The Future of Money

Alternative Forms of Currency

Alternative forms of currency have existed for a long time. Frequent flyer miles are transformable forms of value, they can be exchanged for goods and services. Loyalty card points are also transformable forms of value, they can be exchanged for goods and services.

You can earn gold coins in computer games that is transferable into traditional currency. One example is gold coins in World of Warcraft. World of Warcraft gold can be bought and sold on eBay. It is reported that in some Chinese prisons, inmates are being “forced” to play computer games by corrupt guards .

Virtual worlds such as Second Life have unique currencies such as the Linden Dollar.

In South Africa, the internet-based trading system, the “Community Exchange System” allows participants to buy and sell goods and services without using a national currency.

Virtual currencies are continuing to emerge. “Bitcoins” are a digital currency issued and transferred by the Bitcoin network. Bitcoin is a “decentralized electronic cash system using peer-to-peer networking, digital signatures and cryptographic proof to enable irreversible payments between parties without relying on trust“.

Facebook now offers “Facebook Credits.” Some experts think that Facebook Credits will surpass the dollar in the near future.

New Methods of Payment

In Africa, the lack of branch infrastructure has led to a lot of innovation. Both banks and non-bank institutions are offering the ability to transfer money via SMS message. It is widely adopted across the continent.

Pygg ( is now allowing you to pay your friends using Twitter!

Paypal is planning to roll out some major changes in May 2012. Below is a video summary. Some of the more interesting proposals include

  • Paypal offering “Christmas Club” accounts. This is great business because they get to sit on your cash all year and earn a clip of your interest
  • Paypal offering “purchase timing”, a nice feature. It allows you to conduct the transaction process now but delay the payment until the last minute. This keeps the money in your account longer.
  • Paypal offering the ability to change the way you paid for something for up to 7 days after the transaction. E.g. switch accounts that were used. This could help avoid overdraft fees for example.


The Changing Nature of Currency

What is money? Well is sure isn’t the notes and coins in your wallet. The examples shown above make that very clear! Technology evolution is really moving fast.

There is a lot of ‘buzz’ at the moment about Near Field Communication (NFC) technology.

Simplistically, NFC is a way of paying for things by passing your NFC-capable device close to a sensor (e.g. an NFC-capable mobile phone). The NFC system uses the same network to send and process the transactions as your credit card currently does. NFC will simply replace your credit card with the NFC chip in the mobile handset. Some are referring to this as “credit-card extinction”.

(Note: NFC can be used in many other ways but this is the application that I want to discuss.)

NFC uses telecommunications infrastructure to send electronic transactions. As far as I know, the telecommunications infrastructure is owned by the telcos. Perhaps the telecommunications infrastructure is partly owned by the banks because I expect that the banks are lending to the telcos to allow them to construct the networks.

Hypothetical question: What is stopping telecommunications companies from registering as banks and simply adding transaction costs to your mobile bill? Indeed what is stopping telecommunications companies from simply adding the cost of transaction to your bill without registering as a bank? I will be honest, I do not know. Hypothetically though, if telecommunications companies could charge all transactions to your account, wouldn’t this move a lot of money under their control? At least for long enough for them to earn a lot of interest whilst they hold it.

Could the telecommunications companies of the World effectively replace the part of retail banking that holds money when people spend it? If they could, it would be a major market shift and would have a lot of flow on impacts. What does the destabilization and deregulation of currency mean? What are the risks? Bitcoin has already faced considerable challenges facing up to hacking and fraud.

I don’t know a lot about this topic but this post has been an interesting thought experiment.

Here’s a short video where Ross Dawson and Gerd Leonhard discuss the future of money

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Enterprise Architect