Economics
Money's Digital Future
Economies could benefit from a universal digital currency.
By Cindy Wagner
The future of money is increasingly digital, likely virtual, and possibly universal. A
globally accepted networked currency would reduce costs and alleviate many problems, such
as the money laundering that supports terrorists, but there are still many obstacles to
such a system, reports the Organization for Economic Cooperation and Development (OECD).
Money is enormously convenient—except when it's not. Coins once operated laundry
machines that now only accept cash-value cards—which neither the subway nor the
payphone will recognize. You might still write checks to the phone, gas, and water
companies, but many services and utilities are encouraging automatic payments through your
bank (just as your paychecks are automatically deposited).
In fact, many people find traditional money—foldable bills and clinkable
coins—inconvenient, as it can tempt thieves, for example. Using credit cards that are
widely accepted in many countries is more convenient than carrying travelers' checks in
various currencies or calculating currency-exchange rates everywhere you go. As more and
more people use debit and credit cards instead of cash for everyday purchases—at home
or abroad—a cashless, digital-money future may be fast approaching.
The fight against international crime, especially terrorism, offers a compelling
argument for pursuing a global digital monetary system. Unlike physical cash, digital
money is traceable and can hinder illegal activity of all kinds. Other important benefits
include lower transaction costs, easier tax collection, and the elimination of costs in
printing, handling, storing, and securing physical money.
The digitization of money could have far-reaching impacts, creating a system of
"peer-to-peer digital money that is network based, transparent, easy to use, and
highly secure," OECD says in its report, The Future of Money. In other words, every
transaction—from governments purchasing supplies to chefs ordering exotic spices to
music lovers downloading songs—would be as simple as buying a magazine from the local
newsstand. One scenario for the next 10-20 years:
It is plausible that in many parts of the world the physical computer will have faded
into the background of basements, broom closets, and industrial warehouses. Users may only
deal with video, audio, and touch-screen interfaces that are scattered everywhere, like
today's light switches and electrical outlets, or integrated into their clothing or watch.
Using biometric identification systems that verify voice, face, and fingerprint patterns
during the course of perfectly normal discussions, the buyers and sellers will be able to
confidently instruct their intelligent agent to assess all of the variables that enter
into a monetary transaction, such as creditworthiness, consumer satisfaction levels,
recent prices, alternative suppliers, current demand conditions, and preferred forms of
payment. Based on preferences expressed over a long period of time the intelligent agents
can use individualized profiles to signal personal expectations regarding the conditions
for a deal. Finally, upon approval and verification of identity, the funds transfer
directly from the buyer's account (in a bank or some other verifiable, trusted source of
funds) to the sellers, clearing and settling instantly.
This digital-money world would be especially beneficial to the knowledge economy since
it makes intangible goods—ideas, creativity—as easy to buy and sell as
tangibles. The complex music industry has already demonstrated the growing pains of the
digital economy, as new technologies have allowed music consumers to get what they want
without paying the creators or providers for it. But a universal, peer-to-peer digital
payment system as the OECD report envisions it would permit music consumers (whether they
are radio stations or individuals) to pay royalties directly to artists over the money
network.
Other transactions could follow a similar model, such as homeowners buying electricity
or corporations trading carbon-emission credits, although in the latter case the networked
money system would likely require global integration. And global integration is the key
obstacle, suggests the OECD report. Nations are loath to give up sovereignty, but a simple
system allowing peer-to-peer transactions across national borders would render those
borders meaningless. Goods, ideas, and people now flow around the world more freely than
ever, and systems already exist in international banking to facilitate trade and the
exchange of financial information.
The OECD study surmises that the future will likely see many competing forms of
exchange at the local level, including "time dollar" trading systems such as
Ithaca Hours. The Internet helps make such local schemes globally feasible, but as with
any form of money, these schemes must prove they are trustworthy, reliable, and accessible
in order to become accepted.
As national governments devote more resources to working out the technological issues
of their own virtual transaction systems—strengthening their digital money just as
they have historically done for traditional money—eventually these systems can be
coordinated with other national systems.
"The challenge for national policy makers is to accelerate the introduction of
universally trusted and accessible peer-to-peer, instant clearing systems for all
transactions throughout the entire economy. Information technology makes this goal
feasible, but in the end only appropriate rules and institutions can make it practical
locally and globally," the report concludes.
Source: The Future of Money. Organization of Economic Cooperation and Development, 2,
rue André-Pascal, 75775 Paris Cedex 16, France. Web site www.oecd.org. 2002. 159 pages.
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