From 1980s onwards, new emerging forms of money facing monetary theory

Abstract

The financial globalization inherited from the 1980s “liberal wave” around the world structurally changed the way economists saw the world. The increasing development of financial and derivatives markets did not only affect the banking sector, but it also changed the source of financing of the economic sectors while increasing risks at large. A new step had been made with the NTIC revolution concerning money. One of the striking points in the recent period is the increasing development of private and local means of payment, such as bitcoin or whatever local currencies. On one (practical) side, these new types of money mostly appeared to satisfy the duty of the e-economy, or to reconcile money with its fundamental values far from speculation. However, on the other (theoretical) side, these new types of money clearly questioned some of the fundamentals of monetary theory: the issuing of a legal tender specified currency. Instead of a national government issuing a specific currency, use of which is imposed on all members of its economy by force in the form of legal tender laws, private businesses should be allowed to issue their own forms of money, deciding how to do so on their own. All these new types of money are a decentralized system, meaning that money is issued outside the central banking architecture and rules. This evolution – or revolution – is not to remind us the thesis defended by Frederich von Hayek. In 1976, Hayek supported the idea that a “denationalized money” can be considered in a free competition spirit. Thomas Gresham, one of the founders of the London stock markets, feared in his time (i.e. in the 16th century) that the good money (i.e. gold coins) could be substituted by the bad ones. Gresham’s eponymous law renews with its posterity with the development of private money. Throughout this chapter, we will analyze the development of the new (private) types of money alongside the monetary theory. More precisely, we will inquire to what extent the private types of money are theoretically founded, and especially to what extent the monetary theory inherited from Hayek’s “Denationalization of Money” is a useful framework to understand the challenges caused by the development of private currencies. The chapter is structured as follows: the next section following the introduction provides a brief description of the new types of money and their goals over the last 30 years. The next section will evaluate this evolution alongside the monetary theory developed by Hayekian. The final section will conclude by providing some reflections and new challenges that central bankers will have to face onwards.