Illustration from Wired (reversed) - Aegir Hallmundur; Benjamin Franklin: Corbis
Debit Cards and Credit cards routinely handle conversions from Dollars to Pesos to Euros and Yen. The calculation is simple because there are known conversion rates between them. In Fact, the credit card or debit card is buying the other currency much in the same way that they buy the pair of Levies, IPad, or bag of Tulip Bulbs being purchased.
Trading coupons for coupons
In other words, a debit card or credit card should also be able to use IPads, Levies, or Tulip Bulbs to buy money. Of course, they would not use an actual IPad any more than a bank uses an actual Dollar – they trade a 100% coupon of a dollar for a 100% coupon of an IPad. By adjusting the exchange rate between IPads and Dollars, a 50% coupon for an IPad equals 300 Dollars and it is easy to see we are in very familiar Groupon territory.
The Dollar as a black market Currency
The debit card (or any form of mobile payment system) can, in fact, be used to trade what in earlier technological eras would be called a Black Market currency. For example, After the Mexican currency crash of 1994-1995, I personally witnessed people empty WalMart to the bare shelves literally overnight, only to find those items circulating as currency the next day – in exchange for Dollars; the black market currency of the less developed World.
Drive the economy in reverse in order to drive the economy forward
With a high velocity and frictionless payment processing system, the economy should be able to operate in “reverse” just as easily – if not better than – it operates in so-called “forward”. Here is why:
Suppose that Big Box retailer issues a coupon for 50% off all of it’s products for one Christmas Season because they want to beat out every merchant in the country. The contingency coupon gets applied to all the credit/debit cards of all people that have ever shopped at the Big Box. Since the local merchants are driven to failure and they’ll need to liquidate anyway, their response is to also honor the Big Box coupons. This will initiate a spiral and all retailers will begin to accept each other’s coupons. Soon, the brands such as Nike, Coca-cola, and Canon will be pulled into honoring retailer discounts. The “coupon” will become the currency instead of the dollars. The exchange rate between products will be determined by local arbitrage.
Lose the friction, improve efficiency
First, it would become very difficult to tax these transactions. It would also be very difficult to inflate or deflate a dollar currency against these transactions. Arbitrage opportunities will be based on the true social value of a product in a community. The dollar denominated conversion factor will become increasingly arbitrary. The the new currency will be a social currency because people will now favor whatever products have the highest Social Value in their community relative to the knowledge assets of the community. Advertising friction will disappear. Assume Market Friction was 50%…..what changes?
In the end game, social priorities will drive Wall Street priorities
Social Currency is real currency. The technology exists today to make it a frictionless exchange. The economy may actually run better in so-called “reverse”. The only thing missing is a True Value Social Game
References:
Sepp Hasslberger The Future of Money
The March issue of Wired Magazine carries an article titled: The Future of Money: It’s Flexible, Frictionless and (Almost) Free.,
