Central Banking Publications Seminar Cambridge, September 5, 2002

1. GEF The future of money: Intangible economy and Electronic moneyCharles Goldfingerwww.gefma.com www.fininter.net Central Banking Publications Seminar Cambridge, September 5, 2002

2. The future of money • Presentation plan • The new economic landscape • Electronic money • Three scenarios • Opportunities, risks and challenges

3. Fiduciary Money Scriptural Money ? Money The new economic landscape • Money and economy Feudal economy Capitalist economy ? economy

4. Knowledge Economy Interaction Economy Digital Economy Service Economy ? Plug-&-Play Economy Information Society The new economic landscape • Buzzword proliferation

5. Knowledge Economy Interaction Economy Digital Economy Service Economy Plug-&-Play Economy Information Society The new economic landscape • Defining trend • Shift to the intangible

6. What is the new economy ? • Shift to the intangible Source : G. Colvin, Fortune

7. The new economic landscape • Three dimensions of the Intangible economy • Demand: Intangible artefacts • Final consumption products or service Information, Entertainment, Communication, Finance... • Supply: Intangible assets • Intermediate production factors used by businesses to create artefacts and generate value added Brands, Intellectual Property, Human Capital... • Economic structure: Dematerialisation logic • New rules of • Business organisation • Competition • Valuation Abundance, Obsolescence, Volatility...

8. The new economic landscape • Intangible markets • Planetary haggling • Loss of relevance of traditional price yardsticks • Production costs • Falling marginal costs • Willingness to pay • Free-riding ubiquitous • Pervasive volatility • Toward real-time pricing • Yield management • New pricing approaches • Individualisation • Getting rich on crumbs • Third party

9. The new economic landscape • Networks and markets • Markets as networks • Network externalities • Liquidity • Broad access • Interconnection requirements • Networks as markets • Access and capacity management • Quality of service delivery adjudication • Trust and identification infrastucture Markets Netmarkets Networks

10. in the state of flux Electronic money • Largely unsettled realm • Technology • Economics • Institutional set-up • Make or break issue • Ontological: • What and Why ? • Definition and purpose of e-money • What is the new ?

11. Electronic money • Conceptual confusion • Technology-based definition • From « E-cash to megabyte money » • Eternal promises of financial smart cards • Used-based definition • Loyalty points • LETS • Contrasting views • Apocalyptic enthusiasts • The end of monetary system as we know it • Sceptical incrementalists • Nothing really new

12. Unit of account Unit of account Unit of account Means of Exchange Means of Exchange Means of Exchange Store of value Store of value Store of value Electronic money • Elements of a definition Fiduciary money Scriptural money Electronic money

13. Electronic money • Elements of a definition • Electronic money as a Digital Value Contract • Software based • Network-resident • Continous rather discrete value • Infinitely granular • Intelligent money • Complex transactional rules • Event-based value • Fungibility • Monetary • Time • Intellectual property • Peer recognition • Digital barter

14. Future of money • Three scenarios • Private currencies • Community currencies • LETS • Corporate currencies • MSFT dollar • Denationalised currency • Hayek Anybody can issue e-currency …but who will clear and settle

15. Future of money • Three scenarios • Global currency: the geo • Logical consequence of economic integration ? • Symbolic value • Technologically feasible • Global RGTS • Politically challenging • Macro-economic convergence • Euro as a model • The jury is still out

16. The future of money • Three scenarios • Market nexus • DVCs • Value and image of value • Extension of scope • Commodities • Financial instruments • Asset classes • Enviromental protection • Social protection • Macromarkets

17. The future of money • Three scenarios • Displacement or coexistence ? • Displacement • Denationalised currencies and the geo • Corporate currencies and DVCs • Coexistence • DVCs and the geo • Likely scenarios • Strong DVC momentum • Geo question will return

18. The future of money • Opportunities • Aligning intangible economy and electronic money • Allowing higher speed limit ? • Vector of new products and services • Deployment of new business models • Multi-tier third party systems • Multi-revenue stream aggregation • Easier capture of intangible value

19. The future of money • Risks • Conceptual confusion • Unstable institutional framework and governance • Loss of control • Systemic volatility and fragility • Social backlash • Growing dependance on technology

20. The future of money • Risks • Wither central banks ? • “ The key to any such development is the ability of computers to communicate in real time to permit instantaneous verification of the creditworthiness of counterparties. The realisation of this possibility would make money’s unique role, as the means of final settlement redundant. If final settlement could be made without recourse to the central bank’s money, the bank itself would cease to exist. Present monetary policy preoccupation with the need to limit money creation would give way to the more “technically neutral regulation” of the integrity of the computer systems that verify the creditworthiness of the counterparties’ assets.” • Mervyn King, Bank of England

21. Future of money • Critical challenges • Reconciling innovation and soundness • Defining new forms of governance • Co-opetition • Networking • Harnessing and leveraging technology • Code as a regulator From International Financial Architecture to Global Financial Technology Infrastructure