McPESA

There are good reasons, other than good clean fun with new technology, for a country to shift to electronic currency. Don’t listen to the techno-booster digital cash fanboys like me, listen to economists.

I’ll be heading up to the Financial Service Club in Edinburgh tonight to give a talk on Scottish independence, digital money and freedom! As I wrote in my blog piece yesterday, which was an online version of an article published 13 years ago, it is time for Scotland to drive a technological stake into the high ground and become the world’s first electronic currency state! In case you think I’m a nutter (which is, at best, unproven), or at least a blinkered technological determinist only interested in enriching Consult Hyperion clients in the electronic transactions space (which is true), I want to point out that I am not the only the person who thinks that its time for state e-currency, and it’s interesting to see why (which isn’t a love of technology).

Now, more than ever, is the time for central banks to launch their own official e-money.

[From The time for official e-money is NOW! | FT Alphaville]

Other than cost savings and convenience, you might wonder why economists think that electronic money is a good idea. Well, here’s what Citi’s chief economist has to say about it:

The purpose of the exercise is to eliminate a silly asymmetry in the monetary policy arsenal.  Because of the existence of currency with a zero nominal interest rate, the interest nominal rate on all financial assets is constrained to be no lower than zero

[From The Wonderful World of Negative Nominal Interest Rates, Again | willem buiter’s maverecon]

Why not have the new Scottish central bank seize the initiative? Just because we do things in a certain way doesn’t make them laws of nature, especially where money is concerned. The use of commercial banks to create money was a limitation of the technology of the day: the use of the payment technology of the day to create sovereign money was a bargain between the commercial banks and the sovereign that made sense in days of yore. But as the Positive Money people point out in their pamphlet on designing a Scottish currency, there is no obvious reason for a newly independent Scotland to go down that path.

So we should contemplate the re-emergence of the Scots pound; my own preference is to restore the groat or the bawbee. With its own currency, Scotland could pursue independent economic policies as economic realities and EU obligations would allow.

[From John Kay – Currency unknowns weigh on an independent Scotland]

Forgot about the political or narrative reasons for doing this, it makes sense in economic terms. Remember John Major’s splendid idea for the hard ECU? It is entirely possible to imagine a new currency that is designed to exist solely in electronic form and there are many advantages to doing so.

This option would see the creation of a new currency entirely disconnected from any other currency.

[From What currency should an independent Scotland adopt?| Scots Independence News | The Week UK]

A “hard e-thistle” would be a new currency, under the control of a Scottish central bank, that would only ever exist in electronic form. Scottish shops would be naturally accept it and they would mark prices in e-thistles, but they could also accept Sterling and Euros in note and coin form if they want to continue to accept cash. I’m sure a great many wouldn’t bother.

I am not myself a Scottish nationalist, but if I were I would want my country to have its own currency.

[From Scotland and currencies]

There’s the potential for a terrific national narrative around this. It would position Scotland as a modern economy, thought leaders and free thinkers, in the vanguard of the new monetary order. Whether they decided to use MintChip or Mondex, Bitcoin or McPESA they would be signalling a lot more than reduced costs for retail businesses.

I have a particular interest in the history of Scottish banks because of the lessons of that period of “free banking”. This does not, as you might think, mean that Scottish banks were once operated as charities but that they were free to compete in note issue. And the result, as most historians would confirm, was a period of incredible innovation when the more tightly regulated London and country banks failed more often than the less tightly regulated Scottish banks did (I know this is an appalling precis of a complicated and interesting period, but I’m trying to make a bigger point).

[From Digital Money: Freebanking and free banking]

Scotland had an enviable track record of innovation in the finance and banking sector right up until the time when the Bank of England’s outrageous monopoly was extended north of the border (see table yesterday). When a previous wave of innovation (paper money) swept through the economy, Scotland was far more successful than England in exploiting technological change to make the economy more efficient (and more stable). By 1850, in fact, when 90% of all commercial transactions in France were still being settled in gold or silver (as were a third of those in England), 90% of all commercial transactions in Scotland were being settled with paper.

Surely it would be possible for Scotland to embrace the next wave of change in the technology of money (digital money) and generate yet more innovation. The regulatory environment is changing to encourage competition in Europe. The European Commission’s Directive on Electronic Money, the Payment Services Directive (PSD and PSD2) have created the institutions — the Electronic Money Institutions (ELMI) and the Payment Institution (PI) to allow Scotland to start innovating now, never mind when it is independent in a couple of years!

But a variable exchange rate between Scots and English pounds would be a nuisance for individuals and business even if, as would be likely, the rate did not fluctuate much. The queues at the bureau de change at Edinburgh’s Waverley railway station would be the most visible manifestation,

[From John Kay – Currency unknowns weigh on an independent Scotland]

But would this be true with a hard e-thistle? There would be no queues at f/x bureaus because there would be nothing to change the foreign currency into: I suppose frequent travellers might obtain hard e-thistle prepaid cards, just like I have prepaid cards in Aussie dollars and Canuck loonies. But most of the time I just use my chip and PIN cards, my smart watch and my mobile phone to buy stuff. I didn’t get any physical Aussie dollars last time I went there and I didn’t get any physical Canuck loonies last time I went there either. Why would I bother with thistles?

As I will say in Edinburgh tonight, there is no need for notes and coins (except as post-functional cash) and Consult Hyperion’s experiences ranging from chip and PIN to M-PESA and from Mondex to MPOS  can help the new Scottish government to design and build money for the 21st century while remembering the 19th!