Two new currency variations are emerging; they’re both called digital currency, and they’re very different. One will rule us, one will serve us. Nearly all of money today is created and used online. So, most of our money is already digital. However, the term, digital currency, is recently being used in two different ways. In each use it describes a money system that eliminates cash, and takes advantage of emerging cryptocurrency technologies (Chapter 4.39). Value still references a national currency, for now. The term is used to describe two very different money systems.
BIG BOX MONEY – ONE BIG BANK IN ONE BIG MARKETPLACE
Our current money system puts the power of money creation in the hands of the private banks and gives them a monopoly on creating our national money, served by a central bank, and guaranteed by the common wealth of the nation. This system faces rapidly rising competition from private marketplace corporations that are calling their new money, digital currency. In this new iteration of privately created money, private broad spectrum marketplace corporations create the money supply, unregulated as bankers. They serve as their own central bank, facilitating all transfers. They are creating money by issuing loans and credit. They’ve already begun. They are taking the power to create new money for the commons, which will give them enormous control over society and the marketplace.
In a cross fertilization, just as our central bank decided it can create money directly for corporate businesses (Chapter 5.53), corporate businesses decided they can act as banks, currently with little oversight. Businesses offering credit to their customers is not new. But, up until recently, the credit that a business offered to its customers was not monetized; it could not be used by others to buy and sell. That has changed, pioneered by a couple very large Chinese companies. This is an expansion of the money creation power, made possible by huge monopolized digital marketplace platforms. These corporations use the same money system (no reserve, little equity, IOU-future-value money). The difference is in who has the power to create new money, how it is distributed, and whether society sets any standards, rules, or regulations on this power.
This is a significant change
Big corporations are becoming digital currency bankers, intending to provide both basic banking services and money supply creation to their pools of customers.
An important distinction
As explained in Chapter 3.25 and 3.26, basic banking services and money creation are two distinct functions. Basic banking service is a business and a free enterprise system can determine the dominant players. Money creation controls and rules economies and hence society as a whole.
BASIC BANKING
Many banks compete to hold and transfer our money – to serve as our basic banker. Technology makes this simpler, and expands the service beyond banks. China leads the way in streamlining the transfer of money and cutting the costs of transfer. In 2004, Alibaba Group Holding Ltd. created Alipay for customers who did not have credit or debit cards. Tencent Holdings Ltd. introduced a similar payment system in 2005 for its WeChat customers. In the US, these services are similar to PayPal or Apple Wallet. But, the Chinese companies have removed the intermediating bank credit or debit card. It is more comparable to Amazon becoming the marketplace AND the banker, which is the direction it is heading. By 2018, these two Chinese companies together had 1.5 billion active users who spent over $2.9 trillion using their systems. Their basic banking transfer services cost roughly half what we pay in the US. Their efficiency is threatening the US and global bankers who take $2.75 out of a typical $100 credit card purchase in the US, and make about $3 billion in bank fees.66
Chapter 3.25 noted that if the world were one big bank, all the bank would need to do is make a data entry that moved money from one account to another. There would be no need for settlement between banks. That is essentially what these big private corporate entities are doing; they are becoming the One Big Bank in One Big Marketplace. If everyone exchanging money is on their platform – buying, selling, and transferring money between each other – all marketplace exchanges are simply a matter of a data entry on the corporation’s platform.
MONEY CREATION
These private corporate platforms are not limiting themselves to basic bank services. They are rapidly moving into the territory of money-creator banks, creating their own loan services using the same model of money creation that all private banks use in our current money system. This ability to pick and choose who gets newly created money gives them enormous additional power over society.
The success of these Chinese platforms has western global bankers in a bit of a panic, scrambling to duplicate their success before the Chinese platforms successfully establish footholds and the prime position in Western countries as well.
It is extremely important to keep in mind that when we conflate basic banking and money supply creation, and assume banking means both, we hand off the power to rule to those who have the greatest market dominance and power. We focus on their creation of efficiencies in the transfer of funds in the marketplace, and fail to give due import to their creation of the money supply itself.
Big global corporations have become broad spectrum monopolies. In the US, Amazon already comes close to dictating what retailers can charge, by demanding the ability to purchase at a wholesale price that enables them to undercut competition.67 I would guess AliBaba does the same. Imagine a world where a few corporations control and take a cut from suppliers, buyers, sellers, people transferring money, AND, have the power to create the money supply. These few corporations would control the direction and conditions of the economy and society.
As these big private corporations take the power to create the money supply, which is the power to rule, we face a crucial choice and decision. We can accept that those with the biggest commercial platform will rule society. Please read Chapter 6 as a cautionary tale about this choice. Or, through our government we can institute standards, rules, and regulations that protect the common wealth from the predations of a few business entities that act to make more money for a few owners. Or, we can assure that the creation of our money supply becomes a public utility, in service to all. (Chapters 8 – 10)
The transfer efficiencies of blockchain technology in a digital currency have not been lost on central banks. They are exploring how this model can be adapted to their basic banking and the money creation power. Most are not considering a change in the money system; they are considering a change in technology.
COMMONWEALTH DIGITAL CURRENCY
A very different money system is also using the term, digital currency. Some monetary reformers who advocate a commonwealth money system – a 100% sovereign equity money system – see great possibility in melding this new technology with a government-created, democratically issued, national currency.
A monetary reform group in the Netherlands, OnsGeld, and other global monetary reformers, including some within the Bank of England, are inspired by the possibilities of Blockchain technology to increase privacy, reduce transfer costs, and eliminate the need for commercial and central banks. They advocating a system change using this digital, blockchain technology. They are calling this a digital currency system. This is a very different meaning than that meant by corporate marketplaces. Clarify before you use the expression.
A privately owned, corporate IOU-future-value money system with money creation powers will rule. A commonwealth money system can serve the economy.