The Future Of Money

next tech THE SHAPE OF THINGS TO COME

money the future of

Don’t get too attached to your cash. B Y C H I P W A L T E R

H

uman beings are such social animals, it was inevitable we would invent money. Like language, money talks, and like talk, it glues us together. We make transactions communally, compulsively and automatically. Even chimpanzees conduct business: They groom in exchange for food, obey orders in exchange for protection. The notion of you-scratch-my-back-I’ll-scratch-yours goes way back; as our ancestors grew beyond tight family circles and began engaging in transactions with strangers, trust had to be fortified in a different way. In time, money became the medium. When you think about it, money is a startlingly smart concept, an invention right up there with fire, the wheel and the computer. It’s simple and elegant, yet so potent that it fuels the world’s economies, catalyzes ideas and even undoes presidents. (Remember Deep Throat’s Watergate admonition to The Washington Post’s Bob Woodward to “follow the money?”) It seems to act in ways both good and evil because, like all inventions, money—in and of itself—is morally neutral. It can save lives, defeat hunger and provide jobs, or it can buy favor, subvert trust, erect empires and destroy people. It is a powerful motivator; it’s as much about emotion as it is about ledgers and figures. illustration by Tim Lee

86 PITTSBURGH MAY 2004

Like fire, it is generally harmless in small amounts, but powerful and unpredictable when it gathers speed and mass. Before money, of course, there was barter, but barter was supremely inconvenient. Four goats and two chickens for eight bushels of wheat and one cow? Arranging these trades must have been a nightmare for the farmers and shepherds who made them, what with all of the scampering animals and manure. We used this tit-for-tat system for millennia (and some places, like Timbuktu and flea markets, still do) until finally we simplified the transactions with the minting of the first metal coins in Asia Minor 2,600 years ago. That was liberating. You could symbolize the value of animals or grain with coin, make the exchange, and then take the round, metal pieces elsewhere to buy whatever you liked. Even the purest gold coins were lighter than cows. There was a lesson in the invention of coins. The more portable money was, the more powerful it became, and the more it changed us. Money evolved as a universal translator, capable of representing time, talent, labor, goods or services, even generosity and concern, all without ever changing its own appearance. This changed the world. By 330 B.C., money minted by Alexander the Great had increased trade from India to Greece and southern Russia to northern Africa because traders knew they could count (literally) on gold coins imprinted with the conqueror’s image. Cultures that would never have otherwise interacted shared their products, ideas and inventions, and began the long process of world shrinking, which today we seemed to have honed to an art. Now I wonder how new forms of currency will change the way we deal with one another in the 21st century? We keep morphing money, reducing it step by step to a pure idea. The first coins improved upon the inconvenience of swapping animals. Next we moved to paper script: lightweight symbols of the precious metals squirreled away in underground vaults. With the elimination of the gold standard in 1931, paper money edged closer to being nothing more than a concept, an agreement among all parties that paper bills were worth what they were worth because on any given day everyone agreed they were. In the last 50 years, we’ve stepped even farther away from hard cash by actually

making currency out of no money at all. With a credit card in your wallet, you don’t even need to physically, or conceptually, have money to spend money! Just the promise that you will repay it. This enables us to mortgage future versions of our time, energy and talent for current pleasures. Now, money has nearly made a total transition to ephemera. Nearly all of it, except for the small amounts we carry around in our pockets, is pure, electronic information—e-money. Each day, trillions of dollars, euros, yen and reals fly around the world, not in the forms of cash or coin, but as ideas—values represented by globally agreed-upon digital codes that move at the speed of light. Money as molecules is disappearing. Last year, for the first time, according to the DaVinci Institute, a business-development think-tank for emerging innovators, check usage actually decreased. And the Federal Reserve has stopped physically exchanging checks altogether; it now simply exchanges electronic images of them. As you read this, ledgers everywhere are rewriting themselves to represent the zeroes and ones that swarm like locusts across fiber-optic lines in and out of the world’s collective bank accounts.

W

hen I first saw a demonstration of FreeMarkets’ pioneering online auctions here in 1998, I noticed that no money really had to be laid on the table or even actually change hands, as business was transacted across the Web. Of course, a good many digits swapped places from one bank to another when the auction ended, but the whole exercise illustrated how purely informational money had become. We’re a little like Micronesia’s Yapese people this way. Their currency, which goes back centuries, consists of enormous stones that can weigh tons and stand 10 feet tall. Like us, the Yapese would rather not actually move their money when a transaction is made. So they leave the stones where they lie, and every islander simply agrees that this hardest of cash now has a new owner. The shift in wealth becomes nothing more than a shift in perception. It’s easier that way. Now, e-money’s portability and convenience are trickling down to the rest of us, threatening to eliminate even the paltry amounts we carry around. We may not participate in the online business-to-busiMAY 2004 PITTSBURGH 87

After we’ve all obligated ourselves to so many banks we can’t think straight, how warmly will we interact with one another? ness auctions at FreeMarkets, but we get eBay, Amazon and Priceline. Less than a decade ago—though we have all forgotten it—a debate raged over whether financial transactions should even be allowed on the budding World Wide Web. Today we tap a few buttons, electronically toss some numbers through the ether and buy a vacation, book or troll doll. Meanwhile, not a dollar is physically handled, even though a lot of them are being spent. According to the latest figures from Fortune magazine, businesses sold $750 billion worth of services, media and goods to us consumers in 2003. That’s nearly twice as much as in 2002. And still more digital money will be flying: Informationtechnology consulting firm Computer Economics Inc. predicts that between 2002 and 2006, all online transactions will triple. Computers linked to the Internet have made us e-money moguls. Can money become even more portable? It looks that way. E-money is moving us at high speed to the on-demand world we seem to want. The supreme portability of today’s money now makes it possible to think of something one minute and buy it the next. This is a little like having a fairy godmother. In Europe, cell phones are already used as electronic wallets: Just beam the vending machine and buy a Coke. The charge is added to your phone bill. Wal-Mart will soon require that its major vendors tag their products with radio-frequency identification technology. This will make every object for sale a node on the Internet. Soon, you won’t have to pass by the cashier or the smooth-talking electronic scanner to serially swipe your purchases at the grocery store. You’ll simply flash your card, a machine will calculate the value of all your tagged goods in one fell swoop, a number will be deducted from the account of your choice, and you’ll be on your way. Will it be long before we can point our phone at any product in any store and buy it on the spot? Whether it 88 PITTSBURGH MAY 2004

shows up FedExed on your doorstep the next day or you step inside the store and pick it up yourself is your call. It’s all made possible because no money has to exchange hands, only electronic symbols have to rewrite themselves on a hard disk somewhere. The big fear in all of this is that e-money has to be tagged with our own identity, and information like that can be stolen as it makes its way through the ether. Identity theft is the fastest-growing crime in America. It’s ironic that in the spending of money today we risk losing our selves. But since it is the credit-card companies and banks that have to foot the bill for pilfered identities, the incentive to solve the problem is hefty. New encryption techniques are on the way. The longer-term dangers and temptations of e-money may be less obvious and more personal, and I can’t say what it means for human relationships or our self-control. The days of friendly chats with the local bank teller are probably numbered. Discussions about the weather or the outrageous cost of bar soap with the grocery-store cashier will dwindle as well. On the other hand, maybe if we don’t spend so much time in lines, maybe we will spend more time with our loved ones. Or will we? If we can grab anything that strikes our fancy simply by tapping a card or flashing our phone at it, what’s to stop the flood of red ink and conspicuous consumption? (We’re already the most debt-ridden society in U.S. history.) After we’ve obligated ourselves to so many banks that we can’t think straight or relax enough to laugh, how warmly will we interact with one another? We run the risk of becoming like spoiled children, temporarily satiated, but, in the long run, emotionally scorched. But I’m an optimist. If money is doubleedged, it’s up to us to take control and be smart enough to remember that it’s dangerous to run with scissors. The conveniences that morphing money brings are not all bad. Even in the form of pure information, it can still glue us together and lubricate our relationships. Its power can still be used to advance human and humane causes. It still cross-pollinates the world’s ideas and cultures. And it still fuels dreams. We just have to remember: We are supposed to be spending the money, no matter what its form. The money isn’t supposed to be spending us. MAY 2004 PITTSBURGH 89