BOOKS: HAS CASH HAD ITS CHIPS? - A quirky diagnosis of the ills of currency-based monetary systems fascinates Niall Ferguson, even though he finds the remedies on offer unrealistic

BOOKS: HAS CASH HAD ITS CHIPS? - A quirky diagnosis of the ills of currency-based monetary systems fascinates Niall Ferguson, even though he finds the remedies on offer unrealistic - The Future of Money.

by NIALL FERGUSON
Last Updated: 31 Aug 2010

The Future of Money.

by Bernard Lietaer

Century pounds 18.99

Ten years ago, researching German hyperinflation in the archives of the old Reich finance ministry, I came across a wonderful curiosity: a motley collection of unsolicited remedies for Germany's chronic post-war inflation. My favourite was for the introduction of a new sausage-based currency.

There is a distinct whiff of the same crankiness in Bernard Lietaer's new book. It was especially strong in the chapter intended to 'integrate the Taoist vocabulary of Yin-Yang into economic systems'.

As a rule, people who buy books with titles like The Future of Money tend not to be much interested in Taoism. Yet even the most hard-nosed CEO or central banker will find much of interest in this idiosyncratic and highly eclectic book. Its concluding remedy for the world's ills may be, on close inspection, a relative of the Weimar sausage currency; but as a diagnosis of those ills it is both original and very readable.

Lietaer starts with an alarming vision of impending global catastrophe.

The four horsemen of his apocalypse are not unfamiliar: the 'Age Wave' (the greying of the developed world's population), 'Climate Change and Species Extinction', the 'Information Revolution' and 'Monetary Instability'.

What is novel is Lietaer's argument that disaster can be averted by a fundamental change to national and international monetary systems.

That the future of money will be profoundly different from its present is more than likely.

Harvard economist Benjamin Friedman recently suggested that central banks - the masters of today's universe - could become irrelevant if electronic money and other forms of payment outside established banking systems progress further.

Lietaer's argument is not dissimilar, though he devotes more attention to community currencies such as Ithaca HOURS. For Lietaer, complementary forms of money based on the exchange of labour time are part of the answer to problems of ageing populations and technologically driven unemployment.

His second key idea originates in German economist Silvio Gesell's theory of 'free economics'. Gesell argued for 'demurrage' - an anti-hoarding fee paid by holders of currency to encourage them to spend it. Lietaer shows that a number of places adopted demurrage-based schemes, most successfully the Austrian town of Worgl.

His third big idea is for a return to a commodity-based international monetary standard, but with a basket of major commodities taking the place of the gold and silver standards.

There is much else of interest in Lietaer's book, not least a wonderful aside about the esoteric symbolism on the one-dollar bill. Yet his key arguments have fatal weaknesses. First, it is hard to see how community currencies can ever be efficiently exchangeable beyond their originating localities. Even if this problem were soluble, payment for services in community currencies cannot be taxed; indeed, where such schemes have flourished it has been partly for this reason.

Secondly, the notion that a modern economy could replace interest with demurrage seems implausible. As Lietaer himself acknowledges, paper money is already negative interest-bearing because inflation is generally positive. People who hold on to bank-notes when prices are rising lose out as surely as the burghers of Worgl did when they had to stamp their notes. Although it has long appealed to radicals, the abolition of interest is not a realistic option.

Finally, there are disadvantages as well as advantages to a commodity-based currency. The depression of the 1930s owed much of its severity to the atavistic attachment of politicians and bankers to gold.

The future of money will be characterised by innovation as technology changes the nature of the transactions we make, and creates new and more efficient methods of payment. But there are more advantages to the existing system of national paper currencies and banking than Lietaer allows. I suspect the dear old dollar bill (Latin motto: 'The new order of the centuries') has a century ahead of it yet.

Professor Niall Ferguson teaches at Oxford University. His book The Cash Nexus: Money and Power in the Modern World is published this month by Penguin.

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