Is E-Money Our Future?

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Dale Fitzgerald II offers some intriguing suggestions in his recent piece, “Encryption, Finance, Freedom,
and You
.” The idea of doing an end-run around governments and
their fiat currencies is certainly appealing. The vision offered
is one of the free economy shedding the state like an old skin,
obviating the need for any direct action within the framework of
existing political systems.

as appealing as the vision is, it doesn’t do for us to minimize
the difficulties to be encountered on the way. It is only through
a rigorous examination of e-money and its meaning to us as acting
humans that we can discern whether it can achieve the ends we seek.

difficulty to be addressed is the proliferation of media of exchange.
One of the great advantages of the international gold standard was
that everything else was priced in terms of this single commodity.
This greatly simplified trade. Even today, in the era of fiat currencies,
the dollar and to a lesser extent the yen and the euro serve as
international standards by which all prices can be compared. A proliferation
of e-currencies, backed by various fiat currencies, commodities,
and other assets, greatly complicates this picture, and moves us
toward a state of barter.

this, Fitzgerald contends: “Although barter is a relatively inefficient
means of trade today, the ability of the Internet to put everyone
in instant contact with everyone else means that barter exchanges
could quickly become a significant portion of our economy.”

one of the great disadvantages of barter is that everything must
be priced in terms of everything else. This is, to say the least,
a bit confusing. A certain portion of these difficulties can
be programmed away. But our valuations are not constant, even over
very brief time spans. Nor do they simply vary regularly, following
some deterministic function. Therefore, they cannot be fully embodied
in any algorithmic system. Any valuation must come down to a choice
by acting man, so our system of exchange must be comprehensible
to humans. When I go to decide whether I want a new car, it is relatively
easy for me to evaluate how many dollars I’m willing to spend, as
both my labor and (almost) everything else I might buy instead are
also priced in terms of dollars. But how many cattle futures or
Microsoft stock options is the new car worth? The idea that every
consumer will have to be equipped with sophisticated arbitrage tools
and be constantly evaluating such choices is a daunting one.

Fitzgerald says, “The limits [on e-money] are only on our imagination,”
but surely our inability to hold the price of everything in terms
of everything else in our heads is an additional limit. After all,
socialist planners have always been able to imagine that they could
still calculate under socialism
– despite the fact that there has never been a possibility that
they could actually do so.

and its ilk could, theoretically, re-establish gold as the internationally
accepted medium of exchange. The difficulty that strikes me here
is that current governments have a strong interest in maintaining
the importance of their fiat currencies. Should E-Gold or a similar
arrangement actually offer serious competition to fiat currencies,
governments would be strongly motivated to destabilize this competitive
currency by whipsawing the gold market through massive buying and

are, of course, a constant threat to any independently evolved money.
Their resources, while finite, are still vast. A key underpinning
of their power is their monopoly over the issuance of money within
their jurisdictions. This is not something they will surrender lightly,
and we can expect that they will be willing to devote significant
resources to crushing their competition, through means fair and
foul. Well, no, actually just through means foul, which will, of
course, be presented to the public as being eminently fair.

raises intriguing possibilities, and is to be commended for doing
so. Any scheme that holds out a serious hope for loosening the state’s
grip on our lives is well worth examining. But it is early days
yet for e-money, and our exploration of the notion has just begun.

14, 2000

Gene Callahan is a programmer
and writer.  He is a regular contributor to

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