Will Non-State Currencies Emerge in Our Lifetime?
In this blog post by Fred Wilson, he makes the bold assertion “I’m confident we’ll see the emergence of currencies that are not controlled by nation states in my lifetime.” I love the Brave New World sentiment, but I think the factors that drove us to state-based currencies are actually increasing, not decreasing. Let’s look at what factors made state-based currencies attractive, then at what the future may hold for each factor. Why State-Based Currencies are the Norm
- Enduring Institutions - States (still) rarely default, are sold, collapse, cease issuing their currency. Long-term stability is huge.
- Size - States are the biggest things out there. You want to buy into something large from a market cap and quantitative sense.
- Public Process - A large public administrative process is generally more stable, and certainly more predictable (long term) than private processes.
- Market Strength - The USA demands all taxes and fees be paid in dollars, as are all government (and contracted) salaries. That is peerless market shaping power. Ideally you want a currency to be bolstered by having a use-value, and the fact that your taxes must be paid in your state-currency grants an incredible tangible value. Fiat currencies are largely without use-value, but if the US took in around $2,670 billion in taxes last year, that’s a lot of tangible use-value.
- Regulation, Law - Ultimately, we still live in a world of near-absolute state sovereignty. Just or unjust, laws and regulations will always favor the state currencies, if not outright banning other currencies (could still happen with Bitcoin in the US, though unlikely).
How Will the State to Non-State Balance Shift in the Future?
In general, I believe states are becoming stronger institutions which will help state-backed currencies. Gov 2.0 will continue helping accelerate their strengthening. So I don’t believe the balance will shift away from state currencies toward non-state currencies. That said, I do think pseudo-off-balance-sheet “currencies” like Time Banks have a future because they so well exploit inefficiencies/regulations in many current systems.
- Enduring Institutions - States still seem like a good bet for stability vs. non-state, doesn’t look likely to change in our lifetime.
- Size - States still win out here. If anything I think companies will shrink in size proportional to states, as “too big to fail” companies have expansionary growth limitations imposed (such as states not approving M&A).
- Public Process - Both states and non-states orgs will become more public (Yes I’m talking about my startup and other B-Corps), I see this maybe as a draw.
- Market Strength - States aren’t going anywhere, and their market strength isn’t either. As a % of world GDP I see them holding steady.
- Regulation, Law - Also unlikely to change. The EU and Euro are rare exceptions of states giving up areas of sovereignty. I don’t see that changing, and even if it did whatever unified mega-states emerged I would doubt they would cease exercising the vast economic benefits gained by preferring their own currencies and regulating competitors.