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A Look Into Digital Money

It is easy to feel overwhelmed these days by the volume of innovations around digital money and payments. Existing players as well as new ones promote and offer this. Some tackle specific points of customer convenience, and others aim for greater safety and robustness.

The Consequences Of Dematerializing Cash

The most salient characteristic of cash is, of course; it’s tangibility. Notes and coins are thought of as objects. Albeit ones subjected to rather than unusual legal rules and deep-seated social conventions. Digital money removes the physical support of individual lumps of money. This has consequences that go to the root of the concept of money. The more obvious consequence often drawn is that digital money requires users to engage in a higher level of abstraction when using it. The sensory experience with cash brings concreteness. The implication is that poor people will require substantial accompaniment and education in digital money. This will help them to become comfortable with conceiving dematerialized or virtualized money.

But that view ignores several millennia of history, as well as everyday informal financial practices that we see everywhere today. The fact is that for most people who do not use digital money, a good proportion of their money already is and always has been virtual. This is in the form of the money that they are variously owed or that they could otherwise obtain from others in their community. Think of all the informal loans, reciprocal favors, income sharing entitlements, and outright gifts that form the social and financial fabrics of traditional societies.

Modern-day Problems With Hard Cash

Hard cash certainly has its drawbacks. Poor people mired in a cash community find it difficult to support or seek support from distant relatives and friends. How easily and securely they could transport cash by selling their products into or sourcing their inputs from is dependent on the market size. Thus they are captive to local financial organizations and moneylenders. More distant financial institutions do not find it cost effective to go collect their saved-up cash. They also have no visibility of their prior cash-based financial histories on which they might otherwise grant credit.

The Original Form Of Money

“Abstract systems of accounting emerged long before the use of any particular token of exchange”, as David Graeber puts in his book “Debt: the first 500 years”. The primary need was to create common notions of value, not necessarily harmonizing how value got stored and passed around. So in the beginning money only fulfilled a unit of value or accounting function; means of payment and storage of value came later, much later. The startling conclusion is that “there’s nothing new about virtual money”. Actually, it was the original form of money”.

People everywhere seem to have no problem of managing the “artistry” of gifting- an even more intangible and convoluted practice than exchanging digital money. You can see the generosity and balanced reciprocity leading to mutual insurance. But you can equally see dependence and charity preserving hierarchy. In Graeber´s eloquent words, gifts “are usually fraught with many layers of love, envy, pride, spite, community solidarity, or any of a dozen other things.” There is nothing simple about that, but somehow people work out a proper response to gifts (whether they are an honour, a provocation, or a form of patronage) intuitively.

Virtual Money Is Ageless

All of these are good reasons to expect that people everywhere will embrace digital money. Serving it up to them in a convenient, understandable, reliable and secure way will make this possible. Money is just information and the short history of the internet shows us that information wants to become free of physical impedances. Virtual money is in fact virtually ageless: that must be the case, because the first and most basic rule of money, that the unit of account (the yardstick by which all debts can be measured and netted off), is necessarily an artificial concept, a result of social constructs and legal institutions.

Hence, there is no reason to believe that dealing with abstract notions of digital money should be a barrier for ordinary people. those who are used to informal debt and reciprocity arrangements especially. The real challenge will be the formalization of finance. Such as making them accustomed to reducing financial arrangements to a bunch of numbers and financial relationships to impersonal arithmetic.

Sourced and extracted from “A taxonomy (strains) of digital money” — by Ignacio Mas.