1. Central Banking Publications Seminar Cambridge, September 5, 2002
GEF
The future of money: Intangible economy and Electronic money Charles Goldfinger
Central Banking Publications Seminar
Cambridge, September 5, 2002

2. The future of money Presentation plan The new economic landscape
Electronic money
Three scenarios
Opportunities, risks and challenges

3. The new economic landscape
Money and economy
Feudal economy
Fiduciary
Money
Capitalist economy
Scriptural
Money
? economy ?
Money

4. The new economic landscape
Buzzword proliferation
Knowledge
Economy
Interaction
Economy
Service
Economy
Digital
Economy ?
Plug-&-Play
Economy
Information
Society

5. The new economic landscape
Defining trend
Service
Economy
Information
Society
Knowledge
Interaction
Plug-&-Play
Digital
Shift to the intangible

6. Shift to the intangible
What is the new economy ?
Shift to the intangible
Price
in USD
Weight
in lbs)
per lbs
Pentium III
851
0,001984
42 893,00
Viagra 8
0,00068
11 766,00
Gold
301
0,0625
48 277,00
Mercedes Benz E-class
78 445
4134,00
19,00
Hot rolled steel
370
2000,00
0,20
Source : G. Colvin, Fortune

7. The new economic landscape
Three dimensions of the Intangible economy
Demand: Intangible artefacts
Final consumption products or service
Information, Entertainment, Communication, Finance...
Supply: Intangible assets
Intermediate production factors used by businesses to create artefacts and generate value added
Brands, Intellectual Property, Human Capital...
Economic structure: Dematerialisation logic
New rules of
Business organisation
Competition
Valuation
Abundance, Obsolescence, Volatility...

8. The new economic landscape
Intangible markets
Planetary haggling
Loss of relevance of traditional price yardsticks
Production costs
Falling marginal costs
Willingness to pay
Free-riding ubiquitous
Pervasive volatility
Toward real-time pricing
Yield management
New pricing approaches
Individualisation
Getting rich on crumbs
Third party

9. The new economic landscape
Networks and markets
Markets as networks
Network externalities
Liquidity
Broad access
Interconnection requirements
Networks as markets
Access and capacity management
Quality of service delivery adjudication
Trust and identification infrastucture
Markets
Netmarkets
Networks

10. Electronic money Largely unsettled realm Make or break issue
Technology
Economics
Institutional set-up
in the state
of flux
Make or break issue
Ontological:
What and Why ?
Definition and purpose of e-money
What is the new ?

11. Electronic money Conceptual confusion Technology-based definition
From « E-cash to megabyte money »
Eternal promises of financial smart cards
Used-based definition
Loyalty points
LETS
Contrasting views
Apocalyptic enthusiasts
The end of monetary system as we know it
Sceptical incrementalists
Nothing really new

12. Elements of a definition
Electronic money
Elements of a definition
Unit of
account
Unit of
account
Means of
Exchange
Store of
value
Unit of
account
Means of
Exchange
Store of
value
Means of
Exchange
Store of
value
Fiduciary money
Scriptural money
Electronic money

13. Electronic money Elements of a definition
Electronic money as a Digital Value Contract
Software based
Network-resident
Continous rather discrete value
Infinitely granular
Intelligent money
Complex transactional rules
Event-based value
Fungibility
Monetary
Time
Intellectual property
Peer recognition
Digital barter

14. Anybody can issue e-currency …but who will clear and settle
Future of money
Three scenarios
Private currencies
Community currencies
LETS
Corporate currencies
MSFT dollar
Denationalised currency
Hayek
Anybody can issue e-currency
…but who will clear and settle

15. Future of money Three scenarios Global currency: the geo
Logical consequence of economic integration ?
Symbolic value
Technologically feasible
Global RGTS
Politically challenging
Macro-economic convergence
Euro as a model
The jury is still out

16. The future of money Three scenarios Market nexus DVCs
Value and image of value
Extension of scope
Commodities
Financial instruments
Asset classes
Enviromental protection
Social protection
Macromarkets

17. The future of money Three scenarios Displacement or coexistence ?
Denationalised currencies and the geo
Corporate currencies and DVCs
Coexistence
DVCs and the geo
Likely scenarios
Strong DVC momentum
Geo question will return

18. The future of money Opportunities
Aligning intangible economy and electronic money
Allowing higher speed limit ?
Vector of new products and services
Deployment of new business models
Multi-tier third party systems
Multi-revenue stream aggregation
Easier capture of intangible value

19. The future of money Risks Conceptual confusion
Unstable institutional framework and governance
Loss of control
Systemic volatility and fragility
Social backlash
Growing dependance on technology

20. The future of money Risks Wither central banks ?
“ The key to any such development is the ability of computers to communicate in real time to permit instantaneous verification of the creditworthiness of counterparties. The realisation of this possibility would make money’s unique role, as the means of final settlement redundant. If final settlement could be made without recourse to the central bank’s money, the bank itself would cease to exist. Present monetary policy preoccupation with the need to limit money creation would give way to the more “technically neutral regulation” of the integrity of the computer systems that verify the creditworthiness of the counterparties’ assets.”
Mervyn King, Bank of England

21. Future of money Critical challenges
Reconciling innovation and soundness
Defining new forms of governance
Co-opetition
Networking
Harnessing and leveraging technology
Code as a regulator
From International Financial Architecture to
Global Financial Technology Infrastructure