NEW BOOK: THE FUTURE OF MONEY

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V24 2021 INDEX E-SYLUM ARCHIVE

The E-Sylum: Volume 24, Number 43, October 24, 2021, Article 4

Picking up where Akinobu Kuroda left off, Eswar Prasad looks into the future of money. While cryptocurrency isn't directly numismatic, numismatists do care about what it means for the physical coins and other money we use today. -Editor

In the 13th century, Kublai Khan, grandson of Genghis Khan, created the first fiat currency, money that gets its value from the state declaring it has value. This was not the first paper money — Chinese merchants had been using deposit certificates since the 7th century. It was, however, the first not backed by any kind of commodity, such as gold, but solely the power of the state. Indeed, anyone not accepting the tokens risked being put to death. It was the birth of money as most of us know it today.

Now, according to Eswar Prasad, we are in the midst of a new revolution, this time launched by private innovation. The spark came from bitcoin in 2009, the first digital money that needed no trusted third party — whether a government, a commercial bank or payments processor such as Visa. While the libertarian ideal of its creators — a financial system free of state power — will be frustrated, he argues, the decentralised record-keeping that underpins cryptocurrencies will bring cheaper and more efficient payments.

In The Future of Money, Prasad envisages an era of monetary separation between the state and the private sector. While modern money, mostly, consists of bank deposits, the commercial banks depend on central banks to provide the reserves backing them and to administer the system of interbank payments. New technologies will break apart this partnership. While the state's money will provide a store of value, private currencies will, often, be used to make payment.

Take Facebook's mooted cryptocurrency, now known as Diem. That could, Prasad argues, transform the creaky and expensive world of international payments. At present, cross-border payments hop from bank to bank with each adding fees at every step and repeating costly anti-money laundering checks. Instead, transfers could all take place by buying and then sending Diem. That would save often poor migrants from having to hand over to the financial sector a big chunk of the remittances they want to send home.

The book is comprehensive to a fault and a vital handbook for anyone looking to understand how finance is changing. The style, however, can be quite dry and the language, often, too academic. And while the author's vision of the future is, in many ways, plausible, is this really as new an era as he suggests? Stablecoins are very similar to existing bank deposits. Indeed, the U.S. is considering regulating cryptocurrencies like banks. From a consumer point of view the future may look pretty similar even if, behind the scenes, payments systems work differently.

Prasad's prediction that the monetary balance of power will shift to the private sector will depend not on the efficiency of decentralised ledgers but the state's willingness to tolerate the challenge. Eras of free banking in Scotland and the U.S. when banks issued their own banknotes, similar to stablecoins, were brought to an end in the middle of the 19th century not because of better technology but because the state asserted control.