Cash is a pretty nationalistic concept. We put presidents, famous scientists, national birds, pictures of industrial might and technical prowess all over our notes and coins. The stuff of currency is the stuff of anthems and flags, of nationalist bragging. A bit like postage stamps (remember those?)
But in a very global economy, constantly swapping quaint regional currencies to make global trade happen is a hassle and a major expense. Imagine shipping a crate of wine from South Africa to San Francisco on a Greek shipping line stopping over in Panama – we all know that it’s just not reasonable to pay every party in their local currency (Rands, Euros, Panamanian Balboa, US Dollars). So most of these transactions would be settled in the de facto universal currency: US Dollars.
Plenty of countries have extremely weak currencies of their own, and by choice have effectively become “dollarised”, where the local currency is widely mistrusted and ignored and most substantial local trade happens in US Dollars – Zimbabwe being a prime example of this.
That puts the United States Government quite awkwardly at the centre of a lot of trade that doesn’t even involve them. A rough estimate in 2011* suggested that about half of all US currency was actually sitting outside the US, including 65% of all $100 bills. That’s $500 billion. That’s a lot of money out there in the world.
Fun thought: if someone in Washington (to be specific, the Governor of the Federal Reserve) stuffs up badly enough and the Dollar depreciates massively, we’re looking at a global trade crisis as international businesses try to dump their Dollars chop chop before they’re worthless, so let’s all hope that doesn’t happen.
Still, using the US Dollar instead of your own national currency isn’t what I meant by “alternate currency” – there’s way weirder shit going on out there.
So let’s say there’s an economic collapse (Greece) / zombie apocalypse (World War Z) / any number of reasons you might not want to use normal currencies (unavailable in your area, heavy fees or exchange controls). What happens when modern trade needs to happen, but no conventional currency is available?
Kenya’s wildly successful M-Pesa system owes its existence to the rise of cellphone technology and a great big gap in banking regulations and coverage.
Air time can be divided into very specific amounts, it’s generally worth about the same value to each person and over time, it can be sent between people instantly, it’s not heavy or bulky or fragile, it doesn’t need refrigeration and it doesn’t expire for a long time. It has all the makings of a great currency, especially since it can travel quickly to very rural areas – probably the best commodity-based currency we will ever see.
As a testament to this, in Kenya, in the first 8 months, M-Pesa reached 1 million users. Four months later, 2 million users. Two months after that, 3 million. Currently it has 20 million in Kenya and 7 million in Tanzania. It has also expanded to Afghanistan, India, Eastern Europe and South Africa (where it has launched twice, but has never really taken off, mostly because of our banking regulations).
Read more here.
Amazon vouchers (some time after 1994)
Quite a few freelancers have told me that when they do small jobs for small foreign clients it’s a lot easier to get that client to pay in Amazon vouchers instead of depositing money into a bank account. South Africa has fairly strict exchange controls, sending and receiving foreign funds is a major pain, and the fees involved are a lot to pay on small jobs. This is strictly illegal (avoiding exchange controls and tax), so I won’t give much in the way of practical details, but suffice it to say that Amazon vouchers, like airtime, are divisible, reliably valuable, always redeemable for something you want, super transferable and easy to pass around.
Bitcoin is by far the most famous alternative currency at the moment. The classic cryptocurrency, Bitcoin pops into existence as large computers / stacks of computers (Bitcoin farms) carry out complicated cryptography tasks. The tasks come from the Bitcoin servers – these farms are helping Bitcoin stay afloat as a reliable currency by verifying encrypted transactions made with Bitcoin. Because verifying those encrypted transactions is very time consuming, there aren’t going to be too many Bitcoins floating around – no hyperactive Bitcoin printing press, no hyperinflation. There are plenty of newer Bitcoin competitors out there, but the differences are more technical than interesting, so I’ll leave them out. As always, for a great explanation of it all, Wikipedia is your friend: https://en.wikipedia.org/wiki/Bitcoin
Greece is in a unique economic position at the moment. Ok, they’re in a horrible position, but it’s delicious for economists: Greece a likely candidate for all sorts of economic innovation. Case in point: since the early days of the crisis in 2010, an alternate currency called the TEM has been gaining support. TEM is an acronym in Greek, which translates as “local alternative unit”.
The Wall Street Journal sums up the service: “Instead of dealing with a physical currency, members have an online account that starts at zero when they join. They can opt to take payment for goods and services in TEM, and then use those to buy products from others. On the network website, users can post ads on what they can offer and what they want.”
TEM is basically a ‘barter lubricant’, where people are trading barter-like goods and services, but without many of the issues of barter (see “Barter Is Bad”). TEM is divisible into tiny bits, storable for the future, and easy to carry around. My bet is that TEM’s greatest challenges will be stable value and broad acceptability (right now it is ‘popular’ with about 1000 registered users in the city of Volos, which has about the same population as George in the Western Cape).
There’s more here.
Where to next?
There’s really no limit on what can be used as an alternate currency, provided that it meets a few generalisable needs:
– stable value (stable supply levels, stable demand levels)
– wide and reliable acceptance for goods and services
– divisible into small amounts so that prices can be very specific
– easy to receive, easy to spend, easy to store for the future
– not expressly illegal (or at least, difficult to shut down)
– a reliable and always available technical (or physical) platform.
– cheaper, easier or more reliable than the nearest conventional currency
Excited for the next great leap forward? I know I am.
Illustration by: Martin Woodtli and Noli Novak [Wired magazine]