Money in the new Technological Paradigm

by Georgios Papadopoulos, Erasmus Institute for Philosophy and Economics

We use our relationships with technology to refect on the human Sherry Turkle


The falling use of cash and the proliferation of electronic networks of circulation of money have been in the centre of the debate about the future of the monetary system. These developments are determining the institutional adjustment of money in the new technological paradigm. However, technological change may be even more challenging for our overall theoretical understanding of money. As I will argue, the claims about the possibility of a completely cashless society and about the end of money stem directly from the commodity theory. The declining importance of the state and the central bank, given the declining use of the state issued currency, raises important challenges for the state theory of money. These theoretical challenges and the impact of the new technological developments in the monetary system will be the focus of this paper.

Keywords: Information and Communication Technologies, commodity theory of money, state theory of money, cashless society, currency competition.



The circulation of monetary value gets progressively organized through electronic networks while cash is substituted by electronic media of payment and transmission. This technological transformation invites us to rethink our social relations and our institutions1. The gradual informatization of money, the process of substitution of material currency and the increasing circulation of monetary value through electronic networks as information, is not only a crucial transformation in the institutional development of the monetary system, but also an invitation to re-evaluate our theories about money, its ontology and its meaning. The aim of this paper is to consider and describe the ongoing changes of the monetary system in the context of the revolution in information and communication technologies. Moreover, it is an attempt to contribute to the theory of money by refecting both on the theoretical and the structural challenges posed by technological change.

The ongoing revolution in information and communication technologies has constituted a new technological, social and economic paradigm. This paradigm is defned by the omnipresence of new media, by the centrality of the network as the blueprint of social organization and by the emergence of information as the most important socioeconomic resource. The institution of money has to adapt not only because of the new possibilities offered by ICT can increase the effciency of the monetary system (its important to keep in mind the benchmarks of effciency are also reconfgured in this new technological environment), but also because the ICT revolution has transformed the technological as well as the social horizon against which money needs to operate. Money has to be effcient and technologically, economically, socially, and culturally as it needs to be compatible with the imperatives of the new technological paradigm.

The most recognized symptom of the reconfguration of the monetary system in the context of the ICT revolution is the falling use of cash. The cause of the gradual obsolescence of cash is the proliferation of digital payment instruments and the development of electronic networks for the circulation of monetary

1 “We use our relationships with technology to refect on the human”. (Turkle 2005, 24).


value. The data of the Blue and the Red Book indicate that cash is under the increasing competition from all these new electronic payment instruments and its use is confned only to a fraction of the total value of monetary transactions. Cash in circulation as a percentage of GDP and as share of M1 (narrow money) was comparatively small, 6.10 % and 14.01% respectively for EU in the year 20052. This has been only the case recently; for example in Belgium the share of cash in M1 was 43.7% in 1980 only to fall to 22.95% at the end of 2000 when it joined the Eurosystem.

The falling use of cash has important theoretical as well as practical implications for the monetary system. Limiting cash or abolishing it all together suggests the possibility of the emergence of a cashless payment system through the proliferation of electronic payment instruments. Indicative is the reaction of the deputy Governor of the Bank of England at the time, Mervyn King who in 1999 contemplated on the possibility of the disappearance of central banks (Ingham 2004, 178). At the same time some economists predicted (I think prematurely) the complete replacement of conventional cash by electronic money3 and the possibility of a cashless, even a moneyless society (Cohen 2003; Henderson 1987; King 1999; Kurtzman 1993; Miller, Michalski & Stevens 2002; Solomon 1997). The immersion of money in electronic networks raises questions about the identity and the functions of money in the network society, the role of the state and the central bank, but also about the accuracy of our theories about money; these are the questions that will motivate this paper.

This paper will start by describing the new technological paradigm, which is brought about the information and communication technologies, and will analyze how these developments create a new socioeconomic environment in which money needs to operate. Section three of this paper will enumerate and describe the dominant payment technologies that supplement, but also substitute

2 Blue Book Statistical Blue Book addendum incorporating 2005 data, (2006, p. 18).

3“The world is becoming increasingly addicted to doing business in cyberspace, across the Internet and the World Wide Web. As electronic commerce (e-commerce) expands, it seems only a matter of time before various innovative forms of money, based on digital data and issued by private market actors, begin to substitute in one way or another for state sanctioned banknotes and checking accounts as customary means of payment. The era of electronic money will soon be upon us.” Cohen (2001, p. 198).



cash. A set of theoretical distinctions will be offered in order to conceptually organize these payment instruments and so as to investigate their relations with cash as well as with money. Section four will investigate the scenario of a completely cashless society, and its meaning for the commodity theory with a particular emphasis on the relation to the possibility of a market without money. In consequence section fve will study the role of the state and the central bank in the monetary system, their ability to control money and their importance for the trust towards money in a setting where money becomes progressively immaterial and informational. This relation will be studied also on a global level focusing on the impact of currency competition on the global monetary architecture. The last section will conclude by investigating the links between the processes of the informatization and the deregulation of money and the theories that inform them.

The Network Society Society and the Informatization of Money

The expansion of electronic networks of communication and the use of personal computers is fundamentally transforming the everyday life of millions of people, mainly in the so-called developed world. A new technological paradigm is being established, often described as the network society (Castells 1996), developing around innovations in microelectronics, telecommunications and is expanding into genetics and nano-technology4. Personal computers are emerging as the new general-purpose technology (Lipsey 2005) that brings about a transformation in most areas of the social reality, including the institution of money. The new technological possibilities, supporting and fulflling new social needs and a new culture encourage the reinterpretation of the functions of money.

The defning characteristic of the new technological paradigm is the centrality of information, or more accurately of knowledge in the form of information. Information emerges as the main resource for social, political and economic growth and functions both as an input in the productive process and as a

4 The invention of the transistor (commonly known as the chip) in 1947 at Bell Laboratories by Bardeen, Brattain and Schockley, which allowed the processing of electric impulses in a binary mode, enabling the

coding of logic and communications signalled the emergence of the new technological paradigm, the development of which has been well documented. Castells (1996, 41).



commodity to be sold in the market. The centrality of information is supported by the expansion of electronic networks. Informatization is intricately connected with the network logic of the new social, political and economic system. Networks of information constitute themselves as parallel social spaces that compete with national borders and state jurisdictions intensifying the integrating forces of globalization. The participation in these networks is of seminal economic and social importance (being switched on or off in the cyber-culture jargon) and many aspects of social life, including the institution of money, become progressively informational, in order to get integrated in electronic networks. Interfaces for participating in these networks, commonly referred to as ‘new media’, are both a precondition and a cause of the process of informatization. New media ‘act on information’ by facilitating different types of communication, of processing and of accumulation of information through the ever-expanding electronic networks. In the context of the monetary system these new media are the interfaces that facilitate payment and more generally the transmission and circulation of monetary value through electronic networks.

Informatization, new media, and electronic networks, simulate experience and create the virtual environment. A culture of ‘real virtuality’ is developing; “a system in which reality itself (that is people’s material/ symbolic existence) is entirely captured, fully immersed in a virtual image setting, in the world of make belief, in which appearances are not just on the screen through which experience is communicated, but they become experience” Castells (1996, 373). The underlying assumption is that simulation does not compete with reality, but rather becomes an integral part of that reality. Real virtuality and simulation feed-back on the importance of the ‘network logic’ of social organization; experiences often need to be switched on the network in order to become socially signifcant.

The new environments of virtual interaction simulate a wide range of economic systems; e-commerce, e-banking and e-fnance are some of the most prominent, but by no means the only, virtual economic environments. New possibilities for economic and for monetary transactions emerge, while already established

transactions are organized more effciently via new electronic networks and new


media. New media become the preferred interfaces for market participation; personal computers (desktops, laptops, palmtops) and increasingly mobile phones are the devices that process much of the economic, social and cultural transactions. Money becomes increasingly electronic, digital, virtual, and informational.

The informatization of money can be defned as a process through which monetary value is transmitted by new media through electronic networks and results to the gradual obsolescence of the material instantiations of money. The logical conclusion of this process will be a cashless society characterized by the complete immersion of money in electronic networks and the replacement of cash and of other material instantiations of money by new media. Informatization is particularly infuential for the function of money as a means of payment, while money as a store and a standard of value are only marginally and indirectly affected. This paper will focus the analysis on the impact of new media of payment and of new networks of circulation of monetary value on the function of money as a means of payment.

There are two sets of causes that animate the process of the informatization of money, both of which suggest that the informatization of money is technologically determined. The frst set of causes can be described as effciency determined. Technological developments in communications and microelectronics expand the horizon of what is possible and allow for a more effcient fulfllment of the functions of money increasing the scope, the speed, the safety of monetary transactions and at the same time reducing the costs. The second set of causes are socially and culturally determined. The expansion of the culture of real virtuality, the pervasiveness of new media and electronic networks dictate that money needs to be informational in order to be interoperable with the rest of social institutions. As long as agents choose to interact virtually through new media in electronic networks, money has also to be part of the same electronic systems in order to support payment. Technology is both a cause and a solution in the process of the informatization of money, determining the environment in which money operates, the possibilities for its instantiations and setting the benchmarks of effciency. Effciency, even though an important


determinant in the process is not the only or the dominant cause.

In this section I try to draw the technological background against which the informatization of money is taking place and to suggest the main causes. I also offer a defnition of the process of informatization of money and to hint on the impact of informatization in the functions of money. In the next section I will describes different types of payment and how these types of payment are contributing in the process of the informatization of money.

Technological Innovations and the Institution of Money

We can recognize two distinct but interconnected types of innovation in the monetary system; the organization of electronic networks of circulation of monetary value and the introduction of new payment instruments that substitute cash in payment. Such innovations result from the diffusion and the implementation of technological innovations developed through research and development in ICT and are not necessarily money-specifc.

The most prominent example of network for the circulation of monetary value is a system organized already in 1973 by the Society for Worldwide Interbank Financial Telecommunication (SWIFT). SWIFT is an international cooperative network of communication among Central Banks, commercial banks and other fnancial institutions that organizes and supervises international credit transfers and facilitates the communications among its members for the facilitation of these transfers. In 2005 Swift completed successfully SwiftNet phase 1, which s based on Internet Protocol (IP) technology on secure IP network (SIPN) allowing interactive messaging and forwarding messaging services among its members. Since 2007 SWIFNet phase 2 is launched aiming at increasing security and effciency, while encouraging the convergence of messaging standards (ECB 2007, 26). In the Euro area credit transfers are processed by the Trans-European Automated Real-time Gross Settlement Express Transfer system (T ARGET). TARGET is part of SWIFT and heIT is using the same technologies as SWIFT, Internet Protocol (IP) on secure IP network (SIPN), serving similar functions in

the Eurosystem (ECB 2007, 34 – 36). Next to these interbank networks, VISA and


MasterCard, as well as other smaller credit card companies like AMEX, have organized their own dedicated networks to facilitate retail payments. VISA and MasterCard process credit as well as debit card payments (through their affliate programs Maestro and Visa Electron) using network technologies, secure IP networks and computer systems (Evans & Schmalnsee 2005, 11 – 12).

Electronic networks of circulation of monetary value depend on new payment instruments to provide the necessary interfaces between the payers, the payees and the fnancial intermediaries and the electronic networks. The diminishing costs of communication and information processing allows for the development such payment instruments, which can be cost effective and competitive to cash payment even for small value transactions5. These new payment instruments include software based technologies (electronic ‘money’, e-banking, electronic fund transfers) and card based technologies (credit, debit and pre-charged cards). The next development to look for in payment are 3G mobile phones, even though still in a stage of research development and will probably be delayed by the recent major fnancial crisis6.

There are substantial differences across countries in the proliferation of electronic payment systems, which seem to persist despite the strong integrating forces. Still, we can draw some general conclusions about non-cash payment instruments by looking at the trends in the OECD countries. The main payment instruments are: cheques, credit transfers, direct debits, credit and debit cards. The use of cheques is actually decreasing and is expected to phased out soon,

5 Considering two of the most developed countries in payment systems, where estimates of cost area available, Belgium and the Netherlands, the average total cost of using cash at points of sale (POS) is lower €0. 300 (NL) and € 0.530 (BEL), if compared to debit cards €0. 489 (NL) and € 0.550 (BEL) and card based electronic money €0.9 31 (NL) and € 0.540 (BEL). That suggest that the socially optimal solution is to increase, rather than to decrease the use of cash. Still, in terms of incremental cost e-money is considerably cheaper €0. 033 (NL) and € 0.08 (BEL) against €0. 112 (NL) and € 0.133 (BEL) for cash, suggesting that low volumes of transactions and high fxed costs are responsible for the relative expensiveness of electronic money. The estimates are for fxed plus variable cost for POS transactions. Data from Brits (2005) table 4.3 and Quaden (2006), table 3. Reference due to Bolt (2006, p. 3).

6 Mobile phones can provide a banking and payment platform that is available through mobile wireless networks and devices, with fnancial institution and prepaid card issuer. In that resect mobile phones function as an interface that connects the user with her bank account and her cred- it card is similar fashion as the personal computer does in internet banking. As long as mobile payments, such as peer to peer payments and contactless payments via the mobile device are provided yet, mobile phones do not need a separate treatment.



even though they remain resilient in some countries (notably in the US and in France)7. The processing costs as well as the relative riskiness of cheques in comparison to other electronic payment instruments suggests that cheques will be ultimately substituted by electronic transaction technologies8. Credit transfers remain the dominant type of payment for large transactions. Payment cards are the most popular media of payment in retail. They can be used for making payments for at point-of-sale (POS) terminals or remotely (for example through the internet) and for making withdrawals of cash by ATMs (automated teller machines). A distinction should be drawn among credit cards, which entail payment at the cardholder’s discretion, either settlement in full by the end of a specifed period, or settlement in part with the remaining balance taken as extended interest-charging credit; debit cards, the use of which is debiting immediately the cardholder’s account; and a delayed debit card, the use of which dictates settlement in full by the end of a pre-determined period.

Electronic money (e-money), which was in the centre of the speculation about the complete immaterialization of money, remains unimportant in terms of volume and value of transactions. Nonetheless, it deserves a mention; e-money was sup- posed to be the most technologically advanced medium of payment, it was ini- tially privately sanctioned (Chaum 1996) and it was supposed to replace cash in small value transactions. Its introduction in early 1990’s animated much of the debate about the end of money that partly motivates this paper. E-money failed in the 1990’s and in the 2010’s to substitute cash and much of the arguments about the ‘death of money’ seem to have died out following its relative failure (Van Hove 2006). Electronic money is defned by the European Central Bank as “an electronic store of monetary value on a technical device that may be widely used for making payments to undertakings other than the issuer without neces- sarily involving bank accounts in the transaction, but acting as a prepaid bearer in-

7 The volume of transactions made using cheques in the Eurozone was 7,077.61 million euros in 2005 in comparison to 9,797 million euros in 1998. Blue Book addendum incorporating 2002 fgures (2004, p. 17 & 18) and Blue Book addendum incorporating 2005 data (2006. p. 28 & 29) respectively .

8 Despite the introduction of magnetic link the processing costs of cheques remain relatively high, while they are not completely secure for the merchants. One out of a hundred check ‘bounces’ in the US and similar fgures can be found for the EU countries. (Evans & Schmalnsee 2005, 39).



strument”9. The technical devices upon which electronic money is stored and through which it operates are either card based (electronic purses, pre-charged cards, chip cards, contactless cards) or software based. Software based electronic money is often operated by non-banking institutions10, while card based e-money is offered by the banking sector11. Card based systems are usually organized in a national level as extensions of the existing infrastructure of the banking system (ATMs, Electronic Fund Transfers at POS, inter-bank networks etc).

There is an ambiguity as to how all these payment instruments should be organized conceptually and what is their relationship to the offcial currency and to the institution of money. This ambiguity is a further indication of how technology infuences our understanding of money. I will introduce a few concepts and a couple of distinction that will make it easier to assess the relation between the offcial currency and other payment instruments. One is the conception of a “monetary space which refers to a domain, understood both in the physical sense of a particular territory and in the virtual sense of a specifc market” (Miller, Michalski & Stevens 2002, 11). A monetary space is defned by a unit of account that constitutes a market as a coherent system of prices (Ingham 2006, 270). The offcial money of account monopolizes the function of the abstract standard of value, while the other payment instruments, including offcial currency, depend on the money of account in order to be able to serve the function of payment. This applies both for media that are just transmitting monetary value, like credit cards or debit cards, or for media that are substituting cash in payment like electronic money or cheques.

The money of account is creating and dominating a monetary hierarchy. The reliability of the money of account is supported by the state and as such is

9 ECB, Blue Book (2001, p. 735), emphasis added. The defnition provided by the BIS is similar: “… electronic money continues to be defned as a stored value or prepaid product that allows consumers to make small-value transactions using a chip or smart card (card-based product or electronic purse) or over computer networks such as the Internet (network-based or software- based schemes). A record of the funds or value available to the consumer for multipurpose use is stored on an electronic device in the consumer’s possession.” CPSS (2001, p. 1 – 2).

10 “A vast majority of the participating central banks have indicated that there are no plans to introduce network based money products”. CPSS (2001, p. 2).

11 This may change as single purpose payment cards like London’s Oyster expand their use in

other low value payments.



relatively risk free. It enjoys the greatest confdence and can perform fully all the functions of money. Other media of payment often need to be converted in the offcial money of account in order to fnalize a payment. Here monetary hierarchy echoes the distinction between the offcial medium of payment and other media of exchange is suggested by Goodhart12. This distinction is made in term of risk. The offcial currency is supposed to be relatively risk-free and absolutely liquid. It is an instantiation of the money of account and and with its use a payment is fnalized and thus a transaction is completed. When a medium of exchange is used instead of currency, say a cheque is drawn or electronic money is used, the transaction is not complete until there is fnal payment of the claimant with the offcial means of payment.

Now we can try to disentangle the landscape of monetary architecture in the context of the ICT and anticipate the analysis of informatization and globalization of the monetary system, by using the distinctions that I just introduced. Money of account defnes the monetary space and lies on the top of the monetary hierarchy. The instruments of payment that I described assume subordinate positions and depend on the money of account; they either transmit monetary value denominate in the money of account, using networks and interfaces, or just intermediate between purchase and fnal payment to be completed using an instantiation of the money of account. In both cases they may or may not substitute currency in circulation, however, they rely to the money of account, which constitutes the monetary space in which they operate and the system of prices.

In this section I described the impact of the ICT on the monetary system and to investigate how network technologies infuence the relationship between, money, currency and other media of payment. To that effect I mentioned and analyzed briefy the most prominent examples of electronic networks and payment instruments. In the next section I will investigate how these innovations

12 “A medium of exchange includes those assets, or claims, whose transfer to the seller will commonly allow a sale to proceed. The distinction is that when the seller receives a medium of exchange, which is not a means of payment, in return for its sale, he will feel that he still has a valid claim for future payment against the buyer, or even more generally against some group or other whom the buyer has provided him with a claim.” (Goodhart 1989, 26).



contribute to the possibility of a moneyless society.
The obsolescence of Cash, the ‘Death of Money’ and the Commodity Theory

The informatization of money through the gradual substitution of cash by electronic media of payment and the expansion of networks of circulation of monetary value is anticipating a cashless society. The possibility of a cashless, even of a moneyless society will be the topic of this section. The starting point is the (extensive) debate on the ‘Death of Money’ and on the possibility of a moneyless society13. I will try to argue, contrary to the claims on the end of money, that the disappearance of cash is an anticipated episode in the development of money, which does not challenge the existence nor the identity of money.

Contrary to my claim that money is developing even further in the network society, there are different interpretations of the same events that speculate on the possibility of a moneyless society under the infuence of new payment technologies (Cohen 2003; Henderson 1987; King 1999; Kurtzman 1993). In some countries the complete abolition of cash has already included in the policy agenda (Kok 2002; Van Hove 2003) and so is the role of central banks (Friedman 2003; Greenspan 1996; King 1999).

The claim that the disappearance of cash signals the end of money identifes cash or currency with money, a mis-recognition for the commodity theory. Money should not be confated with the tokens that instantiate it (Ingham 2004, 2006; Papadopoulos 2009) it hinges upon an institutional structure of rules that regulate payment and circulation, it is constituted socially on the basis of a specifc institutional status and functions (Searle 1995, 2005), and it is supported by the authority of the state (Ingham 2004, Goodhart 1998, Wray 1999). The existence and the persistence of money is not depended in its material identity

13 “Money has been transmogrifed. It is no longer a thing, it is a system. Money is a network that comprises of hundreds of thousands of computers of every type wired together in places as lofty as the Federal Reserve.” Kurtzman (1993, 1). “Money is a phantom from the past, an ana- chronism. In its place, traveling the world incessantly without rest and nearly at the speed of light, is an entirely new form of money based not on metal or paper but on technology, mathem- atics and science.” Henderson (1987, 15) .



but on its specifc institutional status, on the constitutive and on the normative rules that instantiate it. More importantly money is not just the medium of economic exchange, a commodity or a token accepted as an instrument of payment, but primarily the standard of value that has defned the terms of exchange and the prices that organize buying and selling. Actually, money is more effcient (cost effective, fexible, readily produced and destroyed) as a standard of value when it is completely immaterial pure information. If one is to argue that money is disappearing, even from the perspective of commodity theory, one has to explain how the market can function, how demand and supply will be coordinated and how a system of prices will emerge, i.e. how the function of the unit of account will be fulflled (or why this function and consequently money will become obsolete).

The underlying assumption of the commodity theory, which is also informing the view that money is becoming progressively obsolete, is that all exchange is basically barter exchange14. Money is just a ‘neutral veil’, a contrivance (to use John Stuart Mill’s expression) to save time and to compensate for the lack of information about supply, demand and prices and the competence to process this information in real time in case it were available. New information technologies can solve both the information collecting and processing problems. Ideally computers and networks can organize a clearing system that will collect and process all the information on the supply and demand of all the commodities and compute prices in real time (Kurtzman 1998; Solomon 1992; Weatherford 1999). This simulation of a general equilibrium model, will lead to the emergence of a real-virtual market place, where supply and demand will be constantly co- ordinated through real-time settlement system of prices. Such an analysis defnes money as a solution of a computational problem and suggests that information technologies can do a better job than cash without the suffering drawbacks of cash (infation, processing and production costs, seignorage). The emergence of digital technologies for payment and circulation of monetary value anticipate the organization of a system of computerized barter and can interpreted as symptom of the gradual withering away of money.

14 “Even in the most advanced industrial economies, if we strip exchange down to its barest essentials and peel off the obscuring layer of money, we fnd that trade between individuals or

nations largely boils down to barter.” (Samuelson 1973: 55)



Nevertheless, the role of money of account and the problem of its substitution by information technologies is not one of computation of prices qua exchange relation of commodities. Money does not expresses exchange relations of commodities, rather market exchange and the system of prices presuppose money. “The very idea of money, which is to say, of abstract accounting of value, is logically anterior and historically prior to market exchange.”(Ingham 2004: 25). The system of prices can not emerge from bilateral exchanges not because of information or computational problems, but because it is necessary for a money of account to be fxed before the system of prices and the exchange relations are set (Ingham 2004; Wray 1999). In the classical general equilibrium model the external, unchanging and abstract standard is replaced by the auctioneer, who matches buyers and sellers, organizing the system of prices15. In reality the system of prices relies on secondary single-commodity markets that set the prices; these markets presuppose a money of account to exist (Hicks 1982). The organization of the system of prices is not a problem of computation, but the organization of a common standard. As long as a unit of account/ standard of value is necessary, money will continue to exist.

The gradual disappearance of cash, which is greatly accelerated by the advent of the network society, is not an unprecedented or a surprising event, and does not signal the end of money. There are many historical examples where money remained an abstract standard of value, never materializing or instantiating in actual (i.e. in material) currency (Cohen 2003, 6; Weatherford 1999). Dematerialization is a tendency that is active throughout the history of money, frst with the passage from commodity money to coinage, and then gradual dematerialization of currency and the dominance of fat money, which follows a clear trajectory (Callieux 1994; Miller, Michalski & Stevens 2002). The passage from commodity money to inconvertible paper currency (which is intrinsically worthless), to electronic money and to digital payment systems suggests that the

15“The markets which are best organized from the competitive standpoint are those in which purchases and sales made by auction, through the instrumentality of stockbrokers, commercial brokers or criers acting as agents who centralize transactions in such a way that the terms of every exchange are openly announced and an opportunity is given to sellers to lower their prices and buyers to raise their bids.”Walras (2003 [1874]: 83 & 84).



importance of trust towards the issuer is replacing the guarantee due to the value of the token, stemming from a commodity or a promise for convertibility. The fact that the production costs of currency are reduced drastically (if not completely eliminated) and the absolute discretion of the issuer to control the supply of money. These tendencies are not historically or technologically contingent, but are intricately connected with the very identity of money. Money is in the fnal instance an abstract standard of value and the progressive withering away of the materiality of the tokens that instantiate money is nothing more than the gradual manifestation of this essential aspect of the identity of money.

The process of informatization of money, maybe contingent upon and determined by network technologies, but is nonetheless an expression and a consequence of its identity as the standard of abstract value sanctioned by the state. The obsolescence of currency is not a threat for money but it rather allows for the identity of money as an abstract standard of value to be expressed more fully and for money to function more effciently. The claims about the end of money are the wrong conclusions to draw because they are based on a confation between money and the currency that instantiates money. This confation is encouraged by a narrow understanding of the commodity theory of money16. The progressive disappearance of currency, and the informatization of money unmask the essence of money. Money expresses more fully its identity as a standard of abstract of value, as money of account, in the context and with the support of the ICT revolution.

State (theory of) money and the ICT revolution

In this section I am going to address the relation between the state via the central bank (which is a state institution and will be treated as the main agent of state governance of the monetary system) and money in the context of the ICT revolution. This relation lies in the core of the state theory of money and has important implications for the institutional structure of the monetary system.

16 A complete account and a rejection of the ‘death of money’ thesis can be found in Ingham

(2005). Also Aglietta (2002).



The state may enjoy (by defnition) absolute sovereignty over its geographical area, a sovereignty that fnds its expression in the monetary system through the monopoly over currency and the authority to regulate and supervise commercial banking. This state monopoly over the monetary space is nonetheless challenged both from inside and from outside the state borders. New fows of information challenge the geographical sovereignty of the state, reducing the importance of physical spaces and barriers at the same time that dataveillance is augmenting the ability of the state to monitor society and market. Domestically the private networks of circulation for money, privately sanctioned payment instruments and the privately issued near-monies, mainly operated by state licensed and state-supervised central banks, substitute national currencies in payment (Henderson 1987; Kurtzman 1993). The proliferation of these new technologies of payment, and their increased importance in relation to the offcial currency, suggest that the ability of the state to control the supply of money (at least directly) and to regulate the monetary system are somehow compromised. In addition, a large part of the seignorage that arises from the supply of money has been transferred to the commercial banks that are responsible for the supply of the new (as well as the old) media of payment. In the international level the competition among the national currencies leads to the domination of a few reserve currencies (Aglietta 2002; Cohen 2003).

The central bank is the state institution that is entrusted with the maintenance of a good system of payments and with the overall stability of the banking industry. The rationale for the involvement of the central bank stems from the importance of payment systems for market effciency, for economic growth but also for the overall stability of the market (ECB 2006b, 19). New types of transactions, like e- commerce, often require new payment (e-payment) media in order to be implemented. Only if these technologies are in place can the market realize its full potential17. The operation of the system of payments has an impact on the stability and the trustworthiness of the monetary system. Payment instruments do not create money in the same way loans and deposits do, but they are often

17 “The smooth operation of payment systems requires a mix of instruments including cash.” ECB, SEPA (2006, p. 23).



treated and used at par with the legal tender. The confdence in the payment system is connected with the overall trustworthiness of the monetary system and provides further reasons for the regulation and supervision of the supply of new payment instruments. As a result the central bank takes the initiative for the implementation of transaction technologies, by providing support and by coordinating the commercial banking industry, even creating demand for the new payment technologies (ECB 2006b, 24).

In considering the meaning of the expansion and privatization of the market for payments and the increased ability of the commercial banks (as well as other non-bank fnancial intermediaries) to offer new payment instruments that compete with the offcial legal tender in payment, we should keep in mind that the organization of new payment technologies and especially of the networks that underly them are developed under the close supervision and support of the central bank. Deregulation should not be understood as a binary; state money against privately issued scripts, state controlled banking sector versus free banking. The control of the state over the payment industry and the level of regulation should be thought as one of degree. The control of the state over the payment system, as well as the motives of the state, defne the extend of regulation and deregulation, while the new technological, social and economic realities of the network society diversify the mechanism of governance.

SEPA, the single payments area for the Euro is a very illuminating example of the extend of regulation and the involvement of the European Central Bank in the process of organization of new payment systems and new payment instruments (ECB 2006, 8 – 10). The organizing principle of SEPA is self regulation by the industry; still ECB is in constant consultation with the commercial banks of the Eurozone, coordinating the time-frame, imposing deadlines, intervening in the pricing on the new payment instruments, coordinating the organization of the shared infrastructure and plays an active role in the overall process of the implementation of networks of payment in the Eurosystem (ECB 2006). Similar initiatives have been undertaken by the central banks and other state institutions entrusted with the organization, the regulation and the supervision of the implementation of electronic payment instruments.


The central bank is loosing control over the supply of money, when cash is substituted by commercially sanctioned media of payment. This loss is offset by the regulatory and supervisory initiatives that the central bank assumes in the new context. The central banks regulates the realization of payment technologies and the state invests these payment technologies with reliability by anchoring them to the state sponsored monetary system. New payment instruments remain subordinate to the legal tender; they are media of transmission of monetary value, enumerated in the offcial money of account (credit and debit cards, credit transfers and direct debits) or media of exchange (electronic money, both in its software and its card incarnations) that can only fnalize a payment when they are redeemed into the offcial legal tender. All the payment instruments, digital, paper and card based rely on the offcial money of account both for the operation and their existence. The public is willing to use them and they can fnalize payments as long as they are directly redeemable to the offcial legal tender. The state sponsored money is still in the top of the monetary hierarchy and from there it lends the trust that it enjoys to the rest of the instruments that populate the payment system.

Pressures against the state monopoly over the monetary system are even more powerful in the international level. The intensifcation of the process of globalization, partly caused by the expansions of electronic networks of communication (and partly by political changes), have animated the global competition between currencies18. The integration of the national markets encourages the integration in the monetary and fnancial architecture; the economization on transaction costs related with the use of multiple currencies in an integrated global market, as well as the reduction of uncertainty that is created by multiple monies of account, are the main rationales for monetary integration. Digital technologies provided the impetus both for the integration of the marketplace at the global level, and for the effcient organization of monetary

18 Aglietta (2002) describes the process as integration of monetary spaces. Cohen (2003) talks about contention contraction. “On the demand side effciency considerations suggest a preference for as small a population of monies as possible, leading many informed observers to predict a radical shrinkage in the number of currencies in circulation. That is the Contraction Contention.” Cohen (2004, p. 26).



transactions across borders. The ICT revolution creates both the new challenges for money, and the new possibilities to live up to these challenges.

Again, I believe, it is not only premature but wrong to argue that globalization and ICT can bring about the demise of the state in the global level or the disappearance of national currencies. Despite the strong forces of integration that manifest themselves prominently in the process of monetary unifcation in Europe, as well as the various instances of dollarization (in the guise of currency boards, of currency pegs or even through the use of the dollar as the offcial currency as in the case of Ecuador), offcial currencies seem to multiply rather than too diminish in numbers (Cohen 2004, 2004b). In order to understand these contradictory developments in the global monetary architecture one needs to investigate the constitution of new monetary spaces outside the jurisdiction of the state, along to the traditional territorial ones. There is a division in the fulfllment of the functions of money along different monetary spaces, and the analysis of these questions is central for the questions we try to address.

Before the Breton-Woods agreement, one could argue that money was still territorial, and the monopoly of the state over the monetary system was proportional to the sovereignty it enjoyed in its borders19. The situation has radically changed with the emergence of new spatio-temporal zones, where the control is shared among different state and non state actors and the interpretation of rights and obligations departs from a monolithic state interpretation (Easterling 2005; Sassen 2006). These zones can be geographical (border areas among states, international waters etc), but more to the point for our analysis these spaces are socially rather that geographically constituted. International and global networks of communication as well as international commodity and fnancial markets, are such contested zones, which reconstitute the monetary geography and allow for the creation of new monetary spaces. Internet use and

19 “Truly fundamental changes in the geography of money did not occur until well into the nineteenth century, as national governments, eager to consolidate their emerging powers started to assert greater control over the creation and the management of money. For the frst time in history the goal of exclusive national currency – One Nation/ One Money – came to seem both legitimate and attainable. … Control was implemented with two principal ways – frst, by promoting the development of robust national money; and second, by limiting the role of rival foreign currency.” Cohen (2004, p. 5).



e-commerce enhance the importance of these new monetary spaces, by allowing the access to retailers and consumers across the globe.

The monetary system hierarchy at the global level can be described in rough lines as follows. In the geographical area of state sovereignty, the monetary system is dominated by the offcial money of account and the legal tender. In some cases, a foreign currency (like the euro or the dollar) can function as a store of value, while international and global payment systems (for example VISA, MasterCard) allow for the realization of payments both domestically and internationally. In global markets, international reserve currencies (dollar, euro, yen) operate as de facto units of account and means of payment. The decision on which currency is used in each extra-state market, the particularities of the transaction as well as the regulatory framework, are decided through a mixed process of constitution and consultation between state authorities and extra-state actors. Nevertheless and in every single system of payment, an offcial currency is used as the unit of account as well as the means of payment, infusing the system of payment with the reliability of state sovereignty, whose currency is used.

As in the case of the gradual obsolescence of cash, so in the case of the global competition between national currencies and payment systems, authority remains central and function of money of account necessary for the support of payment and circulation. It is true that the control of some states has been compromised by the intensifcation of globalization and the infuence of ICT, but this control has been assumed by other state actors. Global payment systems, and extra-state actors play a part in the process but only in the spaces and in the terms defned by the states. State sponsored currencies, function as global reserve currencies, standards of value and media of payment, dominating the monetary hierarchies, in global as well as in the national level.


The monetary system is undergoing a substantial transformation. The most

prominent indications of change are the gradual obsolescence of cash and the

informatization of money. Electronic networks and new media give rise to new


payment systems and instruments that enhance the effciency of payments and integrate the institution of money in the network economy. The organization of a completely cashless society seems likely, even though not in the short term. The statements about the ‘Death of Money’ and the advent of a moneyless society seems to be unfounded. Money will remain a necessary institution in the market economy. New payment instruments tend to substitute currency in payment, but they rely on an offcial money of account for their operation. In conclusion, the informatization of money is not a symptom of its decline but rather a consequence of its identity as an abstract unit of account. Immaterialization enhances further the effciency of money and manifests the essential identity of money as the dominant, state-sponsored, unit of account more vividly.

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