Money is a shared fiction. Our mechanism for storing and exchanging agreed-upon units of value, a tool so powerful wars are fought over it, springs entirely from our collective imagination.
Some might find that unnerving. The age-old desire to attach a currency’s value to something earthly, precious and finite is partly founded on a false hope that these tokens, in which we place such faith, have intrinsic value. It’s an understandable instinct, and there’s a strong gold standard argument for curtailing the sovereign’s power to debase people’s savings. But the sense of innate value is just a belief. As with people’s beliefs in other ephemeral concepts – in religion, for example, or in the concept of a nation – the ones most difficult to challenge are those fundamental to society. Indeed, one could argue that if everyone were to acknowledge that money is a fiction, it would cease to function.
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The imaginary nature of money is not a weakness, however; it’s a strength. As Israeli historian Yuval Harari, author of the seminal “Sapiens: A Brief History of Humankind,” explains, our capacity to conceive of and commonly believe in stories is the primary reason why we humans rule the earth, instead of, say, the chimpanzees. It’s what enabled us to organize into communities and, ultimately, to build civilization. The modern world is a direct outcome of our capacity, not just to imagine, but to imagine together.
Now, as a terrifying pandemic forces a retreat from globalization and challenges the foundations of the international capitalist order, society could be in for one of its periodic narrative shifts, a sweeping reimagining of its core tenets. Our idea of money, which Harari describes as “the most successful story ever invented and told by humans,” could experience the most significant transformation of all.
Our money narrative was already gearing up for a new act, even before an omnipresent antagonist called COVID-19 was added to the cast of characters. That’s because an intense competition was underway to establish a programmable standard for digital currencies. This radical new model will replace banknotes with what author David Birch calls “e-cash” and enable software commands within a device-driven, peer-to-peer system of value exchange that bypasses gatekeeping banks.
The race was kick-started by the invention of bitcoin (BTC) 11 years ago. It now involves thousands of competitors. To start with, we users – individuals, businesses and governments – will be offered a much wider choice, as the world moves toward a multipolar, multi-currency structure.
Nonetheless, there will be fierce competition to establish dominant standards across multiple alternatives. It’s a diverse field, encompassing decentralized, standalone currencies such as bitcoin; decentralized, algorithmically managed “stablecoins” such as dai; reserve-backed stablecoins built on open, permissionless blockchains such as Circle and Coinbase, Paxos and Tether; new, privately defined stablecoins built on permissioned blockchains such as Facebook’s Libra; and, last but not least, central bank digital currencies (CBDCs) such as China’s Digital Currency Electronic Payment (DCEP) system.
The stakes in this battle are high. On the line are the balance of geopolitical power, the public-versus-private boundaries of our economies and the value we place on transactional privacy.
The pandemic has given this all-in game even more urgency. As central banks flood the world with monetary stimulus, setting the stage for a more familiar “currency war” in which countries weaponize foreign exchange depreciation to give their industries an advantage over others, the dollar-centric international monetary system will come under stress. The Federal Reserve cannot indefinitely be the world’s lender of last resort for everything and everyone, not without undermining its independence and threatening global confidence in American leadership.
Meanwhile, the fallout from the crisis and the response to it have highlighted use cases for digital currencies that weren’t previously on people’s radars. Who would’ve thought, even as recently as February, that a digital dollar proposal would make its way into a March congressional bill as lawmakers grappled with how to get relief money directly and quickly into Americans’ hands? Meanwhile, fears over virus contagion appear to have accelerated the case for cashlessness as warnings rise over “germy money” and countries go so far as to burn or disinfect banknotes.
So, yes, a reimagining is coming – hence the choice of title for this brand new newsletter.
Umm, tell me about this bitcoin thing
In this section, we’ll employ data visualizations to explore how money is being reimagined. What better place to start than with CoinDesk’s own metrics on the content journey people take to understand cryptocurrency? In this case, we were interested to know whether, despite bitcoin’s sharp selloff during the first COVID-19 hit to financial markets, people are seeking to learn more about it in these uncertain times. So, we queried Google Analytics on page views for our Bitcoin 101 page. The result: this past Wednesday the page reached its highest daily view number since CoinDesk.com’s new site was launched in mid-November. Here’s its activity since March 1:
These data signals are preliminary. But along with a late-March spike in visits to Nik Custodio’s 2014 CoinDesk piece entitled “Still Don’t Get Bitcoin? Here’s an Explanation Even a Five-Year-Old Will Understand,” they hint that the chaos of the pandemic is reviving interest in crypto among CoinDesk’s “discovery” audience. This is nothing like the newcomer visits we saw during the 2017 crypto bubble. So far, greed, rather than fear, seems the bigger driver of mainstream curiosity. But while it’s painful to think large-scale adoption hinges on an event as horrible as this, perhaps people are this time motivated by deeper, more lasting interests.
Maybe they're asking about decentralized governance, data integrity, privacy, and whether bitcoin is truly “digital gold” – not simply, “How do I make a quick buck?”
Reimagining money is a collective exercise. There is no single author to the narrative. So, this newsletter will necessarily incorporate other voices. Here’s an unscientific survey of relevant stories and ideas.
The global town hall
What a difference a year makes. The Switzerland-based Bank for International Settlements, which provides banking services to central banks and issues research reports and policy recommendations, has gone from dismissing CBDCs as pointless to all-out advocacy. In March last year, BIS Chief Agustin Carstens said central banks were “not seeing the value” in the technology. But in August – notably, following digital currency announcements from Facebook’s Libra and the People’s Bank of China – he said CBDCs would be coming “sooner than we think.” At that time, the BIS formed its Innovation Hub and five months later named Benoît Cœuré, a former heavy hitter on the European Central Bank’s executive board, as its leader. Come January, it released a survey of 66 central banks, finding that 80 percent were studying digital currencies and 10 percent were close to issuing them. Now, per an April 3 bulletin, BIS researchers have pronounced that people’s changing relationship with cash during the COVID-19 pandemic would further accelerate the rollout.
How to explain a centuries-in-the-making monetary shift to your grandmother? Conveying this complex concept to the world at large requires combining big, scholarly thinking with accessible, easy-to-digest content. So it’s pleasing to see The Conversation diving into this topic. Backed by an international alliance of universities, the site lives up to its “Academic rigor, journalistic flair” tagline. A Dec. 12 piece entitled “When China and other big countries launch cryptocurrencies, it will kick off a global revolution,” remains highly relevant and readable even though it preceded COVID-19. Its author, Liang Zhao, of Lund University, writes, “While technological change has been incredibly fast in the information era, the system of international payments has lagged behind. But once sovereign digital currencies start taking off, this will suddenly change. Just like smartphones quickly eliminated most old cellphones, no countries will be able to reject blockchain payments for long.”
How will the world’s 1.7 billion “unbanked” fare during COVID-19 lockdowns? Now that virtually all commerce has moved online, people without access to bank accounts are especially vulnerable. As Aaron Klein of the Brooking Institution notes, there’s “a big problem for the coronavirus economy: The internet doesn’t take cash.” The challenge is not just in Africa, Latin America or Asia; it’s in the U.S., where one in 14 households are without a bank account, according to the FDIC. Such families use prepaid cards, which charge high transaction and balance-checking fees and require them to “preposition funds” whereas those of us with credit cards don’t have to. With millions suddenly thrust into unemployment and already struggling to get access to food, the costs of an outdated, pre-digital world of finance are about to become even more burdensome for the poor. It’s for them that this revolution must be fought.
"The Currency Cold War: Cash and Cryptography, Hash Rates and Hegemony." Slated for release in May, this book is about as timely as one can get. David Birch, a prolific author on topics of money and identity, and a consultant and prominent speaker on the fintech circuit, has delivered a detailed, rich analysis of the global competition to define electronic money and what it means for our lives. (Disclosure: I wrote the book’s foreword.) Outlining the convergence of cryptography, smartphone technology, identity authentication tools, and digital assets, The Currency Cold War is an indispensable guide to the future of money. (BTW, Dave will discuss these topics during our Consensus: Distributed virtual event on Monday May 11, when he’ll join other leading thinkers in a special livecast “Money Reimagined” online session that I’ll host.)
Money Reimagined is CoinDesk's big picture weekly newsletter. You can subscribe here.