Are Brazil and Argentina showing us the future of digital currency?

News of new multinational currencies in South America and Asia makes me wonder once again: Does going digital mean we are headed for more, not fewer, currencies because there will be different digital currencies designed for different purposes?

The technology of cryptocurrency means that literally anyone can create money! But who wants to? And why would they want to, when they could just use US dollars? Well, it turns out that not everyone is happy with the dollar as the global reserve.

From many, a few

We used to have hundreds of currencies from pieces of eight to doubloons to iron bars and copper tokens. Now the dollar is the global reserve currency and dominates global trade. But is it a natural law or just the way things are now? Would it make life easier and minimize transaction costs if digital technology turned the whole world into a single currency union and we could all use FedCoin or USDCUSDC
or which digital dollar will end up dominating the market?

Countries benefit in different ways from belonging to a currency union – a group of countries that share one currency. Companies can trade and invest across national borders more easily. The member countries gain access to larger markets without facing currency risk. And in some cases currency unions can help support their members when they are hit by external shocks. Such unions usually go hand in hand with deeper economic integration and research shows that since the end of World War II currency unions have been associated on average with 40% more trade between member states. More trade, more prosperity

(It is also membership costsof course: countries give up independence to formulate monetary policy, which can complicate a country’s adjustment to a shock.)

There are four currency unions in the world right now – the euro, the Central African Economic and Monetary Community, the Eastern Caribbean Monetary Union and the West African Economic and Monetary Union – and perhaps more around the corner. After all, there has been talk of a common currency for the Gulf states for decades, and who knows if this could be revived in the context of digital currency.

I was therefore interested to read that during his first visit to Argentina as Brazil’s new president, Luis Ignacio Lula da Silva, raised the possibility that his country and Argentina would pursue a common trading currency called “Sur” (“South”). The stated purpose would be to promote bilateral trade rather than seek a monetary union as it exists in the EU, and would involve state-backed loans from Brazilian banks active in Argentina and Argentina, in turn, providing collateral for this commodity borrowing such as grain or natural gas.

By the way, Sur is not the only new currency on the drawing board in South America. Argentina wants to introduce a preferential exchange rate (“technical dollar”) for freelancers who sell their services abroad so that they are not exposed to the local currency, which does not have a history of stability. They already had a “soy dollars” (Argentina is the world’s third largest producer of soybeans, behind Brazil and the United States) which meant that farmers could exchange dollars earned from soybeans at a preferential rate (as opposed to the official exchange rate).

At the same time, Russia and Iran are working together on a similar common currency, a “characters from the Persian region”, backed by gold to replace the dollar for payments in international trade. As in the case of Sur, its purpose is not to replace fiat currency in domestic circulation. The CEO of the Russian Association of Crypto Industry and Blockchain, Alexander Brazhnikov, clearly states that the proposed currency will be used as a means of payment in transactions involving international trade.

Money is trust

In his book Sapiens – A Brief History of Humankind, the historian Yuval Noah Harari writes about the “cognitive revolution” and that people gain the ability to convey information about relationships and therefore reputation. He talks about the ability of the Neolithic clan to remember the mutual obligations that bind people together when they can grasp the idea of ​​a future, and how group memory does not scale into the settlements of the Agricultural Revolution, thus necessitating the invention of money. He writes that “When trust depends on anonymous coins and cowrie shells, it erodes local traditions, intimate relationships and human values.”

As society scales beyond the capabilities of individuals, the local (including money) is given up to the global. But what if the internet, social media and mobile phones mean that we return to Harari’s “local traditions, intimate relationships and human values” as a basis for trade precisely because we can recreate the clan’s diffuse memory of obligations, but on a population scale?

If this is true, it is not implausible to imagine that new forms of money will emerge that more closely map the values ​​of the societies they serve. Of course, these communities will not be limited to humans. Much if not most trade will be between machines, between my car and your garage door, between my flying car and the AmazonAMZN
drone. We can see communities of robots develop their own money to reflect their own values!

We think a lot about central bank digital currencies and assume that they will be cyber replicants of the currencies we have now. But digital technology surely means we can reinvent currencies for the new world! I think it’s time for us to think more clearly about an inevitably different future for digital currency and start planning for what it will mean for business.