What is money

WHAT IS MONEY? Claire Ingram

PhD Student and Researcher,Stockholm School of Economics

The Classic Narrative

• Before there was money, there was barter

Alternative theory

• State and Credit theories of money (Mitchell-Innes)

• Money as the promise to pay something of equivalent value

• Relies on trust – trust that the person will pay the IOU

Calculated in ”money”

• But paid in whatever was handy

• In Sumeria, denominated in silver shekels (by temple bureaucrats)

• Based on trust – community knew each other

Goods as money

TobaccoVirginia Colony, USA, 1600s Cowry Shells

China, from 2000 BCAfrica, up to ca. 1850

Interest-bearing loans

• Sumerian Temples (2700 BC) collected local produce (grain livestock etc)

• Lent to merchants who travelled and sold these goods to obtain wood, metal and silver

• Charged interest as a way of sharing in profits

Amnesty and Kings

• In the face of bad harvests, system breaks down

• Amnesties granted by Sumerian and, later, Babylonian Kings

• Enforcement also increasingly done by centralised authorities

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Armies, trade and taxes

• Taxes on exports and imports (called portoria under the Roman Empire)

• Taxes on inheritances

• Taxes imposed on local populations who were conquered

• Taxes also imposed on own populations to finance wars

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Characteristics of Money

Money = Fiat CurrencyFiat Currency• Derives value from

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• Fiat money as country’s main currency

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• Interest-bearing loans• Laws and authorities• Various Taxes• Fiat currency

Decentralised, local solutions

From Ricajomarie on Flicka https://www.flickr.com/photos/junipermarie/4422514124/

A New Wave

From “How Bitcoin Works, Under the Hood” by CuriousInventor https://www.youtube.com/watch?v=Lx9zgZCMqXE

Benefits of Cryptocurrencies• Improved transaction security• Trust in cryptography rather than institution(s)• Transparency (for those who understand)• Lower transaction costs• Cross-border, faster transactions• No outside intervention • No inflation (although market volatility)

Drawbacks

• Tax concerns• Security issues• Consumer uncertainty• Market volatility (commodity or currency?)• Potential for illicit use• High electricity consumption to “mine”/verify• No ”chargebacks”

Decentralisation and Innovation

Increasing pressure due to variety of new financial instruments

The status quo

Forces for stability

• Governments• Central banks• Multinational

financial actors• Legal system• Mindset

Forces for change

• Cryptocurrencies• Community

currencies• Crowdfunding• Microfinance• P2P lending• Sharing

What does it mean?

Will there be a tipping point?

http://coinmap.org/

Depends on….- Switching costs- Network effects

Bitcoin accepted here

http://mercatus.org/sites/default/files/Luther_CryptocurrenciesNetworkEffects_v1.pdf

Easier to crowdfund

Accumulation of small investments in individual projects by large number of individuals (the “crowd”) via or with help of Internet and

social networks (De Buysere et al., 2012)

Distributed problem-solving

Valuecreation

People• “Net generation”• 24x7 “mobile” workforce• Social entrepreneurship

Technology • Broadband access• 3D printing• Robotics

Open Source

• Software • Hardware• Physibles

Convergence

Finance• Microlending/microfinance • Crowdfunding/equity• Digital, non-fiat currencies

Thank You!

Claire.Ingram@hhs.se

@Claire_EBI