Rethinking Money: Breaking Up Currencies

from the different-purposes dept

I remember when I was quite young, my father predicted to me that we'd probably see the end of cash within our lifetimes, as all money would move to electronic money in the form of credit cards (or credit card-like interfaces). Every so often this idea has been discussed, but it usually gets shot down by those who like the anonymity of cash (which is one reason why some governments don't like it). So it's interesting to hear via Slashdot that an Estonian economist is recommending that the country go completely electronic as it adopts the Euro. I would imagine there are some issues with doing so (including the fact that cash and coins from other Eurozone countries would inevitably bleed in).

That said, there have been a few other stories lately that have me thinking about the future of money, and I actually could see a way that countries could move in this general direction without actually getting rid of cash entirely. Last year, we wrote about the question of whether or not the world would move to a single world currency, while simultaneously considering whether or not we'd actually start to see growth in very localized currencies, which are increasingly common in various cities to encourage people to shop locally. Again, neither situation seemed ideal, but were definitely interesting to think about.

Recently, however, Umair Haque wrote up an interesting post, positing that money could be split into three types of currencies which serve three separate functions. The idea is not to break them up by region -- as described above -- but by function. Umair's writeup is a bit opaque, but he notes that currency is used as a store of value, as a medium of exchange and as a unit of account, but those functions can be separated. The end result, would be as follows:

You have three kinds of notes in your wallet. The first you use at the grocery store. The second, at the bank and in the financial markets. The third, between your employer, the state, and public services. Each has very different volatilities and trajectories, because each has very different levels of supply, demand which are, crucially, independent from one another--but interdependent on real wealth, long-run productivity, etc.

Now, this may be difficult to comprehend in the abstract. How would that actually work and why would each have different volatilities and trajectories? Well, the good news is that we actually have a real world example of this. A few weeks back the always excellent Planet Money team at NPR did a wonderful episode on how "fake money" saved Brazil from rampant inflation. The story is fascinating, and I highly recommend listening to it. But, it was basically a simplified version of what Haque is suggesting. Brazil had crazy inflation, so crazy that every day, stores had to remark their entire stock to raise prices, and people would rush ahead of the clerk with the price stickers to get "yesterday's" prices.

The way Brazil "solved" the issue was to effectively issue a made up new currency to handle some functions of money: mainly the unit of account. You couldn't actually get paid in it, or pay with it, but all the goods in all the stores were suddenly priced with it. Then, rather than having to change the prices every day, each day, the government would put out a rate card with the exchange rate, and people would work off of that. Now, you might say this shouldn't make a difference, but it actually did. It got people thinking in terms of the new "stable" rates, and got them past their general distrust of monetary value. (One side note: this upset some of the wealthy, who were simply making a ton in interest -- and they complained about how this new system meant they actually had to innovate and invest to make money -- which reminded me of certain industries in the US who like to avoid innovating and investing themselves...).

Either way, you had a situation where the currency for prices was perfectly stable at the same time the other currency was still dealing with massive inflation. As Haque points out, you have different currencies with different volatility. Eventually, Brazil switched entirely over to this new currency and made the fake currency a real currency, but there's no reason why you couldn't keep multiple currencies, and break them up into a third bucket as well, as Haque suggests.

I can definitely see how there could be some value in doing so, providing a lot more flexibility, and removing certain risk elements. However, I do wonder if the greater level of confusion might be a problem for many, and lead to huge potential arbitrage opportunities, where the more financially sophisticated folks took advantage of much less financially sophisticated individuals, to swap these different levels of currency around. I'm not convinced either way on this, but it does seem fun to think about the possibilities...

Filed Under: brazil, currency, money

Vodo Sets Up Currency To Encourage More Promotion

from the alternative-economies dept

In the debate over business models that embrace file sharing networks, one of the more interesting projects to watch has been Vodo, which is a platform for filmmakers who wish to release their works via file sharing setups, and to enjoy a promotional boost for doing so. Movies released via Vodo have done quite well, both in getting attention and in getting monetary support. The company has now updated its system and has added an interesting element: an internal currency, called "Do," to encourage people to promote the works.

That is, if you point people to a download -- you can earn some "Do" every time someone visits an artist's website or downloads the work or even agrees to give money to a content creator. This could be interesting to watch, though I do wonder how well it will work. On the positive side, as we were just discussing in our Dark Helmet case study, one of the most important things in getting modern business models to work is to get your biggest fans to help promote you. However, at the same time, we've also warned about the risks of artificial incentives to promote some content, you run the risk of people questioning the motives for the promotion. If Vodo can balance this, it could be quite nice, but that balance is very much an open question. I agree that it's important to make people comfortable promoting you, but I worry that creating such incentives leaves it very much open to gaming, rather than legitimate advocacy.

Filed Under: currency, file sharing, incentives, movies, promotions, rewards
Companies: vodo

Costa Rican Money Might Infringe On Artist's Copyright?

from the or-just-moral-rights... dept

We've pointed out in the past the oddity that some countries copyright the design of their currency, though we can't quite figure out why. There are already anti-counterfeiting laws for copying money, so why add copyright on top of that? However, down in Costa Rica, there may be a slightly different issue brewing. Michael Scott points us to the news that an artist is upset that a painting he did of educator Mauro Fernandez is to be included on new currency, being issued by the government, without his permission. The article is a bit unclear on who owns the copyright, but does note that the painting itself is owned by the Costa Rican National Museum, and the government had received permission from the museum. However, it also notes that Costa Rica has "moral rights" as well, which could allow the artist to demand his name be associated with his work. It appears to deal with this, the Costa Rican Central Bank is calling a press conference to "recognize" the painter as the creator of the image.

Filed Under: copyright, costa rica, currency, moral rights

Why Do Canada And Europe Copyright Money?

from the questions,-questions,-questions? dept

We've discussed in the past the odd idea that any government should be able to copyright anything it produces, but plenty of governments still do maintain things like "crown copyright" or other similar concepts for content they create. Yet, it looks like some countries have gone one step further. They copyright their money. Yes, Michael Scott points us to a blog post from an American law professor, Eric E. Johnson, who was on a trip to Canada and was surprised to discover that they have copyright notices on their paper currency. Of course, this should make you wonder: if you counterfeit some Canadian money are you also on the hook for copyright infringement violations? Or is there some other reason for the copyright notice. Are they afraid other nations might copy the design without compensation?

Finding the whole thing bizarre, but remembering that I have some Canadian currency from my last trip there, I checked -- and, indeed, in tiny print in the lower right-hand corner, there is a copyright notice. And then... bonus. Tucked in with my Canadian cash was a 5 euro bill as well... and it also appears to have a copyright notice on it right at the top in the center (though, it's tiny). I did a quick search, and indeed, it appears that the design of the euro is also covered by copyright with specific limitations on copying. Of course, I thought that was what counterfeiting laws were for -- so why even bother with copyright?

Filed Under: canada, copyright, currency, europe, money

Moving To A Single Currency... Or Lots Of Local Currencies?

from the or-a-combination-of-both? dept

A few days ago, Kyle Brady sent over his blog post wondering if the world would eventually move to a single currency. His suggestion would be that it would be based on the Euro, though can you just imagine the political uproar in the US if anyone actually took a step in that direction? Politically, it's a total non-starter. If you think that people are freaking out over health care reform, just wait until anyone in power suggested something like this. It simply won't happen. Brady's post goes on to suggest that this could help us move to a more digital currency, though I think we're already pretty much there. Actual paper money is a tiny fraction of the real money supply these days. Money is digital for all intents and purposes right now.

However, just after reading that... I came across an article suggesting pretty much the exact opposite: that we're perhaps more likely to move to more splintered currencies as local regions start creating their own currencies. The article, in particular, talks about Brooklyn trying to create a Brooklyn-specific currency. Such things are hardly new. Having spent five years of my life in Ithaca, NY, I was quite familiar with Ithaca Hours, the local currency that is often held up as the model on which such local currencies can work. Of course, we've seen other attempts to do this in the past, and I'm not sure any can really get big enough to matter. But I can see how they are appealing to some during economic downturns, as they look for better ways to try to get people to focus on local businesses. Designing a currency that encourages you to spend locally might seem like a good idea, and it can work in small doses. In the end, though, I doubt either movement (single world currency, splintering local currencies) is likely to become that big of a deal in the near future. The system we have now actually works pretty well (despite the economic mess faced today).

Filed Under: currency, local currencies, politics