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Is it cyber-dollar time?

16 October 2008

Every now and then, someone comes up with the bright idea of coming up with an alternative to good old fashioned crown-issued cash.

We've seen the Green Dollar, Barta-card and a long list of cash-alternatives that were designed to allow people to effectively exchange goods and services without involving "coin of the realm".

Despite their promises and the lure of evading the IRD's tax net (tsk, tsk), none of these currency-alternatives have ever gained more than a very tiny acceptance.

However, I think that might be about to change -- if it hasn't already.

And it's all because of the internet.

If we look closely at why earlier attempts to sidestep the official currency has failed, it becomes pretty obvious that there's a critical-mass issue.

There's not much point in taking faux-dollars for your goods or services if there's no way to convert that alternative currency into cold hard cash or to buy the things *you* want/need.

To make a faux-dollar truly valuable and worth having, there has to be a good number of sellers who will accept it and a good number of buyers who'll pay it.

In the past, recruiting adequate numbers of either has proven to be impossible.

However, I'm thinking that the combination of an economic downturn (which will undoubtedly be followed by a period of hyper-inflation) and the internet means the time is ripe for a new faux-dollar scheme that may well overtake the currencies issued by governments around the world.

Just take a look at currencies like PayPal for example.

There's no shortage of sellers who will gladly accept PayPal payments for their wares and there's also no shortage of people who actually prefer to use PayPal as their payment mechanism.

Although PayPal might appear to simply be a payment mechanism, it is in fact a separate currency.

Look at this scenario for example:

As a supplier, you accept payment by PayPal. The money appears in your PayPal account as a positive balance.

You then purchase raw materials by spending some of that balance with another company that also accepts PayPal.

As a PayPal trader, you never actually saw a single "real" dollar -- only the PayPal balance that was in your account. In effect, you have traded in PayPal Dollars.

Of course it's the interface between "real dollars" and PayPal dollars at each end which has made PayPal so successful - but it's not a big step to introduce PayPal dollars as a currency unto itself.

But why would anyone want to use an alternative currency like this instead of their own country's money?

Well imagine the benefits of an international currency where your goods or services are always worth a fixed amount, regardless of where they're sold and where it's safe from the effects of hyper-inflation brought about by silly government policies.

Also imagine a currency that is borderless - allowing you to buy and sell all over the world without the need to use or accept credit card payments, bank TTs, letters of credit, and other (expensive) forms of international exchange.

But wouldn't this need to be backed by a major bank or have some other kind of surety to gain the trust and confidence of the market?

Well PayPal has never had any of the guarantees that are required of banks and it's now a *huge* alternative currency.

I wonder how governments will respond if they saw that their own currencies were becoming secondary to an international cyber-dollar?

How could any government allow people to disempower them by sidestepping the currency controls which are so often the cornerstone of economic management?

There's no practical reason why a cyber-dollar can't and won't succeed as "the world Euro" - except that governments will almost certainly move quickly to slap it down.

Is a cyber-dollar a good idea?

Is the world now such a small place (thanks to the Net) that the whole concept of different currencies (and the trading/profiteering that goes on by currency-traders) is now past its best-by date?

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