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Thursday, February 04, 2010


Douglas Carswell has a really significant innovation brought about by a visit to Uganda.
I was fascinated to see that almost everyone has a mobile phone. When I was growing up in Kampala twenty years ago, there weren't even many landlines.

Technology hasn't merely democratised communication, it has given almost every Ugandan a system of instant, electronic banking. One of the great, unforeseen consequences of mass mobile phone ownership has been the evolution of a system of mobile phone-based banking. By transferring mobile phone credits from phone to phone, Ugandans are able to pay for things securely, and bank in a way that was previously impossible.

It got me thinking....

What if one day a mobile phone company in such a country was to start selling phone credits that were decoupled from the value of the local currency? Rather than having X number of shillings worth of credits on your mobile, you would have a certain number of credits - which could be worth one amount one day, and a different amount another day.

If there was also inflation (the shilling losing value), folk would pretty soon transfer their wealth into phone credits. Bingo! You would have not merely micro electronic banking, but in effect a private currency operating alongside the "official" unit of exchange.

My bet is that this is going to happen someplace pretty soon. Technology hasn't merely smashed the state monopoly on providing telecommunications. It could break the state monopoly on currency.

What about Britain? What if in a few years time most Britons did their grocery shopping on-line? What if we each had an account with, say Tescos or Morrisons or Lidl, denominated not just in £ sterling, but in the supermarket's own system of credits - similar to mobile phone credits.

If inflation was to pick up...

What if you could transfer your holding of supermarket credits over to someone else, in payment not just for supermarket bake beans, but for anything you like?

Fantasy? Not as fantastic as the idea of mobile phones seemed in Uganda two decades ago. As governments debauch the currency, I suspect that we will see the evolution of new, non-state controlled means of exchange.
This struck a chord with a couple of previous suggestions from me - that the best way the EU countries could help Africa was by building ourselves a geostationary telecom system & sharing it with Africa & by sponsoring a continental African bank which would not be limited by national currencies within boundaries & would not be debased by governments running the printing press.

Douglas has gone far further than anything I thought of by applying it to debasing governments here. I commented
if some genuinely independent international bank did it it would, apart from giving them immense profits, tend to encourage popular trust in free enterprise. It is difficult to trust politicians more than businessmen when you trust the business currency more
It is difficult to see how governments could stop people using this cashless international money if they trusted it. If governments do let inflation rip, which is simply breaking their trust that the "promise to pay the bearer on demand one pound" will be fully kept & bankers/telephone companies keep their's, trust would inevitably flow that way. In which case the socialist nation state is a dinosaur.

Note also that since none of this money flows through the national currency it cannot be taxed. At worst it could result in everybody earning their incomes in another country like footballers. Mark Wadsworth's hobbyhorse, that all tax should be raised from land values since it is something that cannot be increased/reduced by taxation (well not till we start building floating islands & orbital settlements) & that the long term value depends on how well the country rather than the landlord manages their affairs could come to pass. Indeed if this is already being done in Uganda it could come about here very quickly indeed.

"Give me control of a nation's money
and I care not who makes the laws."
Mayer Rothschild from an era before the state got full control of everything

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What you are saying is we use something with intrinsic value as currency, i.e. phone credits, which is a good start.

But there is (I am afraid) nothing to stop the phone company selling more and more credits and diluting the value of existing ones (or indeed going bankrupt, or you losing your phone), so while this may be an excellent MEDIUM of exchange or MEASURE of value, it is not a very good STORE of value (as you earn no interest on your credits.).
Love this idea. Takes an amount of control of the economy from the politicians if the people no longer trust them and the people make their own choices.

I see no barrier to this but to be sure Neil. If there is a proposal to bring this system here the politicians will bring in a way to tax it at point of conversion.

But if you are paid in a Swiss (or lunar) bank (or 90% of your pay is in a bonus paid there to keep it legal) they simply have no handle on it. It is like the internet which the EU & all the other parasitic busybodies keep suggesting they should censor but it is simply impossible.

Only a truly libertarian minded person could like this & I am pleased to see the BNP, normally thought of as a bit "old Labour", is broader than that.
This is an interesting (and good) idea but wouldn't the legal tender laws stop it? Also, the state would try to charge VAT on the purchase of credits wouldn't they?

That said, if you purchased them from abroad and bought stuff from a company in the UK how would the compnay be liable for corporation tax on its earnings I wonder? Would the state still demand payment in its depreciating fiat money? This is a very interesting idea indeed.
Some of that would depend on how the lawyers did it but ultimately it is on whether government physically can do it. I think they could charge the shop VAT, or equivalent, for goods across the counter since they are physically here. though it couldn't be to much for anything you can buy for delivery from abroad, & that corporation tax would be paid wherever they choose.
A possibility is the telco provider to price the services in units of gold. Say 1mg gold/100 second call or an SMS.
People would convert their fiat money in credits from the telco and then they would pay for goods and services.
The only reason to use the fiat money of the state would be to pay the state for taxes (paper in paper out).
extropolitca ~ an electronic gold standard? Great idea, as is paying taxes with their paper

I have to say, this idea is surely worth a paper to one of the think tanks sympathetic to the idea of a gold standard isn't it?
The phone company can keep producing credits as long as their system has the capacity to hamdle the traffic. Its disadvantage as a store is that phone call charges, like most high tech things tend to go down in price, faster than the £ but not at the rate of hyperinflation countries. Only way that "currency" would collapse is if some competitor started giving phone calls at a much lower price.

All currencies, even gold, are intinsically non-interest bearing - the price you pay for having them avialable for use. The bank may give you interest but only so long asc you give up being able to lend or use it.
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