The future of money

This article has been published first by T3N in German. Here you can read the English translation for free! Looking forward to seeing your opinion in the comments!

The future of money

Our current monetary system is reaching its limits. Are there alternative systems that could prove to be sustainable? Does the future lie in a decentralized networked system of money, which has the Internet as a basis? Does Bitcoin show the way or do we steer towards a cashless future? Let's take a look into the crystal ball to find answers to such questions.

Burning Money Isolated on White
The current monetary system is going to crash. Source: Images_of_money

A look into the crystal ball

The future, and certainly the future of money, is not predictable. When you talk about the future, you are always doing it out of the present perspective. Of course, you can look at general tendencies. But you can not see the future. The future is defined as something, that is not yet. The philosopher Karl-Heinz Brodbeck puts it this way: "He who predicts new things, would have to invent them himself." [1] This is the reason why old future films often seem ridiculous. They are always seen from the time of their production and therefore can not incorporate new developments. Hindsight is easier than foresight. But what can you do when you talk about the future of money? First of all you can clarify how the current money system works and what its problems are. Second we can talk about utopias. One can imagine how the future might look like, or better, how it is supposed to be! Because a monetary system is designable! Therefore, one can form expectations and decide based on them how possible actions could look like. These actions should take us from the current state to an utopia. They would always have to be performed in present, as the saying goes: "Yesterday is history, tomorrow a mystery, today is a gift, that's why it's called the present". So what are the present conditions of our monetary system? First we want to answer this question in order to get from criticism towards potential improvement.

Current status of the monetary system
Today's monetary system is based on debt. Euros or dollars are no longer backed by gold. They are based on the trust that is brought against them. It is interesting to note that much of the money supply is bank money, i.e. money that is created and destroyed by private commercial banks. How does this quasi electronically printed money come into circulation? Through a loan. If you go to a commercial bank and receive a credit, for example 1000 €, those 1000 € are being created in this very moment. The accounting point of view is this: the bank wrote on the liabilities side 1000 € and on the assets side the 1000 € as the customer's credit. The bank is not using the money of savers, but actually creates money itself. This way most of the money supply gets into circulation, because there is quantitatively much more book money in use as cash. How gets the cash in circulation? In a similar way as the book money, only that the lender is now the central bank and the borrower is a commercial bank. Conclusion: Without debt no money, neither cash nor deposit money. How does money disappear? By credit repayment. If the borrower repays the sum, the amount will just be booked out again. [2]
But what is the problem with this system? The problem is that the borrower will pay back not only his entire loan, but additionally interest. He must obtain the interest from the other people in the economy. This is usually done by working for others. But work can not create money. The money for the interest must therefore come form to the credit of another party. So the problem is that not all debt can be repaid in the system, because there is no money available for the interest already incurred. Every € that came with credit in circulation must be returned with interest. This interest can only come from another loan, which again bears interest. The system is in a negative feedback loop.

Today's monetary system can be summarized thus as follows:
• It is based purely on the confidence of economic agents and is not backed by precious metals, as it was once the case.
• It is an unstable system in which all debts can never be repaid due to interest.
• There is one group of people profiting of the system, whereas the other, much bigger group only loses. Especially considering that companies include their interest payments on their prices, so consumers are generally also paying interest, even if they are not in debt.
• The system has to grow. The debt is rising and the redistribution through interest as well. Crises are preprogrammed in this system.

The good news: If you recognize the error in the current system, you can think of a newer and better one. How does a money system in an ideal world, our even if we want it in a possible future look like? What is the future of money?

Utopia of moneyless society

An utopia in the ancient Greek meaning is a place that does not exist. It is a social order that exists only in our imagination. Utopia means we make drafts of our lives. In each new product you can find the creative act, be it a can opener or a plane. Initially there was a problem, combined with the desire to solve it. We have the ability to find solutions first in our minds and then implement them. If we build a house, first the architect has to create it in his mind. He then brings that idea on paper an others can build it afterwards. This creativity, however, we can apply not only directly on items of everyday life, but also to entire societies. Which brings us to social utopias - visions of a better future. The term "utopia" is directly related to the 16th Century novel, published by Thomas More, with the title "Utopia". It also shows an ideal social future. Morus wanted to design the ideal system of living together. What is interesting: Money plays no role in his vision. The Utopians regulate their distribution without a monetary system. Everyone gets what he needs and works for the community for free. [3]

Illustration for the 1516 first edition of Utopia. Source: Wikimedia

This vision of a future without money many had followers. Karl Marx for example dreamed that money would disappear in a communist society because it will no longer be useful. [4] Also in the science fiction series Star Trek a cashless future is shown, where people no longer aspire to be rich, but explore the universe for knowledge. [5] Hidden in all these utopian ideas is the idea that a monetary system is somehow bad for human development and it therefore must be abolished. Is the future of money that there is none?
Apart from these romantic ideas you can still watch trends to anticipate where the journey into the future of money takes us. If we look at the past, we can say that throughout history money was becoming more intangible. While it was precious metals, or even shells that were used as the money material, over time the trend towards printed paper could be seen and finally the development went to pure data in computers. Money is no longer an real object but only a number in the computer. It is pure information. This data in computers is nowadays used for valuing what is important to society and what is not. Using it, we regulate the production and distribution of our goods. Following this thought, it is not difficult to compare the money system to a large network which records all the economic valuation. The information revolution has also influenced the money system.

An ideal monetary system would thus look like this:
• First, there is no company or individual that benefits most from the creation of monetary units, as is the case today. Everybody has to use money nowadays and is dependable on it, so it is a public good. Hence the profit of the creation of money should also flow to the public.
• A fair money system would be one which rewarded positive work in the real sector.
• The system should not be based on debt. The current monetary system is immanently forced to grow. In a new system the ever-increasing debt and ever-faster spreading of our economic system over our planet in a life-threatening manner would be eliminated completely. A future monetary system would be sustainable.
• If you draw a comparison to a network, the idea is obvious to use the Internet as a basis for the future monetary system. If money is only information we should also use good information networks. Today already many banking transactions can be made via online banking. In an internet of things in which all objects are joined together, one could imagine a networked monetary system accordingly.

Can an ideal monetary system be implemented and if so, how?

An interesting recent development offers the Internet-currency Bitcoin. Bitcoin is purely organized via the Internet. There is no central authority like a central bank, which could exert control over the system. Furthermore, it is not based on debt. One can compare Bitcoin with Gold: It is scarce and the algorithm is programmed to let it stay so. There is thus only a limited amount of money. If a Bitcoin is lost, it is forever gone. But unlike gold it can be easily transferred around the globe. The Bitcoin system prevents some of the current vulnerabilities such as centralization. In no time projects have been developed which wanted to make Bitcoin more useful. There are already systems that integrate Bitcoin in e-commerce platforms. There are apps in each variation. [6] Numerous dealers are already paying in the currency. [7] 

Bitcoin: A possible future currency? Source: Wikimedia

Bitcoin can be seen as a symptom of breaking the old power structures. It shows how the Internet is changing all areas of our lives and the future. The traditional structures seem to be reaching their limits. The media landscape is, for example, centered around very few owners. That makes neutral or critical reporting complicated, if not impossible. The answer of the Internet-community was Wikileaks. Only there it was again possible to publish seriously critical material. In particular, Wikileaks held an important whistleblower function during the Iraq war. The established system responded by turned off the money flow. Not one dollar should go to Wikileaks. [9] 
Wikileaks was the answer to censored media. What is the answer to our monetary system? Source: Wikimedia

The Internet community in turn countered with its own uncontrollable monetary system that was operating outside the traditional power structures. Thus Bitcoin is a sign of the power struggle between the old and the new. It is one of the changes occurring in the information age. We must closely watch that this power struggle will not become totalitarian. In the long run we must accept the alternatives and companies and states need to evolve if they do not want to fall into totalitarian traps. Bitcoin is not perfect though. It only partially meets the above mentioned ideal points. Several criticisms exist, such as the unilateral distribution of Bitcoins or its conveniant application for drug trafficking. [10] Because of its constitution, some are already talking about the most dangerous open-source project ever. [8]
And Bitcoin is not the only new system out there. Facebook is also working on its own currency. Facebook Credits must be purchased directly from Facebook. They thus represent an expanded business strategy of the social network - a strategy that seems to work out. Currently, there are mostly virtual goods that are purchasable via Facebook Credits. In the long run it will be possible to be also conventional goods. With the near ubiquity of Facebook, it's no wonder that its credits are seen as the prime candidate for a new world currency. [11]
New currencies like Bitcoin or Facebook Credits should particularly kept in mind by online store owners. As described above, the current official monetary systems are very vulnerable. In case of emergency it cannot hurt to establish a second income stream by accept other currencies. In the long run the Bitcoin system will probably survive Euros and Dollars. The strength of Bitcoin is the independence of institutions. The system will continue to run regardless of how other currencies evolve or whether states go bankrupt. Its weakness is, as already mentioned, the risk of legal prohibitions, if major players are facing threats to their power. Even if Bitcoin should not prevail: Because it is based on open source technology, it can always be reprogrammed and restarted in an improved version. Thus Bitcoin has taken the first step towards a better future monetary system. Bitcoin could mean for conventional currencies what Wikipedia meant for printed encyclopedias. Facebook credits on the other hand do not have the danger of being legally prosecuted, because it would go against the interests of Facebook. The currency of the company therefore enjoys more legal certainty than Bitcoin. But this strength is also its weakness. Facebook credits are tied to the fate of the company. Should Facebook get in trouble because of a severe crisis in the U.S. also its credits could be affected. Shop owners have to face the question as to whether they opt for the independence of an American company, or for more legal certainty. And we must not forget that now there are already many other complementary currencies which you can use as well. [12]

The future depends on us
What we are experiencing is a paradigm shift. [13] The utopias do not seem to be so far away. In this article it has been shown that the monetary system is adaptable to new developments and needs. The current system will have to change necessarily because of its constitution. Alternatives are just waiting to be used. The utopias tell us that one day money will be abolished by mankind in general. It is still written in the stars whether this future might come true.

Sources and links:
[1] Brodbeck, Karl-Heinz: Die Herrschaft des Geldes. Geschichte und Systematik. Darmstadt:
Wissenschaftliche Buchgesellschaft 2009, S.787. Own translation.
[2] S.67 ff.
[3] Morus, Thomas: Utopia. Stuttgart: Reclam 1979.
[4] Marx, Karl/Engels, Friedrich: Manifest der kommunistischen Partei. Berlin: Dietz Verlag 1951
[5] Star Trek: The next generation. Folge: “Die neutrale Zone”
[13] Siebert, Patrick: Das Geld in der Neoklassik. Der Paradigmenwechsel in der Ökonomik am Beispiel der Geldtheorie. Wien 2011. Download here:

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