مرکزی صفحہ The Future of Money || Seven. New Frontiers

The Future of Money || Seven. New Frontiers

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New Frontiers

CONTRARY TO THE Contraction Contention, therefore, the number of national currencies around the world does not appear set to shrink dramatically. Exploration of the four directions available to governments suggests
that there will be much resistance to an outsourcing of monetary policy.
However much the cost of a market preservation strategy may be rising,
few governments seem prepared to delegate all their formal authority elsewhere. Monetary geography will not be greatly simplified by the power
of economies of scale.
Indeed, quite the reverse seems likely, once we also take account of
other influences on the supply side of the market. Beyond the misty landscape defined by government preferences lie new frontiers, populated by
an increasing variety of currencies emanating from sources other than the
sovereign state. National governments have never been the sole suppliers
of money. Even during the heyday of the Westphalian Model, when the
dominance of state-sanctioned currencies was most complete, numerous
nonstate monies could be found in circulation. Prior to the nineteenth
century, the role of the private sector as a major producer of money was
taken for granted. Today, as demand-driven competition among currencies is once more becoming the norm, there is every reason to expect the
role of the private sector to be affirmed again and even reinforced. In a
world increasingly accustomed to choice among currencies, there seems
little that is anomalous in adding new and potentially attractive nonstate
monies to the menu. In this respect, too, monetary geography is moving
“back to the future.”
Although nonstate monies come in many shapes and sizes, two main
species may be distinguished—local money and electronic money. Both
types may be counted on to grow substantially in number, making the
future of money even more complex. Controversially, this chapter argues
that the growing proliferation of private monies represents a direct threat
to the traditional authority of states. Most governments h; ave already lost
their traditional territorial monopolies in the geography of money owing
to the widening of choice on the demand side of the market. Now, contrary to the view of many respected economists, I contend that states risk
losing dominance of the supply side, as well—a development that will
intensify still further the contest for market share.
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Local Money
Local money is a form of liquid claim deliberately created by nonstate
sources to serve the standard functions of medium of exchange, store of
value, and unit of account.1 Its distinguishing characteristic is that it is,
by definition, local—intended for use only in a restricted transactional
network, usually specified in terms of a single community or subnational
region. Alternatively labeled “private currencies” or “complementary
currencies,”2 local monies already exist in abundance. In early 2000, as
many as 2,500 local currency systems were thought to be in operation in
more than a dozen countries, up from an estimated 300 worldwide in
1993 and fewer than 100 in the 1980s.3 Many more are expected to
emerge in years to come, enabling selected groups of actors to claim an
increasing share in the overall governance of money.

Local currency systems can be created in one of two ways. One approach
offers a specialized medium of exchange, generically labeled “scrip,” as a
means to underwrite purchases of goods and services, often at a discount.
The other, typically referred to as barter-based money, is explicitly based
on an updated multilateralized form of the primitive bilateral transaction
that preceded the invention of money.4 Both approaches are becoming
increasingly popular across the United States and elsewhere.
Scrip-based systems have a long history, having appeared at many different times and in a variety of places. In colonial America and again in
the frontier West, where banks were not yet established, many municipalities took it upon themselves to compensate for the dearth of currency in
circulation by issuing scrip, typically in paper form or as metallic tokens.
Likewise, in isolated communities connected to mining or the lumbering
industry, big mining or timber companies frequently used scrip as a way
to extend credit to their employees and to direct purchases to their own
general stores or commissaries. And during the Great Depression of the
1930s, literally hundreds of temporary scrip issues were put into circulation by a variety of public and private agencies, including state and local
governments, school districts, manufacturers, merchants, chambers of
commerce, and cooperatives. Common types included certificates of
indebtedness, tax-anticipation notes, payroll warrants, clearing-house
certificates, credit vouchers, moratorium certificates, and merchandise
bonds. According to one early study (Weishaar and Parrish 1933), at least
one million U.S. citizens were involved in local scrip networks in the early
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1930s. Scrip issues were also widespread during the Depression in Canada, Mexico, China, and many countries of Europe.5
More recently, interest in scrip-based systems has revived, particularly
among businesses eager to attract or retain customers in a competitive
marketplace. Discount coupons are issued, either by a single enterprise or
by a business association, that are redeemable in future merchandise. A
prototype in the United States, called Deli-Dollars, was established more
than a decade ago by a delicatessen proprietor in Great Barrington, Massachusetts, named Frank Tortoriello, who happened to be in need of cash
to move to a new location. Denied credit by his bank, Tortoriello instead
sold discount notes to customers redeemable after six months for sandwiches or other foodstuffs. Deli-Dollars proved so popular that they have
remained in circulation ever since, with subsequent issues used for improvements at the restaurant’s new location and for other expansion
plans. The scheme has also spawned a variety of local imitators such as
the Berk-Shares program, a collective program started by a group of Tortoriello’s neighboring businesses in Great Barrington. Local retailers give
away one Berk-Share, valued at one dollar for every ten dollars spent.
Berk-Shares can then be used for purchases in any participating store during a festive redemption period (L. Solomon 1996, 53–65). In Canada, a
similar system has been created by the giant retailer Canadian Tire Stores,
which issues specialized discount coupons in the form of so-called Canadian Tire money, humorously designed to resemble the government’s own
bank notes. Today discount coupons are sold or awarded in return for
purchases by a wide variety of retail vendors, from supermarkets to hardware stores.
Scrip systems are popular because they serve the interests of both their
suppliers, who can employ such schemes to promote customer loyalty,
and their users, who are able to realize savings on purchases. Like statesanctioned currencies, scrip can be held for shorter or longer periods as
a store of value and then eventually be employed as a medium of exchange. All that distinguishes scrip from more traditional money is its
limited circulation, which of course is part of its purpose.
Barter-based systems, by contrast, are of more recent origin, beginning
with the Local-Exchange Trading System (LETS) invented by a Canadian,
Michael Linton, on Vancouver Island, British Columbia, in 1983. In response to a rise of unemployment when a nearby air base closed down,
Linton incorporated a nonprofit membership organization to promote a
form of multilateral barter among local residents. The idea quickly caught
on elsewhere and has since become by far the most common form of local
currency system. According to one source, there are now some 30 LETS
programs in Canada, as many as 450 in Britain, and over 200 in Australia
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(Lietaer 2001, 161–66). Another observer counted over one thousand
worldwide in the late 1990s (Douthwaite 1999, 39).
Though much diversity exists in individual systems, the common feature of every LETS program is that its members engage in trade with each
other using a monetary unit of their own devising—many of these monies
having exotic, not to say eccentric, names such as bats, beaks, bobbins,
cockles, hags, and kreds. The LETS organization acts merely as a clearinghouse and information service. Members sign up, paying a small initiation
fee to establish an account, and describe the goods and services they are
offering or seeking, with all offers and requests published periodically
in a print list distributed to participants. The key difference from more
primitive barter is that individuals are not forced to find a direct match
for the items they desire. Members can trade among themselves without
the need for a double coincidence of wants. Items can simply be bought or
sold at a mutually acceptable price denominated in the common monetary
unit, with all transactions reported to a central bookkeeper who debits
the buyer’s account and credits the seller’s account. Debits and credits are
then expected to be unwound in future transactions. Typically, no physical money actually changes hands, though in a few places fixed-value tokens (a form of scrip) are available for small-denomination exchanges.
The use of tokens is reported to be especially common among LETS systems in Argentina (Douthwaite 1999, 40).
The greatest advantage of a LETS program is that there is no limit to
the volume of transactions that may take place. The most notable disadvantage is that some participants might abuse the system by accumulating
“excessive” debit accounts—a risk that is likely to grow as membership
expands. LETS programs usually originate with a small group of likeminded and fairly principled individuals. But as numbers increase, making dealings more impersonal, less scrupulous participants may be attracted who, by buying much more than they ever intend to sell, could in
effect bankrupt the system. Central to all such operations is the mutual
trust that each member will eventually repay all debits. A massive amount
of negative balances, which would have to be absorbed by others, could
erode confidence to the point that the system might simply collapse. A
second disadvantage is the sheer volume of bookkeeping required as numbers increase. To minimize both problems, most LETS programs have
remained relatively small, with memberships that rarely rise above 200
at most.
Alternatively, the two problems can be avoided by following a substitute model pioneered by Paul Glover, a community activist in Ithaca, New
York. In 1991, Glover created a more flexible form of barter-based system
by introducing a paper currency (again, a form of scrip) that he called
“Ithaca Hours.” Notes, inscribed with the motto “In Ithaca We Trust” in
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pointed rebuke to the more theistic wording found on Federal Reserve
notes, are issued in five denominations from one-eighth of an hour to two
hours. Each Ithaca Hour is nominally valued at $10, considered in 1991
to be roughly the equivalent of one hour’s wage in Tompkins County
where the town of Ithaca is located. As in a LETS program, participants
can trade among themselves without the need for a double coincidence
of wants. But in lieu of bookkeeping entries, transactions result simply in
the transfer of an appropriate amount of Glover’s paper currency. To control the per capita supply of Ithaca Hours, notes are normally issued only
when a new individual signs up for membership or periodically thereafter
in return for continuing participation. Smaller amounts are also created
for the benefit of nonprofit community organizations and to cover the
system’s own expenses. Once in circulation Ithaca Hours may be used by
anyone within a radius of twenty miles of the town, whether a signed-up
member or not.6
In the years since its introduction, Glover’s model has attracted more
than a thousand participants and cumulatively has generated an estimated
volume of transactions in excess of two million dollars (Wallace 2001,
54). It has also spawned dozens of imitators across the country, among
them Green Mountain Hours, in Vermont,7 as well as Santa Barbara
Hours and Isla Vista Community Currency that circulate in the neighborhood of the University of California at Santa Barbara.8 Already by the
mid-1990s as many as eighty-five Hours systems were reported to be in
existence in the United States (Frick 1996, 34). Similar programs have
also emerged elsewhere, especially in Canada and other English-speaking
countries. Local versions can be found as far afield as Japan, where a
Healthcare Currency has been developed to reward individuals who volunteer to help older or handicapped persons (Lietaer 2001, 201–2), and
even in a tiny hill-top village in Italy, where a time-based currency was
recently created by a retired law professor.9 Essentially similar are the
many so-called “barter clubs” or “barter fairs” that have recently sprung
up in the southern cone of South America, which also make use of paper
currency to create more flexible forms of exchange.10
In contrast to LETS programs, Hours-type systems offer two distinct
advantages. They do away with the need to keep track of individual transactions, thus eliminating cumbersome bookkeeping, and they avoid the
risk of excessive debit accounts since all purchases must be fully paid
up with currency. But there are also several disadvantages. One is the
possibility that some participants may accumulate more currency than
they can spend, draining liquidity from the system. Another is the risk
that once in circulation—and therefore tradable—the money could become the object of destabilizing speculation. And finally there is the tricky
job of piloting the growth of supply over time to avoid either overissue
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or underissue of currency. Though none of these challenges is unmanageable, each is unavoidable and is indeed intrinsic to any regime of monetary governance.

The motivations for local currency systems are clear. Most fundamentally,
local money is intended to promote the cohesion and self-reliance of communities. In Glover’s (1995) words: “We’re making a community while
making a living.” Local currency systems are self-consciously designed to
serve as an instrument of economic empowerment.
In an insightful analysis, Eric Helleiner (2000) identifies three strands
in the logic of local money. Advocates, he suggests, hope to pursue a trio
of objectives: (1) a more localized sense of economic space; (2) an improved capacity to manage money actively to serve political and social
objectives; and (3) a more communitarian sense of identity. All three goals
may be understood jointly as a reaction against the increasingly impersonal pressures of the global marketplace, which are thought to be directly responsible for community decay around the world. In the words
of one local-money enthusiast: “Whenever [state-sanctioned] money gets
involved, community breaks down. . . . [Local] currencies can have exactly the opposite effect [in] building community” (Lietaer 2001, 187).
There is no doubt that modern market mechanisms tend to promote an
expanded scale of economic life. Indeed, that is precisely what is intended
by the neoliberal agenda described in chapter 4—a dissolution of the barriers separating national economies. One symptom is the increasing crossborder competition among currencies. Against this “globalizing” trend,
which integrates markets to the extent possible, advocates of local money
laud the virtues of localized, small-scale economies more in tune with the
needs and tastes of individual communities. Local currency systems help
cultivate a more decentralized sense of economic space by privileging purchases from nearby suppliers. In effect, as Helleiner (2000, 38) notes, they
act as a kind of grass-roots protectionism by obliging participants to seek
out local goods or services to make use of outstanding balances. Once
more in Glover’s (1995) words: “As we discover new ways to provide for
each other, we replace dependence on imports.”
There is also no doubt that modern market mechanisms encourage a
“depoliticization” of the economy and its management. Absolute priority
is placed on the maximization of economic welfare, a purely materialistic
standard. Little consideration is given to alternative desiderata of public
policy, such as full employment, alleviation of poverty, or a healthy environment. Local currency systems, by contrast, can be designed to support
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ity” of money, as Thrift and Leyshon (1999) put it. The supply of local
money can be managed in a discretionary way to help promote any number of shared social principles—for instance, to create jobs,11 extend cheap
credit to the poor, or underwrite more ecologically friendly methods of
production. It is not without reason that local money is often called “social money” or “green money.” A local currency system can also provide
something of a buffer against outside shocks or crises. “Just as a breakwater protects a harbor from the open sea,” writes one enthusiast (Greco
1995, 36), “a local currency protects the local economy from the effects
of the global market.”
Finally modern market mechanisms, with their emphasis on the virtues
of competition, clearly do discount any spirit of altruism, fostering instead
a kind of radical individualism. Indeed, how could reliance on Adam
Smith’s “invisible hand” not engender a self-interested sense of identity?
Advocates of local money, by contrast, are guided by a more communitarian worldview that sees men and women not in isolation but as part of a
community. Individuals, they argue, can only realize their full potential
in the context of collective social values and experiences. Toward this end
local currency systems can play a valuable role by bringing people together through trade, helping to build lasting interactions and networks.
Money has always been invested with social meaning, in primitive and
modern societies alike.12 In place of the destructive dog-eat-dog mentality
of the marketplace, local currency systems may cultivate a more constructive mindset of fellowship and shared identity.

Admittedly, all three motivations smack of a degree of idealism that may
be difficult to sustain in practice. The issue, however, is not that local
currency systems will necessarily succeed in all their objectives but rather
that they afford an opportunity to try. Local money means that selected
groups can reach out for a share of the power of monetary governance
that central banks long sought to monopolize after the rise of the modern
state. The impact at the community level, in terms of economic empowerment, may be considerable.
For central banks, by contrast, the impact until now has been little more
than marginal, owing to the still limited number of local monies in existence, as well as the self-imposed restraints on their circulation. Indeed, in
some cases central banks have even encouraged the development of local
currency systems as a means to provide social support selectively to individual communities without compromising the overall orientation of monetary policy (Lietaer 2001, 226–27). There is no reason, however, why the
challenge of these developments might not grow significantly over time.
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Though few, if any, are ever likely to trade across national frontiers, local
monies by their very existence mean additional competition for state-sanctioned currencies beyond the rivalries already introduced by contemporary
deterritorialization. In the geography of money, local currency systems appears as a spreading archipelago within the functional domains of individual national monies. As their population continues to swell, the Darwinian
struggle will grow ever more intense, further diminishing the role of the
state in the management of monetary affairs. In time, the traditional powers of central banks will almost certainly suffer even greater erosion as
compared with the heyday of the Westphalian Model.

Electronic Money
Moreover, that is just one of the challenges that central banks are fated
to meet from the private sector. Along a different dimension another new
frontier, possibly even more threatening, is opening up in the form of
electronic money—various innovative payments media and mechanisms,
based on digital data, that are emerging in the expanding world of electronic commerce. Around the globe, entrepreneurs and institutions are
racing to develop effective means of exchange for transactions across the
Internet and World Wide Web. Their aim is to create units of purchasing
power that are fully usable and transferable electronically: “virtual”
money that can be employed as easily as conventional currencies to acquire real goods and services. The era of electronic money will soon be
upon us.13
As a practical matter, the line between local money and electronic
money is not entirely clear, since some local currency systems (in particular, some LETS programs) do make use of new information technologies
to aid with their bookkeeping, and both may be the product of private
enterprise. The key difference between the two species of money lies in
their respective spatial configurations. Whereas local currency systems,
by definition, are typically meant to remain rooted in a single community
or subnational region, electronic money’s horizons are in principle limitless, potentially encompassing the whole universe of cyberspace. Once
electronic monies become firmly established, therefore, their impact on
the worldwide competition among currencies will be especially profound.

Like local money, electronic money (e-money, also variously labeled digital money or computer money) comes in two basic forms, smart cards
and network money.14 Both are based on encrypted strings of digits—
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information coded into series of zeros and ones—that can be transmitted
and processed electronically. Smart cards, a technological descendant of
the ubiquitous credit card, have an embedded microprocessor (a chip)
that is loaded with a monetary value. Versions of the smart card (or “electronic purse”) range from simple debit cards, which are typically usable
only for a single purpose and may require online authorization for value
transfer, to more sophisticated stored-value devices that are reloadable,
can be used for multiple purposes, and are offline capable. Network
money stores value in computer hard drives and consists of diverse software products that allow the transfer of purchasing power across electronic networks.15
Both forms of e-money are still in their infancy. Earliest versions, going
back a decade or more, aimed simply to facilitate the settlement of payments electronically. These initiatives, which The Economist (2000) has
wryly labeled “e-cash version1.0,” have included diverse card-based systems with names like Mondex, Visa Cash, and Visa Buxx, as well as such
network-based systems as DigiCash (later eCash), CyberCoin, and NetCash. Operating on the principle of full prepayment by users, each has
functioned as not much more than a convenient proxy for conventional
money—in effect, something akin to a glorified traveler’s check. Few have
caught on with the general public, and many have already passed into
history.16 A notable exception is PayPal, an online service in the United
States that expedites cash transfers between e-mail accounts. In early
2002, PayPal was reported to have over 13 million users with annual
revenues in excess of $100 million.17 In late 2002, PayPal was acquired
by the successful auction site eBay for a price of $1.5 billion.
More recent versions, mostly network-based, have been more ambitious, aspiring to produce genuine substitutes for conventional money.
Labeled by The Economist (2000) “e-cash version 2.0,” most until now
have been offered as a reward for buying products or services from designated vendors—constituting, in effect, updated electronic forms of scrip.
Vendor-specific media are clearly not a direct substitute for general currency, as specialists frequently remind us (Spencer 2001). But for the designated networks for which they are intended, modernized electronic
scrip serves all the usual functions of money, just as do local currency
systems in their respective communities or regions.
Recent examples of e-cash version 2.0 in the United States have included Flooz (using the comedienne Whoopi Goldberg as a spokesperson)
and Beenz, neither of which survived the global economic slowdown that
set in during 2001.18 More successful have been programs that, as it happens, actually started out with other motivations in mind, such as the
frequent-flyer miles of today’s airline industry.19 Originally intended, like
most scrip programs, to cultivate customer loyalty, frequent-flyer miles
have in reality become a widely used new form of money—“currencies in
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the making for the international traveling elite,” as one source describes
them (Lietaer 2001, 5). Miles are customarily employed as a unit of account for pricing different types of flights available through airlines award
programs; moreover, once awarded, miles can be held more or less indefinitely as a store of value and then eventually employed as a medium
of exchange to purchase tickets. Increasingly, miles can be used for other
purposes as well—for example, to pay for telephone bills, hotels and other
travelers’ services, rental cars, and even books and compact discs.20
The difference between the e-cash versions 1.0 and 2.0 is vital. Earlier
experiments like Mondex or DigiCash, merely added to the velocity of
circulation—the flow of transactions using the existing stock of national
money. Liquidity was enhanced, but payments still required settlement
through the commercial banking system, debiting or crediting third-party
accounts. Hence no fundamental threat was posed to the authority of
central banks, which retained ultimate control of the clearing mechanism.
The same is also true of PayPal today. With later ventures like Flooz or
Beenz, by contrast, a potential exists for the creation of entirely new clearing mechanisms, quite independent from the existing money stock.
Though Flooz and Beenz themselves failed, other forms of electronic
scrip—frequent-flyer miles and the like—still survive, offering new circuits of spending that make no use at all of state-sanctioned bank notes
or checking accounts as a means of payment. And of course there is always the possibility of yet more innovative versions emerging, as experimentation with new information technologies persists. As The Economist
(2000, 68) suggests: “Even if e-cash version 2.0 fails, there will almost
certainly be a version 3.0—not least because technology is making it increasingly easy to come up with new schemes.”
In time, therefore, it is possible to imagine multiple versions of electronic money emerging to bypass customary settlement systems—“rootless [currencies] circling in cyberspace indefinitely,” in the words of one
expert.21 Certainly the incentive is there. Electronic commerce is growing
by leaps and bounds, offering both rising transactional volume and a fertile field for experimentation. “The cybersphere,” writes another specialist (Lietaer 2001, 68), “is the ideal new money frontier, the ideal space
with ample opportunity for creativity around money to emerge.” The
stimulus for innovation lies not just in the hope of reducing transactions
costs but, even more critically, in the alluring promise of seigniorage: the
profit that can be gained from the difference between the cost of creating
money and the value of what that money can buy. To coin a phrase:
Money can be made by making money. That motive alone should ensure
that all types of enterprises and institutions—nonbanks as well as banks—
will do everything they can to promote new forms of e-currency wherever
and whenever they can. In the words of a noted historian of money
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(Weatherford 1997, 245–46): “The companies that control this process
will have the opportunity to make money through seigniorage, the traditional profit governments derived from minting money. Electronic seigniorage will be a key to accumulating wealth and power in the twentyfirst century.”
Central to the accumulation of electronic seigniorage will be the ability
of these companies to find attractive and, more importantly, credible ways
to offer smart cards or network money on credit, denominated in newly
coined digital units, in the same way that commercial banks have long
created money by making loans denominated in state-sanctioned units of
account. The opportunity for virtual lending lies in the issuers’ float: the
volume of unclaimed e-money liabilities. Insofar as claimants choose to
hold their e-money balances for some time as a store of value, rather than
cash them in immediately, resources will become available for generating
income through credit creation.22 All that income will of course go to the
issuers themselves, except for any costs associated with promotion of their
new units of purchasing power.

Critical Issues
The process will not happen overnight, of course. Quite the opposite, the
emergence of electronic money as a genuine rival to conventional currencies actually is apt to be rather slow and could take decades to be completed. The challenge is to create transactional networks of sufficient size
to overcome the incumbency advantages of existing money. Unlike local
currency systems, which typically come with networks that are in a sense
“ready-made,” electronic monies must undertake to build a cadre of loyal
users from scratch—a task that is by no means easy.
To begin, a number of tricky technical issues have to be addressed,
including inter alia adequate provisions for security (protection against
theft or fraud), reliability (low probability of failure), confidentiality (assurance of privacy), and portability (independence of physical location).
None of these challenges is apt to be resolved swiftly or painlessly.23
Even more critical is the issue of trust: how to command confidence in
any new form of money. What is required is a degree of confidence akin
to Peter Aykens’s (2002) concept of affective trust—stable and unquestioning acceptability. Many believe that trust at this level can derive only
from the sovereign power of the state, as the German economist George
Knapp contended nearly a century ago (Knapp [1905] 1924). According
to Knapp’s “state theory of money,” all money is a product of law and
dependent for its validity on formal ordinances, such as legal-tender laws
and public-receivability provisions. Trust is a function of political jurisdicBrought to you by | Cambridge University Library
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tion. Would America’s green pieces of paper be so widely accepted around
the globe, it is asked, if they were not backed by the “full faith and credit”
of the United States?
But what, then, of all the private monies that have flourished throughout history? In fact, the historical record is replete with examples of what
economist Richard Timberlake (1987) calls common tender, in contrast to
state-sanctioned legal tender—payments media that have been commonly
accepted without coercion through legal means. These range from the
playing-card currency that circulated in France’s North American colonies in the seventeenth and eighteenth centuries to the cigarettes and chewing gum that served as popular transactions media in post–World War II
Germany (Weatherford 1997). All demonstrate that state power is by no
means the only source of trust in a money. Past experiences of free banking across a broad span of countries, from Scotland to Australia, also give
ample evidence of the capacity of private issuers to promote acceptability
for their product (Glasner 1989; Dowd 1992). Likewise, the bursts of
scrip-based systems in earlier times, as well as the re-emergence of local
currency systems in the present era, testify eloquently to the limitations
of the state theory of money.
The reality is that monetary usage can derive from a wide range of
influences, private as well as public, and is ultimately social in origin. At
its most fundamental, money is a social institution, resting on the reciprocal faith of a critical mass of transactors, as sociologists have stressed
(Dodd 1994; Zelizer 1994). Confidence ultimately is socially constructed,
based implicitly or explicitly on an intersubjective understanding about
an instrument’s future usability and purchasing power, and may well reflect nothing more than a transactional network’s shared values or the
gradual accumulation of competitive market practice. Money is whatever
people come to believe will be accepted by others, for whatever reason.
Of course, that does not mean that promoting trust in newly created
electronic monies will be easy, given the inertias that generally typify currency use. Monetary history, as earlier chapters have emphasized, also
demonstrates that there tends to be a good deal of market resistance to
rapid adoption of any new money, however attractive it may appear to
be. Indeed, so far, the conservative bias of the marketplace has proved a
serious obstacle to the successful introduction of electronic money.
Inertia is by no means an insuperable barrier, however. Quite the contrary, in fact. As the volume of electronic commerce continues to grow, it
seems almost inevitable that so, too, will recognition and trust of cyberspace’s diverse new means of payment. Something else we learn from
monetary history is that even if adoption of a new money begins slowly,
once a critical mass is attained widespread acceptance will follow. Confidence in new e-currencies can be enhanced through effective marketing
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programs or with clever advertising techniques. Most of all, success will
depend on the inventiveness of issuing companies in designing features to
encourage use. These bells and whistles might include favorable rates of
exchange when amounts of electronic money are initially acquired; attractive rates of interest on unused balances; assured access to a broad network of other transactors and vendors; and discounts or bonuses when
the electronic money, rather than more traditional currency, is used for
purchases or investments. Sooner or later, at least some of these efforts to
whet user appetite can be expected to pay off.
Most critical of all is the question of value: how to safely preserve the
purchasing power of e-money balances over time. Initially at least, this is
likely to require a promise of full and unrestricted convertibility into more
conventional legal tender—just as early paper monies first gained wide
acceptance by a promise of convertibility into precious metal. But just as
paper monies eventually took on a life of their own, delinked from a
specie base, so, too, might electronic money one day be able to dispense
with all such formal guarantees as a result of growing use and familiarity.
That day will not come soon, but it does seem the most plausible scenario
of the more distant future given present trends. Over the longer term, as
The Economist (1994, 23) speculated a few years back, “it is possible to
imagine the development of e-cash reaching [a] final evolutionary stage
. . . in which convertibility into legal tender ceases to be a condition for
electronic money; and electronic money will thereby become indistinguishable from—because it will be the same as—other, more traditional
sorts of money.” Once that stage is reached, perhaps one or two generations from now, we could find all sorts of new currencies competing for
acceptance in the marketplace. For banker Walter Wriston (1998, 340),
the future has already arrived: “The Information Standard has replaced
the gold-exchange standard. . . . As in ancient times, anyone can announce the issuance of his or her brand of private cash and then try to
convince people that it has value. There is no lack of entrants to operate
these new private mints ranging from Microsoft to Mondex, and more
enter every day.”
How many electronic currencies might eventually emerge? Almost certainly it will not be the “thousands of forms of currency” predicted by
monetary historian Jack Weatherford (1998, 100), who suggests that “in
the future, everyone will be issuing currency—banks, corporations, credit
card companies, finance companies, local communities, computer companies, Net browsers, and even individuals. We might have Warren Buffet or
William Gates money.” Colorful though Weatherford’s prediction may be,
it neglects the power of economies of scale in monetary use, which dictates
a preference for fewer rather than more currencies in circulation. Networks
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must be large to make new monies attractive, but large networks will be
impossible unless the number of e-currencies is relatively small.
That said, however, for all the reasons cited in chapter 1, neither is it
likely that competition will drive the number down toward the “odd figure less than three” favored by Robert Mundell. Here, too, ultimately, we
would expect to see a smallish population of currencies rather than just
one universal money.

Consequences for Monetary Policy
The overriding question is: What will be the consequences of electronic
money for monetary policy? Remarkably, this momentous issue until recently received relatively little attention in the formal literature,24 though
casual commentary has abounded. Preliminary positions were staked out
early. At one pole could be found Stephen Kobrin (1997), a professor of
international management, who saw a new day dawning in the governance of money. As he put it (1997, 71): “Private e-currencies will make
it difficult for central bankers to control—or even measure or define—
monetary aggregates. . . . At the extreme. . . currencies issued by central
banks may no longer matter.” At the opposite pole was Helleiner (1998a),
who perceived not a new day but a false dawn. Fears for the future of
monetary policy were overstated, he contended, if not totally misleading.
To the contrary, “new forms of electronic money are unlikely to pose a
significant threat to the power of the sovereign state” (1998a, 399–400).
These alternative perspectives could hardly be more divergent. More
recent years have seen a significant increase in the number of formal studies of e-money’s implications, mostly by economists. Yet opinions remain
divided along much the same lines. Kobrin’s view, for instance, has received implicit endorsement from the noted Harvard economist Benjamin
Friedman (1999), who argues that with the development of e-money,
monetary policy is at risk of becoming little more than a device to signal
the authorities’ preferences. The central bank, in Benjamin Friedman’s
words, is becoming no more than “an army with only a signal corps.”25
Helleiner’s view, conversely, has been implicitly endorsed by other prominent economists, including Charles Freedman (2000), Charles Goodhart
(2000), and Michael Woodford (2000).26 In Woodford’s words (2000,
233), concerns “for the role of central banks are exaggerated. . . . Even
such radical changes as might someday develop are unlikely to interfere
with the conduct of monetary policy.”
Who is right? The main goal of monetary policy, we know, is to keep
the level of aggregate expenditure in an economy broadly consistent with
production capacity; in other words, to guide the ship of state between
the Scylla of rampant inflation and the Charybdis of prolonged recession.
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If electronic money can be expected to have any impact at all on the traditional authority of central banks, it will be through its influence on the
linkages between policymakers’ decisions and private-market spending.
Analysis suggests that eventual outcomes will be closer to the spirit of the
predictions by Kobrin and Benjamin Friedman than to the sanguine view
expressed by Helleiner and others. It also suggests that the answer will
differ significantly depending on what countries we are talking about.

How Monetary Policy Works
To begin, consider how monetary policy works with a traditional territorial currency. The goal of monetary policy, to repeat, is to keep aggregate
spending generally in line with production capacity. Since the level of expenditures (nominal demand) cannot be controlled directly, the trick is to
find some way to accomplish the same objective indirectly. Central banks
seek to do this by targeting either the overall stock of money or the nominal price of credit (interest rates).
A major problem, of course, is the fact that neither the money stock
nor interest rates can be directly controlled, either. Consider the money
supply. Chapter 5 noted the many ways in which monetary aggregates can
be calculated, from the core measure M0—comprising notes and coins in
circulation and bank reserves, otherwise known as base money or centralbank currency—to the successively broader measures M1, M2, et cetera,
adding checking accounts, other “reservable” deposits, and progressively
less liquid classes of financial claims. Only notes and coins come straight
from state authorities. That aggregate, however, is far too narrow a measure for the purposes of monetary policy and in any event is greatly overshadowed by the mass of deposits in most economies. Yet deposits—otherwise known as “bank money”—are created by commercial banks,
through their business of retail lending, not by the central bank. Likewise,
it is the banks themselves that set the interest rates to be paid by borrowers, not the monetary authorities. The challenge for central banks, therefore, is to develop instruments that can effectively guide the ongoing process of deposit creation.
Typically, these instruments aim to exercise influence over bank reserves, on the assumption that the availability and price of reserves will
in turn condition bank lending and thus the public’s overall access to
credit. Again, that is precisely why reserves are also known as “highpowered money.” Variations in the availability and price of reserves can,
in a fractional-reserve banking system, be expected to result in much
larger changes in the volume and price of bank money. The most popular
tools of monetary policy are open-market operations, which control the
overall quantity of reserves, and discount-rate policy, which controls the
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price at which reserves are traded among banks or between banks and
the central bank. Open-market operations involve purchases and sales of
widely traded financial claims, usually government securities, by the central bank with the market in general. Discount-rate policy involves the
interest charged by the central bank for providing reserves directly to the
banking system, either through lending at a “discount window” or
through rediscounting or purchasing assets held by banks. The effectiveness of both tools is a direct function of the size of the central bank’s
balance sheet (base money).
In fact, therefore, the series of links in monetary policy—what economists call the transmission mechanism of monetary policy—is fairly
lengthy, running from (1) open-market operations and the discount rate
to (2) bank reserves to (3) deposit creation to (4) aggregate expenditures.
Two key implications follow. First, since none of the links in the transmission mechanism is purely mechanical, there is ample room for slippage
between central-bank decisions and the actual behavior of spending.
Monetary policy is hardly a matter of merely turning a tap on or off. And
second, since none of the links can be bypassed, there is ample room for
long lags, as well, in the ultimate impact of central-bank decisions. As a
vehicle for the implementation of public priorities, monetary policy is
hardly swift, either.
Still, so long as the state’s own currency is the only money available,
ensuring a continuing demand for base money, the central bank has adequate reason to believe that its decisions can be broadly effective in steering macroeconomic performance. Influence over bank reserves may be
neither precise nor immediate. But in the absence of any attractive substitutes for the national currency, nominal demand has little option but to
adjust, more or less in proportion, to variations of available supply and
interest rates. The connection will be looser, admittedly, in the event of
an expansionary monetary policy; central banks, it is said, find it difficult
to “push with a string.” But the connection will most certainly be tight
with contractionary movements. The key is the central bank’s presumed
monopoly over the high-powered reserves that back bank money. By empowering the central bank to manage the money stock and interest rates
exogenously, a territorial currency maximizes the practical impact of
monetary policy (especially restrictive policy).

Implications of Deterritorialization
Now consider the implications of today’s deterritorialization of national
monies. Quite obviously, once market agents gain a choice among currencies, the direct connection between nominal demand and national money
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is broken. The central bank may still be able to exercise a degree of influence over the stock of its own currency, however measured, or the level
of interest rates. But to the extent that transactors and investors have
access to alternative currencies, reducing demand for the central bank’s
base money, money supply and interest rates become endogenous rather
than exogenous, as noted in chapter 2. Hence variations in the quantity
or price of reserves now will have correspondingly less effect on the overall level of spending. The practical impact of monetary policy becomes
attenuated, and the economy becomes more vulnerable to frequent bouts
of inflation or recession (or perhaps both—stagflation).
It is important to stress where the root of the challenge lies. Analytically,
we may distinguish between two key questions—what we may refer to as
the separate issues of control and autonomy. Control refers to the central
bank’s technical capacity to manage the process of deposit creation. Can
officials generate increases or decreases in bank money at will? Autonomy,
by contrast, refers to the central bank’s policy capacity to manage demand. Can officials generate increases or decreases in aggregate expenditures at will? Clearly, the challenge of deterritorialization is to centralbank autonomy rather than control.
Deterritorialization compromises neither the link running from the instruments of monetary policy (open-market operations and discount rate)
to bank reserves, nor the link from bank reserves to deposit creation. The
central bank’s ability to influence lending denominated in the nation’s
own monetary unit, therefore, is not directly affected. In that respect, the
central bank remains as much a monopolist as ever. Rather, it is the link
with expenditures that is infringed upon—the autonomy of monetary policy—owing to the competitive threat posed by the availability of other
monetary units within the country. Herein lies the real meaning of the
transformation of the state from monopolist to oligopolist in the management of monetary affairs. Substitute currencies mean alternative circuits
of spending, affecting prices and employment, and alternative settlement
systems that are not directly affected by the traditional instruments of
policy. As Benjamin Friedman puts the point (1999, 335), “currency substitution opens the way for what amounts to competition among national
clearing mechanisms, even if each is maintained by a different country’s
central bank in its own currency.” The greater the intensity of competition
from monies originating abroad, the weaker is the effectiveness of conventional monetary policy at home. Central banks must now make an effort
to maintain market loyalty to their own sanctioned currency.
The challenge, of course is universal. As deterritorialization accelerates,
no central bank can fully escape the oligopolistic struggle, no matter how
competitive or uncompetitive its particular brand of money may be. Rivalry is not limited merely to the most popular global currencies, as is
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sometimes suggested (De Boissieu 1988). That would be so only if crossborder competition were restricted to international use, alone: the dollar,
euro, and yen at the peak of the Currency Pyramid, along with a few lesser
rivals like the Swiss franc and pound sterling, vying for shares of private
investment portfolios or for use in trade invoicing. But deterritorialization,
we know, extends to foreign-domestic use, as well, and thus involves all
currencies, to some degree, in direct competition with one another—the
weak as well as the strong, those formally protected by controls as well as
those that are legally convertible. Money’s oligopoly is truly global. The
challenge of deterritorialization is faced by every government.
But that does not mean that the challenge is the same for every government. Universal does not mean uniform. In reality, the problems facing
the favored few producers whose currencies actually do the competing
across national borders—most notably, the market leaders: the United
States, Europe, and Japan—are in a class apart from those many other
countries whose monetary spaces have by now become highly penetrated.
The challenge is clearly greater for economies like those in Latin America,
the Middle East, or the former Soviet bloc, where currency substitution is
already a familiar and accepted fact of life. The implications of electronic
money can thus be expected to be comparably differentiated.

E-Money and Less Competitive Currencies
What does electronic money add to the problems facing countries with
less competitive currencies? E-money’s main impact here, while not insignificant, will be more a change of degree than of kind. The effect will be
to expand the population of currencies circulating within each country,
further eroding an already increasingly tenuous connection between nominal demand and national money. As more substitute currencies become
available, variations in the availability and price of bank reserves denominated in the nation’s own monetary unit will have even less influence on
overall spending. Policy will become even more attenuated.
The key point is that for central banks in these countries, the challenge
to monetary autonomy is already difficult enough even without electronic
money. As compared with the halcyon era of territorial currency, when
central banks could assume a reasonably tight connection between their
own decisions and spending behavior, deterritorialization poses a tricky
dilemma: how to guide overall expenditures when some part of the money
supply available to residents is comprised of currencies other than the
state’s own monetary unit. The authorities can still use open-market operations and discount-rate policy to guide bank lending in national money.
But insofar as the public has access to other monies, too, additional room
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for slippage or unpredictable lags is created in the transmission mechanism
running from policy implementation to bank reserves to deposit creation.
Further refinements of policy are thus required to ensure that overall
goals are met. Key questions include: How large is the supply of alternative currencies in circulation? How much spending can these alternative
currencies support? And how easy is it for residents to switch back and
forth between the national money and others in response to central-bank
actions? (Technically, how great is the cross-elasticity of substitution between currencies?) In effect the supply of national money must now be
treated as a residual, managed so as to complement expected developments in the non-national component of the total money stock in circulation. Once due account is taken of the availability of substitute currencies,
parameters can be established for open-market operations and discountrate policy that will, with luck, still exercise something like the desired
influence on macroeconomic performance.
Though tricky, therefore, the dilemma is potentially manageable—but
only so long as the residual represented by the supply of national money
does not become too small. And there, of course, lies the rub. In reality,
in a growing number of countries, the local currency’s share of monetary
aggregates is already dwindling rapidly as a result of deterritorialization,
as the data cited in chapter 1 clearly demonstrate. In many economies,
the supply of national money is indeed fast becoming a residual too small
to have much direct effect on aggregate expenditure.
In this context, electronic money will add quantitatively to a central
bank’s problems but not, in any meaningful sense, qualitatively. For these
countries the real discontinuity has already arrived—with deterritorialization, which broke the direct link between national money and nominal
demand. Their monetary space has already been penetrated; their central
banks are already being forced to fight for market share; their sovereign
power, accordingly, has already begun to wane. The advent of electronic
money will simply hasten the ebbing of the tide by contributing still more
currencies to the competitive fray—some of which could turn out to have
wider appeal than the government’s own brand of money. As one commentator has suggested (Negroponte 1996): “Most of us would trust GM,
IBM, or AT&T currency more readily than that of many developing nations. . . . After all, a guarantee is only as good as the guarantor.” The
battle facing these central banks will not be new, just more intense.

E-Money and the Market Leaders
What, then, of the market leaders, whose currencies are doing the penetrating? Until now, these economies have enjoyed something of a free
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ponding disadvantages of a threat to monetary monopoly at home. For
them there has not yet been any real discontinuity breaking the link between national money and nominal demand. For them, therefore, the advent of electronic money truly will be a reversal—a distinct change of
kind, not just degree—insofar as one or more e-monies begin to gain widespread acceptance. When that happens the market leaders too, for the
first time, will face genuine currency competition on their own turf.
Indeed, if anything, the challenge is likely to be felt by the market leaders first, even before any impacts spread onward to countries with less
competitive currencies. The reason is evident. It is the market leaders that
are most wired—the most plugged in to the new realm of electronic commerce. Online access is far greater in the United States, Europe, and Japan
than elsewhere. Hence if electronic money is to gain widespread acceptance anywhere, it will most probably happen initially in these same areas.
It is no accident that Flooz, Beenz, and most other experiments to date
have all originated in the world’s most advanced economies, which are
both financially sophisticated and computer-literate. It is precisely these
economies that are likely to be the most receptive to innovative new
means of payment that can be used and transferred electronically.
Once some of these experiments begin to bear fruit, a new day will
indeed have dawned, just as Kobrin (1997) and Benjamin Friedman
(1999) assert. As in countries with less competitive currencies, which already face penetration of their monetary space, the population of monies
will be expanded, breaking the link between national money and nominal
demand. Now, for the first time, the leading central banks, too—the Federal Reserve, European Central Bank, and Bank of Japan—will be faced
with the tricky dilemma of guiding expenditures when a significant fraction of the available money stock is comprised of currencies other than
the state-sanctioned monetary unit (the dollar, euro, or yen).
Again, however, it is important to note where the root of the challenge
lies. Kobrin (1997), for instance, is right to be worried about the potentially profound impact of electronic money on monetary management.
But he is right for the wrong reason, insofar as he stresses the control
aspect of monetary policy rather than its autonomy. The problem is not,
as Kobrin suggests, that the advent of e-money will make it difficult for
central bankers to control monetary aggregates. In the market leaders, as
in those countries that have already experienced currency deterritorialization, the central bank’s capacity to manage lending denominated in the
nation’s own unit will not be directly affected. Bank reserves can still be
adjusted to guide the growth of local bank money. The challenge, rather,
as Benjamin Friedman (1999, 2000) correctly argues, will be to the autonomy of central-bank policy—the capacity to manage demand—owing to
the increasing availability of attractive alternatives to state-sanctioned
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currency. Alan Greenspan and his counterparts in Europe and Japan will
now be compelled to refine policy, too, just as less fortunate central bankers elsewhere have already been forced to do; that is, to treat the supply
of national money more as a residual, taking due account of the availability of substitute currencies in circulation.
The problem, as elsewhere, lies in the relative size of the residual. Could
the local money’s share of the total monetary stock become too small to
be effective in steering aggregate expenditure? The question has been
posed most starkly by a central banker, the ECB’s Otmar Issing (2000).
In a world of electronic money, Issing asks (2000, 30) “would the familiar
existing units of account such as the euro, the U.S. dollar and the pound
sterling, continue to mean anything?”

The Empire Strikes Back?
Is the threat real? Helleiner (1998a) and others, as indicated, contend that
the challenge is unlikely to be serious. Three broad lines of argument are
offered, none entirely persuasive.
First, the very possibility of new privately issued electronic monies is
discounted. Both Helleiner (1998a) and Goodhart (2000) argue that the
scenario is unlikely because of the inherent advantages of incumbency already enjoyed by existing national currencies. In Goodhart’s words (2000,
200–201), conventional money “has first-mover advantages; it is already
there. . . . The demise of [conventional money] at the hands of [e-money]
will not happen.” But that skeptical view ignores the powerful forces gathering to overcome the conservative bias of the marketplace: the immense
new opportunities created by the expanding world of electronic commerce; and, above all, the potent allure of seigniorage. As already acknowledged, there is little reason to expect new “rootless” monies to gain acceptance overnight. But there are good reasons to assume that given enough
time, the necessary transactional networks can be created. The issue is not
the “demise” of conventional money but rather the emergence of nonconventional rivals. Even Goodhart concedes (2000, 200–201) that “over
time it is possible that some brand (or brands) of [e-money] may become
increasingly widely accepted [and] may indeed substitute for currency in a
wider range of possible uses.” The more widely accepted these substitutes
become, shrinking the demand for base money, the greater will be the
reduction in the size of a central bank’s balance sheet, which is essential
to the effective implementation of monetary policy.
Goodhart also stresses the difficulty, with today’s technology, of providing complete confidentiality for transactions in electronic money. “How
can the payer/payee be confident,” he asks (2000, 192–93), “that the
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other counter party will not be recording the transaction in a manner that
will leave an audit trail that can subsequently be followed?” The question
is not unreasonable. Clearly, the technology does not exist to make
e-money as anonymous as paper currency—at least, not yet. The trickiness of the challenge of providing adequate assurance of privacy has also
been acknowledged. But it is reasonable to note as well that banknotes
account for a decreasing share of overall transactions in most economies.
The same threat to anonymity exists with checking accounts or with electronic payments systems using conventional currency. Electronic money,
in fact, is at no special disadvantage in this regard.
What then of the inherent advantages that central banks enjoy in providing a payments system? This point has been emphasized by Freedman
(2000), in effect harking back to Knapp’s state theory of money. The fact
that the central bank is a governmental institution, Freedman contends,
backed by the full power of the state, makes its own settlement mechanism virtually riskless as compared with that of any private money issuer.
Hence it is “very unlikely that other mechanisms, including variants of
electronic money, will supplant the current types of arrangements for the
foreseeable future” (Freedman 2000, 212).27 Once again, however, this
takes an unduly restrictive view of how trust in a money is constructed.
Certainly the backing of the state gives conventional currency an extra
margin of competitiveness. But for reasons already indicated, even that
advantage need not prove an insuperable barrier to the successful introduction of new forms of money.
A second line of argument points to the fact that central banks themselves have professed to be unconcerned about the challenge of electronic
money. Helleiner (1998a), for instance, cites a spate of official studies that
have generally reached sanguine conclusions. Typical was a 1996 report
by the Bank for International Settlements averring that as far as monetary
policy is concerned, “it is highly unlikely that operating techniques will
need to be adjusted significantly.”28 So if policymakers are not worried by
the prospect, Helleiner asks, why should anyone else be? In fact, however,
such commentaries tend to date back to the first generation of electronic
money (e-cash version 1.0) and address only early prepaid products like
Mondex and Digicash. Central bankers have much less reason to be indifferent to more recent versions of electronic money, which offer the possibility of entirely new clearing mechanisms rather than merely another
form of liquidity. As Germany’s Bundesbank conceded in 1999, “one cannot rule out the possibility of network money circulation becoming independent of monetary policy” (Bundesbank 1999, 51). Most pointed have
been the anxious comments of Mervyn King, governor of the Bank of
England. Once new electronic currencies make it possible for transactors
to bypass state-sanctioned money, King suggests (1999, 411), “central
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banks would lose their ability to implement monetary policy. The successors to Bill Gates [could] put the successors to Alan Greenspan out of
business.” Remarks like these seem anything but unconcerned.
A third line of argument, taking the possibility of electronic money
more seriously, acknowledges possible risks to monetary policy but nonetheless expresses confidence in the ability of central banks to sustain their
traditional influence over nominal demand. The empire has the weapons
to strike back, if need be. For Helleiner (1998a), the political scientist,
this means using the coercive power of the state. Central bankers, he suggests, are unlikely to remain wholly passive if their traditional prerogatives seem truly in jeopardy. More likely, they will seek to extend their
regulatory authority to newly emergent e-monies, imposing on issuers the
same reserve requirements as traditionally applied to commercial banks
and managing the reserves of issuers via the traditional tools of monetary
policy in roughly parallel fashion. As he puts it, “state authorities [could]
impose a regulatory structure on stored value devices similar to that which
they impose on other forms of money” (Helleiner 1998a, 407). In extremis, they might even try to outlaw new e-monies altogether.
But could central banks do all this? One of the principal characteristics
of cyberspace is its divorce from national territory. Producers of electronic
currency could conceivably evade control or prohibition by shifting operations to another jurisdiction, just as banks have long since avoided taxation or various restrictions by booking transactions through offshore centers in the Caribbean or elsewhere. I have already alluded in chapter 4 to
the vast network of financial intermediaries now in existence around the
world that can be used to circumvent even the most draconian of official
restraints. Attempts to extend the central bank’s regulatory authority to
e-money might, in practice, also prove to be an exercise in futility.
For others, such as the economists Freedman (2000), Goodhart (2000),
and Woodford (2000), the power to strike back lies not in the central
bank’s regulatory authority but in its continuing ability to influence interest rates.29 In Freedman’s words (2000, 226): “Even in the extremely unlikely case . . . that the development of network money permitted alternative settlement services to be offered that effectively competed with central
bank services, central banks would very likely be able to continue to influence the policy rate.” Central banks, it is said, could retain influence
over interest rates simply by conducting open-market or discount-rate
operations in electronic monies as well as in their own state-sanctioned
currency. But how easy might that be for policymakers, requiring transactions in currencies that they themselves do not create? Central banks
would have no choice but to build up a war chest of e-currencies in the
same way that they now hold foreign-exchange reserves. But that is still
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not the same as their traditional power to create national money at will.
Interest rates might be influenced, but imperfectly at best.
The threat, in short, is indeed real. The risk is not that the power of the
sovereign state will disappear—at least not in the sense of the state’s ability to control the availability of its own money. Rather it is that as the
population of monies grows, the power of the state will simply become
more and more irrelevant, as Issing and King fear. The autonomy of monetary policy, gradually, will just fade away. That is—or should be—as much
a worry for the market leaders as it already is for others. Arguments to
the contrary notwithstanding, the dawn appears to be anything but false.

As the future unfolds, therefore, the worldwide competition among currencies appears destined to grow more intense, not less. Central banks
must confront not just one another in an oligopolistic struggle for market
share. Increasingly, they will have to cope with challenges from the private
sector, too, in a manner not seen since before the era of territorial currency. New frontiers are opening up in the geography of money. Within
national borders, state authority is being eroded by the spread of local
currency systems, each determined to devolve a share of the power of
monetary governance back down to the community or subnational region. Across national borders, state-sanctioned monies face the prospect
of multiple versions of electronic currency, each capable of diffusing authority outward to the emerging universe of cyberspace. No longer can
governments hope to dominate the supply side of the market as they have
done in the past. Public policy will be forced to adjust accordingly.

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