Oct 7, 2010

Fake money becomes real - the future of money?

Two separate commentaries popped up on my screen this morning, which intuitively seem related in ways that are not yet clear to me.

The first is an article titled How Fake Money Saved Brazil, describing how four drinking buddy economists (insert your favorite derogatory comment about economists here) managed to stop Brazil's rampant inflation in the early 1990's. The article focuses on the psychological trick they used with the creation of a stable unit of account which eventually became today's Real.

The article focuses on the importance of restoring people's faith in a currency, and simply gives one line to the absolutely necessary prerequisite: slowing down the creation of money. Currently, we appear to be in the early stages of the acceleration of money printing around the world, so the Brazilian solution won't be applicable until some time in the future.

A few minutes later I read Dave Birch's latest post, Why Now? Dave discovered two recent books with the same title, The Future of Money, and wonders why all of a sudden this apparent resurgence of interest in the future of money. He provides as usual a clear and succinct history of past payment initiatives like Mondex and Visa Cash, and then concludes that banks should probably not be in the payments business and should instead focus entirely on providing credit.

This is all connected somehow.

Money as we have known it over the past century is changing, thanks in large part to the stupid things that economists and bankers have been doing since we switched to worthless paper money. It's hard to see how the current money system will not crash, once everyone understands how central banks create it out of thin air. When that happens, it will be replaced with something new. My intuition is that whatever that is, it will be deeply impacted by new developments in payments that Dave brings up.

Could new payment technologies like PayPal, mobile payments, etc. smooth the way to stable money backed by gold?

1 comment:

Urbach and Avraham CPA said...

I love what those 4 Brazilians did. Cheers! haha. I just can't imagine it's applicable to every country. But their objective is outstanding! Good thing we have online banking and money transfer.