A few years ago I raised the issue of the impact of changing technology on the choices available to those wanting to redesign money in a European context. My main post was that the cost of creating new currencies has collapsed because of the internet, mobile phones and smart chips everywhere. In the context of the serious economic problems in Greece at the time, I said that Greece could pull out of the Euro and create a “hard e-drachma”. I went on to point out that there is no need for physical currency.any more.
So what?
Well, as I remember from the time, I was loafing in bed with a cup of tea listening to Radio 4 when “A Point of View” came on. I listened, spellbound, to the historian Sir David Cannadine talking about the history of currency unions in Europe. In ten minutes, David gave one of the most interesting talks I have ever heard on BBC Radio 4 (you can read it here).
David’s description of the Latin Monetary Union (LMU) was concise and brilliant. Follow the link and read it for yourself: I won’t traduce the narrative through paraphrase but the highlights are, essentially, that the Europeans formed a monetary union in 1866, Britain refused to join, Greece got chucked out and in the end the whole thing collapsed.
There really is nothing new under the sun.
So will history repeat itself? Forum friend Keith Hart, author of “The Memory Bank“, a book about money from an anthropological perspective, wrote about the state of the European monetary at the time that the big mistake was to replace national currencies with the euro and noted that an alternative proposal, the hard ecu, would have floated politically managed national currencies alongside a low-inflation European central bank currency.
I couldn’t agree with Keith more about this. The hard ecu, or as I used to like calling it, the e-ecu (since it would never exist in physical form) was always a better idea than the euro. When John Major proposed this extremely sensible alternative to the euro, saying that it would be used initially by businesses and tourists, and managed by a new European monetary fund, he was ignored.
The idea of the hard ECU was to have an electronic currency that would never exist in physical form but still be legal tender (put to one side what that actually means) in all EU member states. Thus, businesses could keep accounts in hard ECUs and trade them cross-border with minimal transaction costs, tourists could have hard ECU payment cards that they could use through the Union and so on. But each state would continue with its own national currency — you would still be able to use Sterling notes and coins and Sterling-denominated cheques and cards — and the cost of replacing them would have been saved. After writing about this last year, I subsequently discovered that the proposal goes back well into the early days of Margaret Thatcher’s government.
In fact, the origin of [the hard ecu] was seven years earlier in the 1983 report of the European Parliament on the European Monetary System… The parallel-currency proposal was supported across the political and national groups in the parliament, including by the Germans so long as the central bank only concerned itself with stability of the currency (as subsequently transpired). It was taken up by Margaret Thatcher as the acceptably cautious route towards a single currency for Europe, part of her much cherished drive for a single European market for Britain’s successful financial-services industry.
The idea of an electronic currency union to facilitate international trade has new resonance. While Bitcoin captures the media attention, there are a great many possibilities: new community currencies, brand-based plays, commodity baskets and goodness knows what else. All of these make it an exciting time to be in the electronic money business, but they also make it unpredictable, which is why it is fun. A couple of years ago, people began to look to social media as the natural place for new currencies to emerge:
If Facebook were a country, it would be the third largest in the world, so it figures that the social networking giant is trying to develop its own currency – Facebook Credits.
It isn’t a country, of course, and we shouldn’t get too carried away with that kind of thinking, but the point holds. If communities are the natural basis for currencies, then there are many communities (both “real” and virtual) that might incubate the successor to the euro (and, for that matter, the Dollar and the Yen). My review of Matthew Bishop and Michael Green’s “In Gold We Trust”, I said that
I support their observation that (as Hayek thought) we might reasonably expect many forms of private currency to develop in the post-fiat world and there is no reason to imagine that only a single alternative will emerge.
[From In Gold We Trust – don’t we? | The Enlightened Economist]
We’re not looking at a world in which some kind of new currency takes over, but a world in which a great many communities choose the currencies that are most efficient for themselves.
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