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At the moment there is a lot of hysterical futuristic crap been written, about the money of the future.

” We will be making payment with the blink of an eye”  and the like.

” The cash register is coming to an end?” Not so far-fetched.

When it comes to money, there’s a lot of change going on.

Over 5000 complementary monetary experiments are already under way around the world…

Everybody knows that electronic currencies is changing the form of our conventional national currencies. (smart cards, e purses,etc.)

It seems more than likely that our current model will be replaced by electronic payments.

However the question remain whether today’s governments will allow money to disappear or we have to wait for them to fade out – or be thrown out – of existence. One way or the other there is no doubt that in a few years or several decades the hardened walls of the banking and government institutions running our economies are in for a shock when a new monetary system arises that is entirely private and not run by states.

Its shape and features will ultimately be decided by the market.  Free market monetary systems, in which the supply of money is outside political control, are likely to be systems in which money proper is a commodity of limited and fairly inelastic supply.

But it also seems improbable that a completely free market would grant any private entity the right to produce (paper or electronic) money at will and without limit. The present system is unusual in this respect and it is evidently not a free market solution. Neither is it sustainable.

Future economic historians will pity us for having worked under a strange and inefficient global patchwork of local paper currencies – and for having naively believed that this represented the pinnacle of modern capitalism.

Today, every government wants to have its own local paper money and its own local central bank, and run its own monetary policy (of course, on the basis of perfectly elastic local fiat money). This is naturally a great impediment to international trade and the free flow of capital. They are parastatal dinosaurs, joined at the hip with the bureaucracy and politics, bloated and dependent on cheap money and state subsidy for survival. They are ripe for the taking.

The world is ready for an alternative monetary system, and when the present system collapses under the weight of its own inconsistencies, there will be something there to take its place.

Money however is one of society’s most embedded, ancient institutions anchored in trust and the race to win that trust is on.

So there are many questions to be answered.

How will own the money?  How much freedom will they allow, when freedom is so attainable? How will they treat banks when, with merely a download, anyone can be their own bank?  What will they have to say about currencies which compete with their own?

What exactly is money?

Economic Textbooks define money by what it does, not by what it is – e.g. Functions of Standard of Value, Medium of Exchange, Store of Value, etc…. Money is an Agreement, within a Community, to use something as a Medium of Exchange.

Take the dollar.

It has lost over 92% of its value since its initial issuance in 1913. After the revaluation in 1934, the dollar dropped another 41%. The very volume of dollars in the world has given many people a conviction that the currency is worthless and doomed to lose its status as a global reserve currency and turn into toilet paper money by letting the printing presses run wild.

“Short-termism” is programmed by the interest feature of our conventional money.

1.3 trillion of it is traded in foreign exchange markets every day. 100 times more than the trading volume of all the stock markets of the world combined.

Only 3% of these foreign exchange transactions relate to real goods and
services. 97% is purely speculative.

What happened is that ‘speculative’ trading (i.e. trading whose sole
purpose is to make a profit from the changes in the value of the
currencies themselves) has all but taken over the foreign exchange
markets. The currency market has become the biggest single market in the
world. Foreign exchange transactions purchases and sales of
currencies) today dwarf the trading volume of all other asset classes,
even of the entire global economy.  

2/3 of all human beings who ever reached the age of 65 are alive today are looking at unfunded pensions liabilities now $3.5 Trillion in the OECD countries alone. Three times the GDP of the USA.

Not to worry as long as all major corporate decisions are made with a short-term horizon => long-term sustainability is going to be an illusion.

85% of all insurance payments worldwide compensate natural disasters. For times more people die in natural disasters than in all war and civil disturbances combined.

69% of professional biologists say we’re in ‘sixth extinction’ – we are in the process of losing 30%- 70% of the planet’s biodiversity by 2030 due to the actions of humanity!

Back to Money:

The latest smart phone technology is revolutionizing the payment process with the death of the wallet not far off.

Remittances are a gateway drug to Twitter, Facebook, Google, to achieve financial inclusion in the future.

Facebook is readying itself to provide financial services in the form of remittances and electronic money. It wants to become a utility in the developing world.

If Ireland’s central bank becomes an “e-money” institution it will allow Facebook to issue units of stored monetary value that represent a claim against the company.

Obtaining an e-money authorization in Ireland would require Facebook to hold capital of €350,000 and segregate funds equivalent to the amount of money it has issued. Facebook is already authorized for some forms of money transfer in the United States, allowing it to process payments for developers who charge users for in-app purchases.

Facebook takes a fee of up to 30 percent for such payments, and these fees account for about 10 per cent of its revenues. It recently reiterated its commitment to expanding its mobile payments and wallet products, which have yet to be widely adopted by consumers.

In 2013, the company facilitated $2.1 billion worth of transactions, almost exclusively from games.

I personally am not surprise that it is viewed with skepticism as a payment vehicle, when you look at all the crap one sees on Face Book – Would you trust Facebook to handle your money.

Google is registered in the UK to issue electronic money, in a process similar to the authorization which Facebook is seeking in Ireland.

Google and its NFC-driven Wallet, and PayPal are well on the way to providing digital payment that can move between two people as they pass each other on the street, or between two people on opposite sides of the Earth – with no difference between the character of the two payments.

Vodafone has acquired an e-money licence for the phone company to operate financial services in Europe.

Twitter, Square, PayPal, Apple are also in the race to replace Money.

The question of ‘what’s next?’ Depending on how it’s answered by governments, it might be very exciting or very frightening.

The importance of digital – potential changes in payments, branch banking, financial advice and the use of social media will accelerate change in the industry, most likely to the benefit of fast-moving incumbents.

New technologies are threatening to disrupt existing models in retail financial services; the pressure of increased operating and capital costs reducing capacity in wholesale banking; and a struggle for growth and profitability in insurance waning customer loyalty as their biggest challenge.

The banking system fundamentally makes money by keeping customers confused, making the lion’s share of profits from fees and charges, not from banking. They will have to think no longer of themselves as mere providers of financial products and services and enablers of transactions. They will need to be solution providers that play a greater role not just at the moment of transactions, but before and afterward as well.

The global e-payments value reached $256 billion in 2012, and is expected to grow three-fold by 2014 to a total of $796 billion. An average person touches his / her smart phone 150 times in a day.

So it’s no wonder that the single biggest area of investment is mobile apps for tablets and smartphones, with the ultimate target to consolidate everything you carry on you till financial transaction that involve buying something is paid for by simply saying your name.

And before I sign off we have Cryptocurrencies,

Bitcoin is a peer-to-peer currency with no centralized authority

Bitcoin is regulated by code, which determines how quickly new Bitcoins are generated without the intervention of humans. Bitcoins are stored in a wallet that resides on your computer – or a hosted wallet service off in the cloud, if that’s your preference – and transactions are nearly instantaneous. It’s the prototype for whatever improved implementation overtakes traditional currency in the future.

In the meantime, the debasement of paper money continues.

In the end, It’s great news that non-banks are challenging the traditional banking monopoly.

I leave you with a few Quotes;

“Maybe money is unreal for most of us, easier to give away than things we want. ” Lillian Hellman.

“Money is the only substance which keep a cold world from nicknaming a citizen “Hey You”. Wilson Mizner.

“Money is the poor people’s credit card. Marshall McLuhan.

“Money is what you’d get on beautifully without if only other people weren’t so crazy about it” Margaret Case Harriman.

” Wealth is nothing in itself; it is not useful but when it departs from us; its value is found only in that which it can purchase. As to corporal enjoyment, money can neither open new avenues of pleasure, nor block up the passages of anguish. Disease and infirmity still continue to torture and enfeeble, perhaps exasperated by luxury, or promoted by softness,. With respect to the mind, it has rarely been observed that wealth contributes much to quicken the discernment or elevate the imagination, but may,by hiring flattery, or laying diligence asleep, confirm error and harden stupidity.” Samuel Johnston.

 

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“Remember money has no sign of human worth.” Robert de Mayo Dillon.

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