Internet and money

On a recent trip back to Uganda, I was fascinated to see that almost everyone has a mobile phone.  When I was growing up in Kampala twenty years ago, there weren't even many landlines. 

Technology hasn't merely democratised communication, it has given almost every Ugandan a system of instant, electronic banking.  One of the great, unforeseen consequences of mass mobile phone ownership has been the evolution of a system of mobile phone-based banking.  By transferring mobile phone credits from phone to phone, Ugandans are able to pay for things securely, and bank in a way that was previously impossible.

It got me thinking....

What if one day a mobile phone company in such a country was to start selling phone credits that were decoupled from the value of the local currency?  Rather than having X number of shillings worth of credits on your mobile, you would have a certain number of credits - which could be worth one amount one day, and a different amount another day.

If there was also inflation (the shilling losing value), folk would pretty soon transfer their wealth into phone credits.  Bingo!  You would have not merely micro electronic banking, but in effect a private currency operating alongside the "official" unit of exchange.

My bet is that this is going to happen someplace pretty soon.  Technology hasn't merely smashed the state monopoly on providing telecommunications.  It could break the state monopoly on currency.

What about Britain?  What if in a few years time most Britons did their grocery shopping on-line?  What if we each had an account with, say Tescos or Morrisons or Lidl, denominated not just in £ sterling, but in the supermarket's own system of credits - similar to mobile phone credits. 

If inflation was to pick up, and a household knew that they had to spend a certain sum on groceries that year, it is not impossible that folk would buy supermarket credits, and spend them over the course of the year.  They would be more likely to retain value.  Would that not also be a system of private currency?

What if you could transfer your holding of supermarket credits over to someone else, in payment not just for supermarket bake beans, but for anything you like?

Fantasy?  Not as fantastic as the idea of mobile phones seemed in Uganda two decades ago. As governments debauch the currency, I suspect that we will see the evolution of new, non-state controlled means of exchange. 

Posted on 2 February 2010 by Douglas Carswell

Comments

Im a bit upset more hasn't been said about the state monopoly on money and the consequences of this in our current recession. Any move to destroy the states currency monopoly is to be welcomed. Hopefully a start can be made by allowing interests rates to float rather than the 'experts' in the MPC making the decisions.

Posted on 2 February 2010 19:16 by Think This

Interesting. There are endless stores collecting credits, handing out vouchers etc. They are increasingly convertible to use with a number of businesses. But the real sticking point must be wages, no? For as long as wages are paid in the State currency, all this stuff is a sideshow, because wages are fixed and therefore diminished by inflation. For people to ask for their wages to be paid in store credits/phone credits there'd have to be total convertibility. Just don't think that's really going to happen; those credits are there to tie people to shopping with the businesses/groups that issue them.

Posted on 2 February 2010 19:35 by Gandhi

Getting credits on mobile phones is all very well but I live in a No Signal Zone and that is unlike;ly to change any time soon. Perhaps I should move five miles down the road or go to Uganda and do my business from there!

Posted on 2 February 2010 19:36 by S Levenson

@Gandhi it is very common in a hyper-inflationary environment for companies to pay workers in either finished goods from the factory warehouse or basic materials from the stores. This was standard pactice in South America in the 80s. http://books.google.co.uk/books?id=N_b83IFutYkC&lpg=PP1&dq=hyperinflation%20survival%20guide&pg=PP1#v=onepage&q=&f=false

Posted on 2 February 2010 20:25 by AC

That notion veers dangerously towards a cashless society and we ought to consider the consequences.

Already, corporations have larger budgets than many countries. When these corporations are global, they have no jurisdiction and they are essentially above the law.

We have seen how this can have a corrupting, anti-democratic influence on government. What will happen when such corporations have the power to invent currency at will?

How will people transact should mobile phone communications be sabotaged?

Would government force people to obtain licenses for mobile phones - just as is being proposed for Internet usage (by Micro$not at Davos)?

There are serious liberty issues here.

Posted on 2 February 2010 22:30 by http://faustiesblog.blogspot.com

30 years ago I received Luncheon Vouchers as part of my salary. All the shops around our office ( naughtily) took LV's in exchange for cigarettes, beer, sweets as well as food.

Yes I can see it happening, except that the EU and our government are already beginning to clamp down on the internet and our freedoms, they won't lie down and just let this happen as pretty soon their control and tax revenues would be severely eroded.

I agree entirely with Think This on interest rates. Artificially manipulating the money supply was the real root cause of the credit crunch/bubble

Posted on 2 February 2010 22:43 by libertarian

Good post. Back in the day countries used to use a basket of currencies, such as gold and silver. However, since governments wanted to be able to control our lives, start wars, do socialism etc. they needed to be able to inflate the money supply to their advantage.

Hence, we had a paper currency backed by the gold-standard but eventually, through debasing this system, it became a completely fiat, paper monetary system.

But anyway, removing the government monopoly on money and thus create a free market monetary system would be a cool idea :)

Posted on 3 February 2010 01:24 by John

I beleive there are already several communities around the UK where conventional employment is unavailable. Groups have created simple trading systems by exchanging "Work Credits".
The prinicple is simple.
Units are exchanged for services such as Baby Sitting, Gardening, etc.
The system works well within small relatively poor but tightly knit communities.
This creates Social Cohesion and builds self-confidence.
Policy makers please take note?

Posted on 3 February 2010 08:40 by Eric of Walton

I don't like the idea of a store currency. I think companies like Tesco have enough corporate power as it is. But I am in favour of local currencies. For example, many transition towns, such as Totnes in Devon, have local currencies, which can be used in shops and is used alongside the official currency and can be exchanged for the official currency. Wouldn't this be more the way forward?

Posted on 3 February 2010 08:53 by Peter F

"Technology hasn't merely smashed the state monopoly on providing telecommunications. It could break the state monopoly on currency."

Interesting point. I've have never thought of it that way before. I think you are spot on, the money system will change, theres no doubt about that.

Posted on 3 February 2010 09:26 by Andy

I remember when I took to Disneyland I was given Disneydollars in change.

Posted on 3 February 2010 09:29 by Peter Whale

Brilliant. I notice from the TV that there are some places like Brixton that do this already - but with sort of notes instead of phone credits.

Posted on 3 February 2010 09:37 by Mike Stallard

Peter F says that he doesn't like the idea of a store currency.

That's the whole point. If folk want to stick with the official thing, great. They'll be able to.

Posted on 3 February 2010 09:48 by Douglas Carswell

Interesting - no pun intended - point, and one that I've joked about with friends: we like to make token bets after a few drinks, and the standard currency is a pint of ale.

Beer is a rather more stable currency than Sterling in recent years, even if our legs aren't after drinking the winnings!

Posted on 3 February 2010 10:21 by Russ Williams

Possible, but a "Tesco" has the same problem a "Pound" does, its not a thing.

In your future currency mobile phone case, you would in effect buy 10 minutes of calls for £X rather than simply storing £10 on your phone to buy calls with at a later date.
Being paid in mobile phone minutes or postage stamps (Read "Going Postal" and "Making Money" by Pratchet) is different, and quite possible, but awkward.

Posted on 3 February 2010 11:29 by DominicJ

Such an independent banking system would be easily able to prevent inflation which would be a massive boost to Africa & a significant one to us. We certainly have the technology to do this worldwide. If only Britain had a stable currency we could make the world a Sterling Area again. However if some genuinely independent international bank did it it would, apart from giving them immense profits, tend to encourage popular trust in free enterprise. It is difficult to trust politicians more than businesmen when you trust the business currency more.

Posted on 3 February 2010 11:31 by Neil Criag

Aren't several US states already printing their own currency for use locally?

Posted on 3 February 2010 12:26 by rightwinggit

In reply to Mike Stallard's comment about Brixton's local currency, Brixton, like Totnes, which I mentioned in my earlier comment, is a transition town, hence the local currency.

Posted on 3 February 2010 13:04 by Peter F

In reply to Eric of Walton, yes, there are quite a few schemes in the UK and elsewhere where people use work credits. They are known as LETS or timebanks. They are not just a middle class hobby but a viable alternative to paying for services in which no money changes hands, just credits on a computer. It is a modern form of barter and as you say probably works best in poorer communities. The schemes are recognised by the Inland Revenue and Jobcentres for tax purposes (ie. people on the dole won't be penalised for taking on work as long as it is unpaid, and no tax has to be paid). The nearest one to us in Clacton, Harwich and Walton is, unfortunately, in Colchester, but who knows, maybe in the future, as the recession gets worse, perhaps we shall get one started in Tendring. There was one in Tendring some years ago but it fizzled out.

Posted on 3 February 2010 13:47 by Peter F

Privatise money = good. But be very careful with 'Tescos' (as a unit of money) or you'll end up "owing my (your) soul to the company store"

Posted on 3 February 2010 15:20 by lola

Love this.

Hayek would definately approve.

Also if any particular grocer or telecommunications giant decided to devalue thier credits then people would go elsewhere.

What's the betting that people would choose a trustworthy, conservative (small C) minded credit over the short term special offer merchants?

People could even shop around currencies as they do with credit cards to get the best deals.

Posted on 3 February 2010 16:55 by Rob H

Indeed, George Selgin's book "Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775-1821" is about this. The Royal Mint wouldn't issue enough small change for factories to pay their workers. So the factories minted their own small change currencies themselves. "Tradesmen's tokens" were redeemable in the factory's shop for the factory's goods. But, hey presto, other people started accepting them as well! They became parallel currencies until they were banned by the government.

Posted on 3 February 2010 16:57 by Hugo

What if a grocer giant or a telco giant decide to price his goods or services in gold?
People would pay with $ or ? to buy 1g gold in services from the telco giant. If they would be able to pay with their cellphone credit for groceries or other stuff we would have the best of both worlds. Private money and gold money all assembled in a single bundle.
It could be interesting that at the start of this year the EC directives for telcos force them to allow the portability of the number AND to transfer the residual credit to the new operator. Sound much like moving a bank account from a bank to another.

Posted on 5 February 2010 19:46 by Romanato Mirco

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