David Birch - The Currency Cold War: Cash and Cryptography, Hash Rates and Hegemony

The Currency Cold War

Series editor: Diane Coyle

The BRIC Road to Growth Jim ONeill

Reinventing London Bridget Rosewell

Rediscovering Growth: After the Crisis Andrew Sentance

Why Fight Poverty? Julia Unwin

Identity Is The New Money David Birch

Housing: Wheres the Plan? Kate Barker

Bad Habits, Hard Choices: Using the Tax System to Make Us Healthier David Fell

A Better Politics: How Government Can Make Us Happier Danny Dorling

Are Trams Socialist? Why Britain Has No Transport Policy Christian Wolmar

Travel Fast or Smart? A Manifesto for an Intelligent Transport Policy David Metz

Britains Cities, Britains Future Mike Emmerich

Before Babylon, Beyond Bitcoin: From Money That We Understand To Money That Understands Us David Birch

The Weaponization of Trade: The Great Unbalancing of Politics and Economics Rebecca Harding and Jack Harding

Driverless Cars: On a Road to Nowhere Christian Wolmar

Digital Transformation at Scale: Why the Strategy Is Delivery Andrew Greenway, Ben Terrett, Mike Bracken and Tom Loosemore

Gaming Trade: WinWin Strategies for the Digital Era Rebecca Harding and Jack Harding

The Currency Cold War: Cash and Cryptography,Hash Rates and Hegemony David Birch

The Currency Cold War

Cash and Cryptography,Hash Rates and Hegemony

David G. W. Birch

London Publishing Partnership

Copyright 2020 David G. W. Birch

Published by London Publishing Partnership www.londonpublishingpartnership.co.uk

Published in association with Enlightenment Economics www.enlightenmenteconomics.com

All Rights Reserved

ISBN: 978-1-913019-09-9 (epub)

A catalogue record for this book is available from the British Library

This book has been composed in Candara

Copy-edited and typeset by T & T Productions Ltd, London www.tandtproductions.com

Cover design by James Shannon www.jshannon.com

Dedicated to the person who first encouraged me to write a book at all: Diane Coyle. It is because of her that this book went from concept to manuscript in a time I would not have thought possible a few years back!

Contents

Foreword by Michael J. Casey

Preface

Introduction

Part 1

Digital Currency

Chapter 1

What is digital currency?

Chapter 2

Technology as catalyst

Chapter 3

Anyone can make money

Part 2

Drivers for change

Chapter 4

What problem will digital currency fix?

Chapter 5

Rethinking money

Chapter 6

Creating digital fiat

Part 3

The currency cold war

Chapter 7

Private digital currency

Chapter 8

Public digital currency

Chapter 9

Red versus blue

Coda

A call to action

Glossary

Bibliograpy

Foreword by Michael J. Casey

M oney, the Israeli historian Yuval Harari tells us, is the most successful story ever invented and told by humans.

Hararis intent, in reminding us that money is fiction, is not to diminish its significance or warn us against relying on it. On the contrary. As he argues in his seminal book Sapiens: A Brief History of Humankind (2011), our unique capacity to tell and collectively believe in stories is the single most important factor behind human dominance of the planet. Some of our most formative stories include those we tell about religion, about companies being legal persons, and about nations as communities of shared values. But it is money that is the big one: the story that has contributed most to the build-out of civilization. After all, as Harari observes, not everybody believes in God, not everybody believes in human rights, not everybody believes in nationalism, but everybody believes in money.

Reading and listening to my friend David Birch has helped me understand that this fundamental, millennia-long story of money is also one of periodic change. When viewed over the long arc of history, moneys otherwise unbroken narrative is filled with constant twists and turns, of responses to changes in the political order, in culture and, most importantly, in technology.

At the moment, as I sit down to write this foreword amid the tumult of early spring 2020, it is hard not to believe our money story is poised for one of its more dramatic plot shifts. We do not know for sure what direction it will take, but what we can see is a unique convergence of three forces that seem, to me at least, certain to bring about profound change of some sort.

The first is geopolitical. Ever since the financial crisis of 2008, top economic thinkers have been warning that imbalances in the global economy are putting stress on the International Monetary and Financial System.

By some measures, the US dollars central role in that system in place since the Bretton Woods Agreement of 1944 has never been stronger. As reflected in its overwhelming dominance when it comes to total central bank reserves, cross-border payments, foreign exchange trades and, most significantly, international corporate assets and liabilities, the greenback is more powerful than ever. But the worlds concentrated dependence on the US dollar is actually the systems core weakness. It means that in moments of crisis, the US Federal Reserve (Fed) feels compelled to act not only as a lender of last resort to US banks, but also in contradiction to its domestic economic mandate as the ultimate financial backstop to the entire world. It also means that when the Fed is acting purely within its domestic mandate and adjusts monetary policy to optimize US economic conditions, it unwittingly delivers collateral damage to other countries, setting off waves of hot money flows into and out of foreign currencies with every quarter-point cut or hike in US interest rates. This fosters exchange rate mismatches that fuel risks of a race-to-the-bottom currency war akin to that of the 1930s. In the age of Donald Trump, these tensions have grown more acute as the United States has pursued a more mercantilist, America-first trade policy, and as the presidents persistent criticism of the Feds monetary policy has raised questions about its independence.

The second trend pointing to a monetary paradigm shift is technological in nature. The post-global financial crisis era has also seen an explosion in innovation within the world of money. Spurred by mobile phones and the Internet of Things, artificial intelligence and, most importantly, the invention of cryptocurrencies, blockchains and other forms of decentralized ledger-keeping, a new software stack of monetary and financial protocols and applications is taking shape. Together, its components are forging an extensible, application programming interface-capable platform upon which entrepreneurs and governments will forge an exciting, disruptive and also slightly terrifying new era of programmable money or, as the author puts it, very smart money.

These first two converging trends have already fuelled debate about whether the solution to the international monetary systems imbalances lies in digital currencies. You will read in the pages ahead, for example, about outgoing Bank of England governor Mark Carneys bold vision for the International Monetary Fund to steward creation of a digitally rendered synthetic hegemonic currency to replace the dollar as the worlds reserve unit. But it took a third, massively disruptive societal upheaval the fallout from the Covid-19 pandemic to turn this gradual two-trend convergence into something even more powerful and urgent.