When goods and payments are both just data
© Copyright 1994-2002, Rishab Aiyer Ghosh. All rights reserved.
Electric Dreams #51

Goods and services are now becoming just another class of data; for many years this is what money has been. Technology and the sheer number of users have made information uncontrollable and essentially free. Technology again and the sheer volume of transactions may do the same for currencies.

Physical movement of goods is relatively easy to control. Goods can't pass through geographical borders without considerable risk. And when a smuggled crate is found the smuggler is usually nearby - crates don't move on their own. Information does though, with the distributor of confiscated data found at the other end of the world - when any correlation between the source of information and geographical location is at all possible.

Money started out as notional value attached to a physical transport agent, through which value could be exchanged. The movement of money was once easy to control, as it still is in parts of Micronesia where what is arguably the oldest central bank in the world closely guards its currency issued in metre-high stone doughnuts. But when trillions of dollars worth of currency are traded every day over the telephone or through computer networks, money, like any other sort of data, begins to move on its own. Out of the hands of those who wish to control it.

Countries, through their governments or central banks, have always tried to use their control of exchange rates - the notional value of currencies - as part of economic policy. As recent events have shown - from Mexico to the European exchange-rate mechanism to the collapsing US dollar - they are no match for the flux in currency markets, thanks to technology that allows huge volumes and terrific speeds. Unfortunately for those who long for greater restraints on the flow of money, such restraints are likely to be as effective at controlling money as they are at controlling information.

This does not necessarily lead to a dangerous world of extremely volatile economies, for countries themselves and their individual, 'sovereign' currencies are increasingly irrelevant to the stability of markets at a global level. National currencies matter when most trade is between nations. As trade becomes more global, several self- contained markets develop, effectively usurping the role of the nation-state as an economic unit and as issuers of currency. This is especially true in the exploding trade in information and services.

Cooking-pot markets - common barter exchanges - are the basis for the huge trade in services on the Internet, to which I earlier attached a notional value of well over $100 billion. While it is unlikely that all of what now is traded free of charge will eventually be paid for in dollars or some other nation-backed currency, there are growing concerns about the relative value between what a user produces or provides to the Net, and what the same user consumes, which will lead to Internet currencies.

Technologies already exist to allow independent currencies to be issued as morsels of data without any physical presence. As they become more widely available, it is certain that such private currencies will appear. Backed only by trust, they will essentially be tokens representing the notional value of bartered goods and services. These tokens will be respected within an economy such as the Internet, but need not be convertible into nation-backed currencies outside.

Private currencies already exist. Local Exchange Trading Systems (LETS), remarkably popular across Europe, involve barter tokens used to pay for groceries and gardeners. Money only respected for goods and services within a small town may be easily dismissed as inconsequential. A private currency, impossible for any country to control, used to pay for information between the 30 million or more inhabitants of the Internet is something else altogether. Money too, like information, will want to be free.

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