Digital currencies and more

Bitcoins are a bad idea.  I’ve put this forward from multiple directions already.

What’s interesting is the range of new, government-sponsored digital currencies that are in development. Digital currencies might also be a little bit of a stretch, they’re still more like digital payment methods. Unlike Bitcoins, there is much to recommend about low-cost, high-security, electronic digital payment platforms.

Japan is toying with slightly different ideas. Rather than using a traditional ATM card to withdraw cash, you might simply use your palm. It really is only a matter of time before the ubiquitous plastic card disappears into a cellphone, embedded chip, retina scan or something.

Sweden is moving towards a cashless economy, with one of the driving factors being security – as in personal safety. Maybe I’ve missed some news stories (or not read Dragon Tattoo enough times) but I wouldn’t have thought that Sweden would be first in the world at worrying about personal safety.

To be clear, there are several wide-scale advances in this area around the world already.  These aren’t specifically digital currencies, but rather different, more efficient methods of payment.  The UK Oyster card is a good example of a wide-scale contactless payment system that works well for small payments in a fast-speed transaction environment. The precursor of the UK’s Oyster is Hong Kong’s Octopus card, which is actually used or micro-payments on transport systems, many parking areas and even vending machines.

Google and PayPal have systems allowing small digital payments that are cost-effective, but still linked to an account so your account information is linked directly to the transaction. One of the apparent virtues of Bitcoins is their anonymous nature. Now for the most part most individuals aren’t particularly bothered by anonymity, but it is a genuine concern. Do you really want a vending machine company to know when and where you buy your Coke and Vitamin Water from their vending machines? Would you want this information to be aggregated with your online purchases and fuel purchases and airline ticket purchases? Very soon the information that Google currently stores on you would be a drop in the information ocean from these real world movements and transactions.

So Canada’s proposal for an anonymous, digital currency is really interesting. Government backing is one good way of giving credibility and scale to a system that many competing system will not be able to manage.

For me, one of the most interesting aspects of the story was the Canadian Mint’s IPO of an exchange traded listing for gold receipts for gold stored at the mint. This is basically the oldest form of gold-backed currency – receipts of gold on deposit at an institution where the receipts were tradeable and allowed “gold” to be used for transactions more conveniently and safely that gold bars and coins.

What once was old is now new.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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