[Dave Birch] You can’t accuse this blog of not keeping up with change in current events. For example, I notice in my Daily Telegraph
that there has been an election in the United States and there’s going to be a change of President. At these times of great change, I turn to economists to inform us as to the key monetary and fiscal changes that the new leader of the free world should adopt. I heartily endorse these two important policies concerning change:
# Get rid of pennies.
[From Economic Logic: Change I can believe in]
# Replace the dollar bills by dollar coins.
Hear, hear. I cannot understand the attachment to the dollar bill, even taking on board the inherent conservatism of people towards money. My American wife, who suffers taxation without representation here in the Mother Country, tells me that the issue is psychological. A dollar coin would make people feel that a dollar isn’t worth very much any more. Which it isn’t: it’s worth literally a fraction of what it was worth when it was first issued as a note.
[Dave Birch] One of the functions of banks has already been changed forever by the Internet, and that’s what economists call the information function. People used to rely on banks to provide certain kinds of information into the market (eg, credit ratings) but a combination of technology-enabled business change and vanishing delivery costs has meant that they are themselves consumers of exactly the same information as non-banks. (This is not the same point as the current debates about the privledged role of “agents” and information asymmetry which focuses on the knowledge gap between bank shareholders and bank managers as a contributory factors in the financial crisis.)
This is hardly new thinking — I can remember discussions a decade ago pointing out that some kinds of information were out of bank’s hands and that (given all sorts of constraints to do with data protection, competition law and so on) the operators of payment networks could use the “data exhaust” from their transaction networks to create information to “turbocharge” other businesses (it was the 1990s, remember). Indeed, I worked on a project for SWIFT to look at his kind of thing in (if I remember correctly) the late 1980s.
Now, advances in “web 2.0” technology mean that this turbocharging is both technically trivial and incredibly powerful, providing ways to create new kinds of information that would never have been generated by banks internally nor made available to the market as a whole. A favourite example of mine, that I originally found thanks to our friends at Payments News, is that courtesy of the New York Fed you can see U.S. bank card delinquency by county, and thus get yourself a real-time map of the credit crunch sweeping across the nation, like bad weather.