Money – Global Challenges

Money has four basic functions, each of which can be implemented in a different way and so each of which are available for different types of change. To me it is reasonable to consider these four functions and look at the global challenges to each of them individually and from there ask about the future.

Money as a unit of account is a hot topic as the US dollar is being questioned as the denomination of the world’s reserve currency. Robert Zoellick, President of the World Bank, recently said that the US must “brace itself” for the USD to be replaced in that role and, for other reasons, the UN Conference on Trade and Development has also called for the USD to be replaced with a new ‘global currency’ and not only as a unit of account. The question is with what? Should we adopt the Special Drawing Right that is used by the IMF or, if stability is a driver, should we not go back to gold as the price of oil in gold is much more stable than the price of oil in dollars.

Money as an acceptable means of exchange is already undergoing change. Money is useless as a medium unless it is acceptable to both parties in a transaction. In many countries cash is falling as a proportion of transactions. In a decade will cash still be there? Why? Might we eliminate money through ‘turbo barter’? Is cash replacement realistic and under what circumstances? Why now? Which technologies have come together to make this a point in time when the possibility of a change from cash to an alternative means of exchange is not only credible but also increasingly probable?

Money as a store of value is also open to question. How will people in the future have access to good stores of value and how will choice impact fiscal policies? Will we have transactions between non-monetary stores of value? In some African countries, people already trade their means of exchange (the local currency) for a better store of value – mobile phone minutes. Why not open savings accounts in gold, or oil, or food? There are many reasons for thinking, as Edward de Bono once suggested, that an ‘IBM Dollar’ be a better store of value than a USD.

Money as a mechanism for deferred payment is seen as a prerequisite for society to function. It must support contracts between parties that include provision for future payment. So will people and organisations choose different payment mechanisms? Are there enough reserve currencies to make choice a reality? Will we collapse back to bullion, or grain? If I agree to pay you $1 million in a decade, can you continue to use conventional assumptions to value that offer?

From my perspective, as a technologist, it is the means of exchange that is most immediately subject to the pressure of rapid technological change, particularly since we are at one of those inflexion points that come along from time to time. The mobile phone is about to become the most important means of exchange on a global basis and the first technology with the potential to replace notes and coins as the means of exchange for the ‘average’ person.

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