There is an urgent need to rethink the basis of the world’s monetary arrangements. The end of the dollar standard is in sight. Its end will be hastened if the deadlock in Congress on US fiscal policy continues. Also, the dollar’s reserve currency role is already dangerously over-extended.
From “behind the scene” secretive rulers of the world (Plaza accord in 1985), to the period of great moderation, attributed to monetary policy, when central banking was called “boring” (until 2007), to the recent almost celebrity status of some central banks and governors.
Almost certainly the “unlegislated tax”1 of inflation will be the consequence of the debts that the governments of Europe, Japan and the US have accumulated. Inflation is a very regressive tax and it is dishonest and divisive, but it usually is more politically popular than the alternatives of cutting spending or raising explicit taxes.
In 1971 President Nixon delinked the dollar from gold, putting an end to the Bretton Woods System that had ruled the world’s monetary systems since the end of World War II.
However, there is an irony in our attitude towards our forebears’ belief systems, for we consistently fail to consider that such limits of perception may apply to ourselves. True, such limits may be at a different order of complexity than in the past and thus the old signposts often have very little to offer in terms of where to look.
Rapidly evolving technology and the most recent and ongoing financial crisis promise to significantly change the future of money. To look into the crystal ball for clues to its future, we must first agree on what money is.
Nairobi – Some years ago, DFID – the UK Department for International Development – partnered with Vodafone to develop a secure software platform for performing a number of basic payment functions on mobile phones.
The internet has a funny way of producing outcomes that disrupt traditional businesses, a fact widely seen in fields as diverse as communications, retail, journalism, supply chain management and increasingly finance.
One starting point for thinking about the future of money is to consider its past. For those interested in the history of money, there is no better place to start than the works of economist Barry Eichengreen (University of California at Berkeley).