Okay well since we already had the econ 101 lesson, I'll just stick with the technical issues associated with digital money.
- Am I right, or am I missing something?
The shift to a digital cash economy is in the works, I don't know if it'll happen by then (since such a thing is nearly impossible to predict accurately) but that is what both the government and banks want.
Complaints about hackers or power issues are largely unfounded. Your stock markets are completely digital today, you see the stock markets exploding? Not really. That's tens of trillions of dollars moving all day long. Digital cash is a lot easier. In fact, the whole point of digital money is to make such "hacking" attempts more obvious (it's a lot easier to track credit card transactions for instance) and as for power, the world doesn't end if you got a several hour blackout. The worst thing is a multi-day blackout. Anyway, if it really comes down to it, by then, either your government is total asscake and doesn't invest in power infrastructure properly, or it is fine and they made it more reliable. Digital cash won't be your problem if your government is crumbling.
- So this is what the economy looks like now (EG, 2040's). What will it look like in the long run?
Changing the style of money doesn't affect that much in the long run. People will find new ways to hide their transactions. You might think that today we need to exchange suitcases full of unmarked non-sequential bills, and while that was cool, in the future it's just all money laundering. So long as it is complicated enough, it'll continue. Certainly, I would expect that it would somewhat hamper criminal efforts but cash currency is hardly what they rely upon for their operations. It's moreso corruption and willing participants.
- How will this affect the global economy? Will this affect third-world countries, which are still using analog currency?
Nothing special. When we wire them money, we do so digitally. Cash currency doesn't make a difference.
- Are there any sinkholes that I need to look out for?
Trust me when I say this, if you want your digital cash to act exactly like cash (except it is on a credit card kind of system) the cryptography associated is hell. Very literally hell. Demons spawn when you mention it. So, unless you got a Ph D in that shit, don't bother trying to actually explain how it works. Just say it is cryptographically secure.
edited 11th May '11 4:05:29 PM by breadloaf
Thank you—finally someone points this out. The vast majority of transactions are done digitally now; lots of people use cash (and many use cash only), but institutions don't with each other; they use digital transactions. Power outages and hacking would be essentially like they are now.
Government would not be the immediate problem. Corporations would be the immediate problem. The government might be tracking what you are doing, but Mastercard definitely is and can veto your transactions at any time.
This is already happening, by the way. Visa, Mastercard, and Pay Pal refused to process donations to Wikileaks
a while back.
Have you heard of Visa Buxx
? It's a debit card that basically works like a gift card. Parents put money on it and then kids (it's marketed to teenagers) can spend it.
It's worth noting that swipe fees can be a problem in an all-electronic economy. Right now the average swipe fee is 44 cents
; thus, credit isn't a good option for a kid buying a $1.00 candy bar. This is also why small businesses are often cash-only.
The reason why Gold was used to back currencies is that it was recognized as a universal shiny thing. You could back a currency with anything, really, assuming that it had a set value and was stockpiled somewhere- Just make sure that if you decide to back a currency with non-gold, make the substitute worthwhile.
"Sarchasm: The gulf between the author of sarcastic wit and the person that doesn't get it."Wait, what?
But.
But.
The whole entire purpose of paper currency is that you didn't need to haul gold everywhere.
They may not agree on anything, but economists could at least try to do something sensible.
"Sarchasm: The gulf between the author of sarcastic wit and the person that doesn't get it."If I remember correctly, there were two kinds of paper money in US the 19th century—greenbacks (which I guess were backed by nothing), and goldbacks (Exactly What It Says on the Tin, and which were the only kind of money one could use for buying real estate). There was some kind of major disagreement over the apparent worthlessness of greenbacks or the difficulty of trading them in for goldbacks or something, which eventually led to goldbacks being phased out and greenbacks taking over.
The whole purpose of money is to serve as a medium in trade, and it has been since the concept was first invented. It was used as a substitute/placeholder for trade materials that would normally spoil over a long haul, such as harvests.
All money has to be is a commodity with a value that is easy to control. People used gold because you can't just dig up gold in your back yard, and it's difficult to counterfeit. Greenbacks are easy to control because they're difficult to counterfeit and they're only produced by one source controlled by the government. It has value only because it is a medium in trade—in actuality, it's just ink on cotton paper.
I hope all of that makes sense.
edited 14th May '11 8:14:54 AM by annebeeche
Banned entirely for telling FE that he was being rude and not contributing to the discussion. I shall watch down from the goon heavens.It makes as much sense as it can with that logic.
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OP: What about maybe a currency based on rate of transfer? Maybe almost like a stock market concept, with a value attached to the "points". The more people buy, the greater the value of the currency. The more people sell or hold, its value decreases. That's probably highly ineffective and/or just plain retarded, so it's up to you. Besides, there are probably economists who would support the concept just because... They're economists.
edited 14th May '11 9:21:10 AM by Pyroninja42
"Sarchasm: The gulf between the author of sarcastic wit and the person that doesn't get it."Also, the value of commodities is volatile, too. For instance, you really, really wouldn't want a currency backed by diamonds
. Gold prices can rise and plummet too. Not that there isn't sense in backing, but a currency will essentially always be worth the stability of that country's economy.
Next question: Who has more power in your story, government or corporations, and how much do they exercise it? This has a big impact on how important your underground economy is.
It takes place in the US, so corporations. Corps can manipulate government with money.
Crime organizations can do that too, actually.
edited 14th May '11 11:51:11 AM by annebeeche
Banned entirely for telling FE that he was being rude and not contributing to the discussion. I shall watch down from the goon heavens.Corporate powers would favour digital money with online machines to verify their authenticity and prevent double-spending of electronic cash. They can track your purchases and tailor advertisements to you.
There are also offline schemes for digital currency but that would only be useful to a liberal democracy which is more controlled by the middle class than high power executives from major corporations.
Also, for someone who was asking, our currency is currently backed by nothing.

Economics 101:
Money Fulfills 3 basic functions: 1) Unit of Value - a way to express prices 2) Medium of Exchange - a way to trade for goods or services 3) A store of value - a way to save
Furthermore it must be durable, non-replicable, divisible, and stable in value.
ANYTHING that can fulfill the functions of money can act as money.
As for going digital, there are a few ways that this can be done. First is through a system of bank accounts (or credit accounts) where the vendor communicates with the bank, creditor or a central clearing agency to transfer funds from your account to the vendor's account. The second is a proprietary system where cards or chips are loaded with money and then transferred to other systems, and the central company manages the exchange to "real" dollars and such. DEXIT was a flop in Toronto. The last is a free standing digital currency which uses a complex cryptographic system to store amounts on a card or a chip and then transfer them to another system: it is coded in such a manner that decoding is destructive which means that the code can't be copied, only transferred. There is no proprietor and it is only the central bank that creates the money and manages the cryptographics. The last two are faster than the first (virtually instantaneous) because the only communication necessary is between the card holder and the vendor. The second can't be used for distance purchases (online or telephone). Biometrics could replace cards etc for the first, or replace PI Ns for the second or third as a security measure (but if you lose the chip/card, it is still like losing a wallet full of paper cash, even if nobody else can use it).
For an underground economy there are a couple of possibilities. Gold can still function as a way to move value about but it tends to be better for larger transactions rather than everyday use. A powerful crime syndicate could operate their own underground economy whether digital or otherwise: evil Canadian Tire Money or Chuck E Cheese bucks. Various underground, ethnic banking transactions could take place. I think there was an example in the movie Body of Lies where you leave a bunch of money with a banker in one country and then pick it up in another country, no questions asked.
The final rule of money is that it only has value if you can trust it. Whenever there is a currency shock, the price of gold spikes. Underground bankers have to follow some sort of internal law that allows people to trust them.
In prisons, cigarettes function as money. Depending on the nature of your futuristic underworld maybe people trade in bullets and guns.
edited 11th May '11 3:37:33 PM by 66Scorpio
Whether you think you can, or you think you can't, you are probably right.