A future without money

Read our article in the Cayman Financial Review Magazine, eversion 

In order to get our heads around a future without money, it’s a good idea to look at the relationship between money and credit and how this has developed over time.

Money 1.0

An intellectual battle is currently raging among economists, historians and even anthropologists in relation to whether the first generation economy – let’s call it Economy 1.0, where buyers and sellers were physically present – involved primitive forms of credit or whether it was based upon barter transactions.

The answer is that both mechanisms were in use. Some people extended credit by giving counter-parties time to provide something of value in exchange. Others accepted valuable credit objects – units of currency – that they knew they could exchange for value in the future.


Forms of currency developed that were mutually acceptable forms of value or money’s worth such as standard amounts of silver and gold, but other generally acceptable forms of value have been accepted over the years from cowrie shells to copper, and from cigarettes to salt (hence the word ‘salary’).

Governments provided standardisation, so that currency became understood as a pricing reference or unit of account; and also quality control, in the case of gold and other precious metals by assaying, weighing, and minting coins as a standard unit of currency.

Credit – stock

The first form of credit instrument or IOU was the tally stick. The buyer would take a wooden stick, mark it with notches denoting the value of the transaction, split it lengthways, and give part of it – the ‘stock’ to the seller as his IOU, and keep the ‘counter-stock’ or ‘foil’ himself.

The buyer would then, at a future time, accept the stock/IOU he had issued, from either the seller or anyone else who held it, in payment for goods or services he supplied.

But in order for such ‘stock’ – as opposed to valuable currency – to be generally accepted in payment by a seller it had to be issued by a creditworthy buyer.

This would typically be a merchant of good standing (hence merchant banker), or an institution like a temple that levied tithes on the population or a sovereign who levied taxes and whose exchequer was prepared to accept tally stock in payment for these impositions.

The important role of stock in public finance may be gauged by the fact that by 1693, when the Bank of England began the process of privatising British public credit, more than £17m worth of government stock in the form of tally sticks was in circulation, at a time when the cost of running the government was £2m to £3m per year.

Money 2.0 – the rise of the middlemen

In Economy 2.0 the market presence of buyers and sellers is no longer physical, but takes place at a distance through intermediaries.

Over the last 300 years or so we have seen the rise to power of such middlemen both as merchant trading intermediaries, providing an outlet to sellers and a source to buyers, and also the credit intermediaries known as banks.

The other intermediaries – although we do not think of them as such – are the institutions of government, particularly the Treasury and the central bank.

Between them, these intermediaries create – through a system of bewildering complexity – the currency and credit that enables our economy to function and which combine to form what I think of as Money 2.0.

Private credit

Most money created today (>97 per cent) comes about when banks lend at interest or spend by crediting the accounts of suppliers, staff, management or shareholders, and the money thereby created is deposited in the banking system.

While loans are obligations taken on by people individually or collectively (legal persons), most loans are in fact backed by the value of productive assets, particularly land and buildings or improvements.

Banks essentially guarantee the performance of the borrower and back this guarantee with an amount of capital specified by the Bank of International Settlements in Basel. The bank receives income from borrowers and pays interest to depositors.

They deduct from this net interest income their operating costs (especially management costs); and the cost of defaults, and the balance is available to pay to shareholders.

Public credit

As paper and electronic accounting became pervasive, the use of promissory notes (IOUs issued by Treasuries or central banks) and coins shrank to <3 per cent of money in circulation.

The use of public credit to finance public expenditure has been replaced by public debt. Central banks credit suppliers as instructed by the Treasury as its ‘fiscal agent’, and the Treasury then issues debt which it sells to the private banks that create credit/money and thereby fund public expenditure.

So the banks receive interest-bearing securities from the Treasury in exchange for credit created with a click of a mouse.

Both Treasury debt and notes and coin continue to be backed by the capacity of the government to levy taxes, which are for the most part levied directly (income tax) or indirectly (sales taxes and VAT) on the productive capacity of individuals.

Peak credit

The creation of private credit without limit by banks has periodically inflated asset prices from the South Sea and Mississippi bubbles in the early 18th century onwards.

The most recent bubble in property prices in the US, UK and other Western economies led, in or around 2007, to a point of peak credit when land-backed debt exceeded the capacity of the owners to pay it.

As a result the system of private credit went into a terminal decline, the key point being the collapse of Lehman Brothers in 2008 and the almost complete breakdown in trust between banks, whose ability to lend between themselves had fuelled the bubbles.

The response of the Federal Reserve Bank was to lower dollar interest rates to zero and to pump new public credit into the system by creating electronic dollars and exchanging them for debt such as treasury bills.

Money has poured into new breeds of funds and financial products that invest directly in equity and commodity markets, which therefore lost touch with underlying supply and demand in a series of classic correlated bubbles as ‘inflation hedger’ investors caused the very inflation they sought to avoid.

Banks flocked to launch these funds because the customers, rather than the banks, take the risk. Banks therefore require very little capital and make very good returns on what they do use. Such investment through ownership of assets rather than lending to owners is direct ‘peer to asset’ investment.

The problem is that now that the Fed’s programme of quantitative easing ended, new credit has ceased inflating the bubble. In 2012 we will see the final stage of the crisis and a transition to a new and sustainable financial system as the bubbles collapse.

Money 3.0

In Economy 3.0 market presence is presence on a market network. The internet creates direct connections which enable direct ‘peer to peer’ credit between individuals and direct peer to asset credit between individuals and productive assets.

Back to the future – guarantee societies

People-based credit will be direct from trade buyers to trade sellers, within the kind of mutual risk sharing agreements that have existed for thousands of years and remain in use in the City of London as mutual ‘P & I Club’ insurance of shipping and other risks.

These P & I Clubs are essentially guarantee societies which have been managed by the same service provider for 135 years.

In such a mutual ‘credit clearing’ system, buyers and sellers on credit would pay no interest but would pay for the use of the system, and would also pay a guarantee charge or provision into a pool in common ownership to guard against defaults.

Back to the future – stock

The future of investment will be direct peer to asset issuance of stock. Owners of productive assets may simply issue undated credits/units redeemable in payment for the use of the asset.

For example $1.00’s worth of rental value sold for 80c will give an absolute return of 25%, but the rate of return depends – literally – upon the rate at which units of stock may be returned to the issuer and redeemed against use.

Instead of debt fragmented by date and rate of interest, there will simply be single classes of stock, and even if financial investors do not buy stock for investment, users of productive assets such as occupiers will always buy stock at a price less than face value in order to redeem it against use.

Future of money

The future of money is essentially the creation and circulation of ‘money’s worth’ on credit within a new framework of trust.

This service will no longer be provided by banks and government as middlemen, but will in future be provided by service providers as managing partners who operate mutual agreements backed by productive assets held by a custodian entity on behalf of the beneficial owners.

We will see the resolution of unsustainable land-backed debt through its replacement by a new generation of land-based stock, and a transition to a sustainable economy through a new generation of energy-based currency rather than the current attempt to make valuable, by administrative means and government ‘fiat’, CO2, which is intrinsically worthless.

It has been said that 21st century problems cannot be solved with 20th century solutions but it is supremely ironic to see emerging in use updated versions of simple risk and revenue sharing mechanisms that have existed for hundreds, if not thousands of years.

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Chris Cook

Chris has been involved in the regulation and development of markets and enterprises for 25 years, including six years as a director of a global energy exchange. In recent years he has been developing new partnership-based enterprise models and related financial products and services.

Chris Cook Principal
Nordic Enterprise Trust
109a High Street, Linlithgow
West Lothian
EH49 7EQ
United Kingdom

T: +44 (0)1506 844824   
E: [email protected]
W: www.nordicenterprisetrust.wordpress.com 

Nordic Enterprise Trust

Nordic Enterprise Trust (NET) aims to stimulate economic and cultural links between Scotland, the Nordic countries and the rest of the world.  NET aims to reinvest any surplus we make in achieving our purpose and therefore to operate Not for Loss.

Our purpose is to stimulate partnership working,  both between Scotland and the Nordic countries and more widely.

Our method is through the creation of new partnership-based legal and financial structures or enterprise models, and the implementation of new forms of partnership finance through linking individuals and enterprises directly or Peer to Peer.

Finance consists of two things: credit, which facilitates trade and enables the creation of productive assets; and investment, which consists of conflicting financial claims over productive assets. These are secured debt (e.g., mortgage loans); and equity, which is an ownership interest in a corporation, and typically exists in the form of shares.

Credit and investment may be achieved without the intermediation of banks. Since bank capital will be further depleted as the credit crunch spreads into the productive economy, peer-to-peer finance offers a solution from an entirely unexpected direction.



Nordic Enterprise Trust
109a High Street, Linlithgow
West Lothian
EH49 7EQ
United Kingdom

T: +44 (0)1506 844824   
E: [email protected]
W: www.nordicenterprisetrust.wordpress.com