The Future of Money

What is the future of money? It is a tantalizing question, and one that I have been focusing upon for a long time. GoldMoney is a direct result of my vision for the future of money.

From my experiences as a banker in the currency crises of the 1970's and from my extensive studies of monetary history, it became clear to me that the currency we were using was inadequate in many respects. As a result, our international monetary system was defective, impeding global commerce and imposing pernicious risks on business that continue to this day.

The problem is that we use 'money substitutes' for currency instead of 'money' itself. Since the establishment of the Bank of England three hundred years ago, money substitutes rather than money itself have become the currency of choice in commerce. Bits of paper and bookkeeping entries circulate as currency as a substitute for gold and silver, or for that matter, any asset that could serve as money.

In an exchange, one must accept an asset in payment for goods or services in order to extinguish the exchange. If one were to accept a money substitute, the exchange is only extinguished if you are able to pass the money substitute on to someone else in another exchange, which normally is possible. However, in currency crises and other periods of monetary distress, the value of money substitutes is called into question, as we saw recently in Argentina and in Asia before that.

As a result of pondering this problem, I had an idea that envisioned currency evolving into a tangible asset that circulated within a technologically advanced communication environment. I refined my idea through the 1980's, and when recognizing that the required technology was not too far in the future, I filed my first patent application in February 1993, and the first of three US patents was awarded to me in September 1997.

My idea recognized the advantages of using money in commerce instead of money substitutes. In other words, tangible assets such as gold, i.e., money, are preferential to money-substitutes, which perforce are only a promise to pay money.

Importantly, technology now makes possible the ascendancy of money over money-substitutes. This advancement in currency is important because the needs of global online commerce make that ascendancy essential. In other words, commerce today needs a currency in which non-repudiable payments can be made instantly, 24/7. These objectives cannot be achieved with money substitutes, but they can be achieved with GoldMoney. Consequently, I believe that GoldMoney is important to the future of money, and will in time I expect become the currency of choice in 21st century global online commerce.

This background information is important to answering the following email, which I found thought provoking. This email is also timely because it touches upon different visions for the future of money and currency, which is a topic that I will be addressing at a conference being sponsored by The DaVinci Institute on October 27-29, 2003 in Denver, Colorado. Details about the conference are available here:
www.futureofmoneysummit.com [website no longer active]

One of the many sponsors to the conference is Forbes, which says The Future of Money Summit "focuses on the opportunities uncovered by the forces of money as we sink ever deeper in the rising tide of change." GoldMoney and the technology it employs is at the forefront of that change by enabling gold to not only circulate once again as currency, but to do so in a way that money substitutes cannot match. In other words, only GoldMoney makes possible non-repudiable payments 24/7.

The following email though addresses the future of money by looking at one money substitute - the euro. I found the email interesting because it actually touches upon a subject that is important to all of us by asking - can any national currency act as a substitute for gold? Or to put this question in another way, can any currency offer sufficient inducement to cause holders of gold to part with their metal? These are questions of critical importance to the future of money.

Because I have not asked the writer for permission to publish his name, I will not release it. My comments below appear within brackets.

Dear James:

As usual, I read your [September 8th] GoldMoney alert with great interest. However, there is something I would like to add that unfortunately goes against your personal stake in seeing gold return to its former status as "money." You may therefore not want to publish it.

[As we will see below, the writer is using 'money' where in fact he should be using 'currency'. Gold is money. It never lost this status, so there isn't any question of gold having to 'return' to it. However, from the 1930's until the launch of GoldMoney, gold did not circulate as currency. And it is clear that I have a personal stake in seeing gold return to its former status as the global currency of first choice.]

You state in your last paragraph:

"I expect that gold will soon break out of the 'saucer' pattern against these three remaining currencies. In fact, the patterns are complete so a breakout appears imminent. It is an event that we gold bulls want because it will signal a global movement out of fiat national currencies into gold. The last time we saw that event was in the 1970's, and we all know what happened to gold in that decade."

What needs to be observed here is that gold - even in 1980 - was not really used as a substitute for fiat money as a currency. It was bought - and fiat sold for it - in order to take advantage of gold's superior function as a store of value, not to use it as a medium of exchange or unit of account, which are the other two of the tri-partite functions of "money" as it is currently defined in economic terminology.

[I agree with this observation about 1980, but things change over time. So currency can change and evolve over time. The point is that GoldMoney is really two stories. Clearly, it is a gold story, but less well understood is that fact that GoldMoney is also a technology story. It uses today's technology to overcome the impediments that stopped gold from circulating as currency in the past. The important point is that there is no reason why gold - which is money because of its store of value attributes - could at the same time also circulate as currency. The technology makes GoldMoney possible.]

In fact, it appears that "fiat" as such (a paper/computer-blip currency that is not tied to gold by a fixed "X amount of currency for X amount of gold" ratio) is here to stay. People like fiat money. They have become accustomed to it, and it is just too darn convenient and useful - if limited to its best-use function as a pure currency. That "best-use function" is as a medium of exchange.

[Fiat currency has been convenient and useful, but we can already see how fiat currency does not meet the needs of global online commerce because it is unable to deliver an efficient online payment mechanism. Further, fiat currency has risks not found with gold. Who wants to takes these risks if one can also use gold as currency? Why not just hold gold and avoid the risks of fiat currency altogether?]

Gold's best-use function, on the other hand, is as a store of value. As long as a fiat currency is not set in competition with gold (i.e., as long as it does not really care to replace gold as a perceived store of value), fiat is really not that destructive at all. It still has weaknesses, of course, but at least those are not exacerbated by needless competition with gold in that one arena where fiat is just no competition for gold: the store-of-value arena. And that is what the new euro system is all about: it is a gold-friendly fiat, a revolution in monetary thought, in fact.

[A 'gold-friendly' fiat currency is an interesting concept, but it isn't new. That is what all national currencies were trying to be from 1914, when the link to gold for the national currencies began being broken, until 1971, when that direct link was broken altogether. What's more, the European central banks have been lending out their gold, and it is questionable whether much, let along all, of this gold will ever be paid back to them. Consequently, there is less gold backing the euro than generally thought. That reality doesn't make the euro very gold-friendly.]

It doesn't really matter if it is "the euro" that beats the dollar, or whether it will be any other currency. What matters is that this idea, this new concept of a gold-friendly fiat - has now been introduced on a large scale through the euro. Other currencies will follow. It is that concept that will take over international finance and money-thinking. And it is that concept that spells the doom of the US dollar as it is currently constituted - and guarantees sky-high fiat/gold prices in the future. Not because gold has "beaten" fiat, but because fiat no longer needs to compete with, and imprison, gold in order to survive.

[Governments have been fighting gold throughout history. They debase coins. They impose controls. They issue propaganda, but through it all, gold survives. As the writer says, gold has indeed beaten fiat throughout history - it always has and always will. Consequently, I would bet on gold in preference to the euro or any fiat currency for that matter.]

This needless, artificial, wasteful need to compete has now been removed for all to see. It's just that most people don't see it - yet. When people start to really see that, then the US-style fiat-honchos had better watch out!

[I agree gold's rate of exchange to fiat currencies is going to continue to rise. But there is a more fundamental change taking place. With GoldMoney, the seed has already been planted, and it points to what I think will be the future of money - gold is money because of its store of value attributes, but I also see it as a currency, circulating efficiently in global commerce.]

I would like to end with one other important point. Global commerce needs a non-national currency. The world needs a currency that it outside the influence of politicians, for as Ludwig von Mises noted, money is too important to each and everyone of us to leave to the control of the state.

There are plenty of national currencies to choose from, but no non-national one except GoldMoney. Given gold's long history as the world's money, its historical role as currency, and today's technology, I think GoldMoney offers one possible view for the future of money. I can't say the same thing for the euro.

Announcement

I am pleased to announce that I will be speaking at the Future of Money Summit, an important monetary conference being sponsored by The DaVinci Institute. The conference will be in Denver, Colorado from October 27-29, 2003, with over 65 speakers discussing and debating all aspects of the future of money.

To download the conference brochure click here. Also, infomation about the conference is available by calling (800) 481-2567, or from the conference website:
www.futureofmoneysummit.com [website no longer active]

Published by GoldMoney
Copyright © 2003. All rights reserved.
Edited by James Turk

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