Tired: Gold Standard. Wired: Carbon Standard.
Should we look to artists or technologists to show us a vision of the future of money?
Dateline: Woking, 5th December 2022.
It was an absolute pleasure to be invited down to Auckland again this year to take part in Payment New Zealand's excellent event “The Point". On the first day of the event, Brett King and I were invited by the organisers to deliver a thought-provoking double-act on the future of money. The idea of our session was to get people thinking more deeply about money and how it works (and, frankly, to have a little fun with an informed and engaged audience.)
Behind the scenes at The Point 2022.
Brett and I chose to do this using one of our favourite themes, which is to look at how science fiction authors have explored what money is and what it might become in the future.
Now, that's actually not as easy as it sounds. I once had the opportunity to ask the noted science fiction author Bruce Sterling about why there was not more discussion of money and the financial system in many science-fiction books and he told me straight up that it was because finance is "boring".
To be honest he's right. Most people are much more interested in watching LightSaber battles than discussions about the differing interest rates on either side of the galaxy and the role that the speed of light plays in setting them.
Nonetheless, there are many interesting examples that can be used to illustrate key points about where money might go in the future and why it is that these futures might be considerably different from the International Monetary System (IMS) that we have right now, which is only, as former governor of the Bank of England, Mervyn King observed in his book “The End of Alchemy", a temporary set of institutional arrangements. There didn't used to be central banks in the past, and there may well not be central banks in the future, but nonetheless people will trade and therefore they need some means of exchange.
The points that Brett and I were making were not about technology. As I’ve discussed before, artists often get the technology predictions wrong but it doesn’t matter because the technology is the easy bit. Robert Heinlein, writing in the Atomic Age, thought that the markings on his checks that would allow the machines to read them automatically would be radioactive, rather than boring magnetic tape. But so what? That wasn't what his vision was about. It was the implications of networking together computers reading checks that was the imaginative part.
Brett pointed out that the Star Wars vision of the future, where Bobba Fett accepts tributes in the form of chests of coins and the empire makes payroll in heavily guarded cash, simply cannot be right. In fact, it’s hilarious that this advanced galactic empire doesn’t even have PayPal, let alone digital currency.
On stage I had some fun picking holes in the Star Trek vision of the future of money, which is that there is no money (I know, I know, the Ferengi, but you get my point). Remember when in Star Trek IV, The Voyage Home, Captain Kirk and his merry band find themselves in 1980s San Francisco and try to get on a bus, but unfortunately lack a suitable means of exchange..
Spock: What does it mean, “exact change”?
Kirk: They’re still using money. We need to find some.
The idea here is that not only is money a foreign concept to the crew, a relic of an ancient and technologically unsophisticated past. While it’s tempting to imagine a post-scarcity future where money (as a system for allocating scarce resources) has vanished and the vast communist galactic super state takes care of everyone’s needs. But like the writer quoted above, I don’t buy it. Some things will always remain scarce and desirable, like your attention span, and money will remain necessary. But what kind of money.
Brett and I had a lot of fun playing around with memes from Star Wars and Star Trek, challenging the audience to wonder whether we are heading towards the world of Star Wars and a "galactic credit" or the world of Star Trek with no money at all? A world where cash lingers on or where it simply becomes cash as envisaged by William Gibson in his "Count Zero" where “It wasn't actually illegal to have the stuff, it was just that no-body ever did anything legitimate with it". We are heading into a world where there is no money as we know it and identity, trust and reputation reconnect us with our neolithic heritage (indeed, a few years ago I wrote a book called "Identity is the New Money") to dispense with many kinds of intermediaries?
I won't take you through the full narrative arc of the presentation, and in any case the jokes wouldn't be funny unless you were there, but I want to highlight one particular part of the discussion, just to illustrate how near those supposedly science-fiction futures might actually be.
At the end of the presentation, we were discussing the impact of climate change, artificial intelligence, and other large-scale seismic shifts in the economy. When Brett and I were looking at the implications, he used the example of carbon credits as a potential currency of the future, and mentioned the Kim Stanley Robinson novel “Ministry for the Future”.
Brett is not the only person to laud it, by the way. The book has many, many fans and not so much for the technologies of the future that it depicts, airships and so on in a world without fossil fuels but mostly for the idea of the carbon coin that is “offering room for optimism in certain crowds of futurists, economists and hopeful innovators”.
The idea of a world that is on a carbon standard rather than a gold standard, a world where the removal of CO2 from the Earth’s atmosphere could be priced and incentivised, is rather appealing and whether some sort of carbon that works this way is the mechanism to change our trajectory, or whether it might be a more broadly based environment coin or similar, is beside the point: What is interesting is that idea of a currency that is linked to our survival as a species.
Science or Fiction?
Little did we know that at exactly the same time that Brett was wowing the Auckland audience with this apparently futuristic view of a carbon standard, over at the COP27 conference in Cairo, a former Bank of England (BoE) senior advisor and G20 co-chairman Michael Sheren was telling people that we are “moving very quickly into a system where (carbon) is going to be close to a currency,”
And he is not the only informed observer pointing in that direction. Sandra Ro, CEO of Global Blockchain Business Council recently told the Bermuda Tech Summit 2022 that blockchain (I take this to mean some sort of shared ledger, not necessarily an actual blockchain) could change the carbon credit market from a “fragmented mess” into a trillion-dollar industry.
These views connect with Richard Roberts characterisation of candidate future currencies as being based on “flows”. This is a useful way of thinking. He pointed to four key flows that he believed will underpin the future economy: money, data, carbon and genes. This accords with another perspective that I have written about before, the Long Finance perspective. In Gill Ringland’s examination of plausible financial services scenarios for 2050, she talks about the key assets being a person’s identity, credit rating and parking space (alluding to a new demographic asset class of residence).
I think that there will be many more currencies, because I see currencies linked to communities, but I agree with the general thrust, so let’s imagine that there is a framework in place for creating the currencies (a privacy-enhancing framework with all sorts of goodies such a homomorphic encryption and zero-knowledge proofs baked in to it) and that it has been intelligently designed to meet the goals of society. In that case, carbon is a prime candidate for a new kind of reserve currency.
Now, there are a lot of issues to be resolved before we get anywhere this happening for real, but there may well be something in this kind of thinking. As she points out, the current carbon markets have been created according to local rules to meet local (regional) conditions and are not currently interoperable or tradable, something that a kind of carbon standard could tackle by bringing together offsets, sinks, trading and so on.
(As Dave Wallace points out, the indirect nature of offsets means that they are often difficult to validate and bad actors can exploit this. For some form of carbon currency to succeed it must deal with these kinds of issues to build trust. A carbon currency needs to be open, transparent and non-discriminatory. It needs to be money.)
There is an interesting paper looking at the broad range issues around turning carbon into a form of money: “Carbon Markets, Tokenization and the Enterprise Data Challenge “, published by Meeco in conjunction with the HBAR foundation. The paper looks at a variety of carbon pricing initiatives and, noting that carbon prices are currently well under those needed to meet net zero by 2050, explores a combination of higher fixed carbon pricing, steeper cuts to baseline emissions in ETS carbon markets and mandatory climate-risk disclosure for organisations to raise the price accordingly.
While as The Economist pointed out earlier this year, making carbon markets work better is more of a political challenge than an economic one, it seems to me that the use of the new technologies of tokenisation and decentralised finance might well offer an innovative (and practical) way forward.
If we do move to a Carbon Standard, it will be an interesting and important case of life imitating art.