Paul Tero a member of our Emerging Fellows inspects the supremacy of dollar in digital economy in this blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.
We trade in what we value. Whether it be a young child trading a small coin for a sweet at a corner store, the consistent portion of a wage over many years in exchange for a house, or the complexity of financial transactions to fund a manufacturers expansion. If we value something we will participate in a fair exchange with the seller.
We are all aware of the barter economy, of an era long past, where that form of trade was the primary mechanism to establish fair exchange between parties. Over the course of time it was hard currency that first supplanted this ancient mechanism, then promissory notes, until now where digital representations of cash are the means through which value is exchanged fairly.
Also today, it is a sovereign currency, the Dollar (or Euro, Renminbi or Yen) if you will, that is king. It is this fiat currency, this legal tender of value backed by an issuing government that is implicitly trusted so that we can fairly exchange value. Whether it’s that young child at the corner shop, or the insurance company guaranteeing the importation of that machinery, we all implicitly trust that issuing authority.
We pay, and governments collect, taxes based on that trust. Businesses leverage the inherent strengths of the banking system to invest in growth, based on that trust. Governments trust other governments based on that trust.
But in a fully digital economy, what entity will be the foundation of that trust? The case could be made that a single global currency could become king. Where, over the coming decades, a currency founded on blockchain principles could supplant the many sovereign currencies in existence today. The case could also be made for a return to the barter system. Where, again over the coming decades, the nascent peer-to-peer sharing economy becomes the most trusted mechanism for the fair exchange of value.
Given the possibility that either of these two paths could be realised, it may well be a fool’s errand to just assume that the future of financial transactions is just a more efficient version of what we experience today. Where this more efficient version still relies upon the sovereign entities of trust. And where these entities of trust are the anchor for computerised exchanges of value. Just as it occurs today at the retail level, at the commercial and at the government level.
Consider two scenarios. First, what if the world moves to a type of universal basic income or universal basic services model? Where the accumulation of wealth is a foreign concept to most and bartering is de rigueur. Secondly, what if the digital economy transforms into the intelligence economy? Where real value is no longer held in varying compositions of bits, but in prized abstractions of knowledge stored in quantum computing machines. In either of these two scenarios, what would be sensible: to have a single global currency, a ubiquitous barter system, or just more efficient version of the current way we conduct financial transactions?
Finally, if we accept that human nature will fundamentally remain unaltered in the coming decades, we can appreciate the logic in the following propositions. We can accept that in a fully digitised economy there will continue to be shining examples of our “better angels” and likewise examples of those with more sinister intent. We can also accept that, because of our human nature, we will still form systems of governance and administrative oversight. We will still need the ability to enforce exclusion upon those who are a danger to society. We will still participate in fair exchanges of value. For people will still be people. At our core we’ll be motivated by the desire to either work toward goals, to work with people, or to work to accumulate power.
Given all this, and as we look far over the time horizon, will the dollar still be king in a fully digital economy? More than likely, the literal dollar won’t be king but the metaphorical dollar will be. Even though human nature is not likely to change, the mechanism for the fair exchange will continue to change. For each of us will continue to have something of value that is worthy of trading.
© Paul Tero 2019