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In recent months I’ve been getting more and more interested, obsessed even, with the idea of scalability.
Today we look at the future of money, with this idea very much in mind.
The economy is dematerialising
As you perhaps know, I’ve recently written a book all about the past, present and future of taxation – Daylight Robbery, it’s called – and the futures of tax, work and money are closely intertwined.
Over the last generation, there has been a colossal shift in our economies from tangible to intangible. While the tangible economy has experienced growth, it has been nothing like the growth that the intangible economy has seen.
In 1990, the three biggest companies in Silicon Valley had a market cap of $36bn. Today, the three biggest – Facebook, Google and Apple – have a combined market cap over 60 times higher, somewhere around $2.2trn.
For centuries economies had revolved around the production and consumption of physical things – from cars to cows, from grain to gold. Today the most valuable assets are non-physical and intangible – software companies, brands, intellectual property, operating systems, unique supply chains. The mid-to-late 1990s was when investment in intangibles overtook investment in physical assets.
Walmart may have greater revenues, but Amazon has the greater market capitalisation. Blockbuster now has just one branch, when once it had over 9,000. Netflix has a market cap of some $110bn. Traditional publishing and newspapers have been similar eclipsed by the likes of Google and Facebook.
The reason for this shift is scalability; companies built around intangibles can grow faster. If a system – Google’s search engine, for example – works, it can scale much more rapidly than anything a “physical” company can offer. An app need only be uploaded once, but it can be downloaded millions of times. Compare that to the logistics of constructing, selling and distributing, say, a million cars.
The potential speed of growth of the intangible economy attracts greater investment, and so the growth of the intangible economy accelerates.
It is all facilitated by the greatest intangible of the lot: the internet.
Money needs to evolve
Now consider money.
Even money itself is no longer tangible. Just 3% of money exists in physical form; 97% is digital. It is, in part, this shift to digital (and debt) that has facilitated the extraordinary money supply growth the world has seen over the past generation.
Even so, a national currency is limited by its borders. Try using British pounds outside of Britain and it’s a pain in the backside. The same goes even for what is supposed to be the global reserve currency, US dollars.
I was recently hired to do a writing job in the US (though I did it from the comfort of my own home in south London) and my employer wanted to pay me in US dollars. I was happy to receive dollars. My employer wanted to pay me via Paypal, which I was less happy about, but accepted, as you can hold US dollars in Paypal. Paypal insisted on converting the money into sterling – at Paypal’s not-very-generous forex rates – even though I had set it up, or I thought I had set it up, to hold the dollars.
It didn’t make much difference, because I don’t have a US dollar bank account in the UK (it is possible to have a US dollar account in the UK, but it’s not easy) and Paypal will only pay the money into a bank in the country where you are resident. I gather it is required to do so because of anti-money-laundering legislation.
What a needlessly expensive palaver. But the internet is effectively borderless. It requires a borderless system of money.
I was recently at a conference in Romania. I went out to dinner afterwards with three people – one from Malta, one from the US and one from Taiwan. I bought dinner. The others all wanted to pay their share.
But sending £25 across the net, without having the amounts chipped away by punitive foreign exchange fees, is not easy. The most convenient solution was for everyone to send me £25-worth of bitcoin (thank goodness it was a crypto-conference, so it was easy for everyone).
Now consider something like Facebook’s new libra coin. I know it will run into regulatory hurdle after regulatory hurdle, but consider it with this idea of scalability in mind: Facebook has some 2.4 billion user accounts; Whatsapp has some 1.5 billion users. This is a huge network. The US only has 330 million people. If Facebook and Whatsapp users can all start sending money over the network as they do texts, pictures and videos, the potential scalability is colossal.
There are still some two to three billion unbanked people in the world, most of whom, according to Sony Ericsson, will have a smartphone by 2022. A smartphone is the way most will experience the internet for the first time. If they are then quickly able to start sending money by libra – just as Kenyans have, using the mPesa – the economic potential is enormous.
Money used to be borderless, and will be again
The workforce, too, is getting increasingly borderless. More and more of us are becoming freelancers, working from home, over the internet, with multiple income streams, often selling products or services internationally. The digital nomad is the fastest growing area of the workforce. This workforce too wants a cheap, frictionless, borderless money system. Already 50% of digital nomads use crypto.
In short: the scalability of borderless money way exceeds that of national currency. Certainly, therefore, the future of money lies in borderless currency. It might be bitcoin, it might be libra, it might be Google coin or Apple coin; it might be a stable coin based on IMF SDRs (which is effectively what libra coin set out to be).
But it certainly won’t be the pound or any other national currency. They’re not as scalable.
You might think this sounds unrealistic. Yet borderless money has previous. We used it for centuries before the era of the nation state. I’m talking, if you hadn’t already guessed, about gold and silver. Perhaps the future lies in some kind of digital gold currency.
Wouldn’t that be ironic? The money of the intangible, borderless economy would be the most tangible, analogue asset of the lot.
We are headed into a Hayekian future of multiple currencies. The market will decide which wins. But one thing’s for sure: the winning money will be borderless.
How will governments tax a currency which they don’t control, issue and regulate?
Daylight Robbery – How Tax Shaped The Past And Will Change The Future is available at Amazon and all good bookstores with the audiobook, read by me, on Audible and elsewhere. If you want a signed copy – and what could make a nicer Christmas pressie? – you can order one here.