before, they have been talking about physical, geographical communities. Hence when mobile technology arrives, it is used to make, for example, the Brixton e-Pound (launched in London in October 2011) out of the Brixton Pound. But technology has changed the nature of community itself. In a connected world, community no longer means a street or a town or any kind of place at all. It means subgroups in the Net.

It’s reasonably well understood that these subgroups, these online communities, are the power of the web, not the simple connectivity. I have virtually nothing in common with the people in my street, other than the geographic accident of proximity, whereas I belong to a number of virtual communities that are really, really important to me. Checking my Facebook page will always give me more of a thrill than going to the council web site. I used LinkedIn a couple of times yesterday, whereas I used central government web sites a couple of times in the last year (once to file may taxes, once to pay my car tax). I’m addicted to twitter (although I only follow people that I’ve met) feel very strongly connected to my twitter friends, as I do to my son’s soccer team, the writer’s circle that I belong to, the people at Consult Hyperion and so on.

These notions of community as the locus of the next money connect with the work of Gill Ringland, who wrote a report for Long Finance called “In Safe Hands? The Future of Financial Services”. The report explored four scenarios for financial services in 2050, labelled “Second Hand”, “Virtual Hand”, “Long Hand” and “Many Hands”.

In the Second Hand scenario we remain rooted in the physical world and geography still matters, the Washington consensus holds and we manage to muddle through.

The Virtual Hand scenario is one where the Washington consensus proceeds. The report, however, sees a breakdown of international institutions and regards this scenario as most unlikely, largely because it is insufficiently diverse and its homogeneity means it is unable to resist more shocks. Since it ends in chaos, it will collapse into one of the other scenarios.

In the more likely Long Hand scenario, there is a breakdown of the Washington consensus and it is replaced with agreements between what the report calls “affinity groups”. There’s a certain amount of tiptoeing here, because no-one wants to offend affinity groups that may coincide with ethnic or religious divisions, but I think we can all see that the nature of such virtual communities make this a realistic projection.

Personally, I can’t help but see the final Many Hands scenario as the most likely. In this scenario, international society reforms around city-states. This scenario explores the impact of parallel shifts in power away from nation states toward cities and away from “the West”. The report talks about a system of 50 or so global city-states (including London, Istanbul and Singapore in the first rank) forming the backbone of not just the economy, but society.

So what does all this mean for financial services in general and payments in particular? The report suggests that ICT will reduce the size of the financial sector overall, perhaps even doing away with some sub-sectors altogether (insurance being specifically mentioned as being under threat). It also, to my mind, supports the idea that community, rather than national, currencies are a more likely medium-term vision than some sort of global currency.

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Nick Norman from Consult Hyperion chairs the NFC session.
Thanks to everyone who took part in the sessions. 

This why I watch the evolution of money in virtual worlds, online games and social networks with such interest, because I think that the seeds of new monetary arrangements and institutions are being planted here and not in the corridors of the European Central Bank. So the news that Facebook has a billion inhabitants catches my eye. So does the fact that the Google Wallet stores coupons and loyalty points as well as a credit card. So does Bitcoin appearing in The Economist and e-gold showing up in pension portfolios. This isn’t a vision of hippynomics or anti-capitalist fantasy. An ecosystem founded on a greater number of diverse form of money, particularly rooted in communities, whether those communities are geographic or virtual, offers greater flexibility and resilience. Stability is good for business as well as society. Banks won’t vanish because they are lending you kilowatt hours instead of Yen. (As a matter of fact, banks were invented a long time before money was, because people needed to store, and borrow, things like grain.)

What does this have to do with the winters of the eastern seaboard? Well, governments, central banks and the existing international monetary institutions are the ones using the newly-invented refrigerators to create ice that is being sent in wooden ships around the world. Meanwhile Facebook, Google and kids in basements the length of Silicon Valley are figuring out how to give everyone a refrigerator so that they can do it themselves. My message to the folks at Occupy? Stay cool. If you don’t like the man’s money, make your own.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers

2 comments

  1. “Cash is on the way out, and it won’t be replaced by plastic cards or paper vouchers but by mobile phones.”

    Since there is no money (as such) and payments are about ID, phone is not the only (and, perhaps, not the best) ID carrier.

    There is nothing wrong, from that perspective, with “chip” cards. Or biometrics. If done right.

  2. Good blog post Dave. I have two questions I would like you to elaborate on:

    You write: “Cash is on the way out, and it won’t be replaced by plastic cards or paper vouchers but by mobile phones.” I have heard you mention this often and I agree. But wouldn’t you agree that it is very obvious that the “mobile phone” is just our contemporary form-factor of a mobile, connected, computing power? To state it that way is a bit more ambiguous, but then again it encompasses more the direction of where the technology is going. Mobile (smart)phones are what we have now – when cash is replaced it might be by (smart)watches, (smart)glasses or something even my mind cannot think of. What are your thoughts?

    Second. I am curious to hear your thoughts on two classing “community models” described in the blogpost. You write that “In a connected world, community no longer means a street or a town or any kind of place at all. It means subgroups in the Net” and continue later on that “Personally, I can’t help but see the final Many Hands scenario as the most likely. In this scenario, international society reforms around city-states.” The first community type is clearly virtual whereas the second one is clearly geographical. What are your thoughts there?

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