David Boyle

Virtual currencies

Financial Times Management Report, 1999 (this is the conclusion)


The widespread availability of new IT technology is likely to continue the various trends set out in this report.  What is more difficult to predict is how much they are likely to feed off each other, bringing forward new ideas by combining them – with a major impact on business or social affairs.  All the indications are that at least one of these combinations of new technologies will create a range of electronic currencies that will become an important part of people’s lives.  Often this will mean using electronic versions of foreign currencies for internet use – the dollar could become the main preferred currency on the internet.  Sometimes it is going to mean using currencies denominated in different values, set locally or by ambitious private sector issuers.

The most important finding of the report is the way in which the various different kinds of electronic currency – developed by different people in different fields and for very different reasons – are beginning to come together.  Internet cash and e-purses are beginning to merge.  They are being put on cards that also contain loyalty currencies.  Loyalty currencies are being used to barter goods and services in the same way that barter currencies are.  Social currencies are being developed to compete locally with barter currencies.  Volunteer currencies are being used like loyalty currencies.  As they do so, the technology that makes this convergence possible is being upgraded and made more available, and is carrying out a convergence of its own.  

New kinds of loyalty cards are emerging, which include a new generation of multi-function smartcards handling alternatives to cash; so are loyalty credit cards that provide credit in loyalty points.  Dual card mobile phones that can replenish e-purses will be available next year, and will allow people to download a range of different kinds of cash onto cards.  The new Boots loyalty card is expected to been able to carry 30 different currencies simultaneously.  And the cards which will be marketed with Windows 2000 should blur the dividing lines even further.

Many of these new ideas are largely unregulated.  Banking regulations have not so far been applied to loyalty points, and it may be years before they are.  There may be tax and accounting rules for people issuing barter currency or social currency, but there is little sign of heavy-handed regulation.  By the time regulators have got round to formulating them, the electronic currency revolution is likely to be well on its way. 

The key question is what role the banks will have in all this.  They have already allowed credit card companies to break the monopoly of money creation and issue, and they look set to face rivals for their core business of organising payments.  But then payments are no longer the most lucrative areas for banks, and they may feel it appropriate to let them go. Their problem is that banks are no longer the main contenders to be the portals for e-cash – though they clearly have the resources to buy their way back in later.  Banks could perhaps supply the necessary trust factor for some of the new currencies.  But even this crucial trust is being successfully provided by other new players in financial services, though the new banking Global Trust Organisation (Identrus) may shift the argument some way back in the other direction. 

This is the key to the argument.  If you accept the full range of electronic currencies as ‘money’, then a wide range of different sectors are now involved in issuing it.  As well as banks, they include:

  • Public transport systems, issuing loyalty points and stored value cards.
  • Phone operators issuing smartcards and systems which allow customers to pay direct by phone.
  • Airlines issuing loyalty points.
  • Local authorities issuing smartcards and loyalty points.
  • Utilities issuing stored value cards.
  • Supermarkets issuing credit cards and loyalty cards.
  • Petrol stations issuing loyalty points.
  • Universities issuing smartcards and volunteer money.
  • Broadcasters issuing smartcards and enabling e-payments.
  • Internet websites issuing web money and enabling e-payments.

If you can now pay for drinks or parking meters by phoning them, these items of expenditure will already start appearing on phone bills.  The most likely scenario is that sectors like retailers, utilities and phone companies will be competing with the banks for the prize of controlling the new e-currencies.  And the benefits will be worth winning.  Branded electronic money will be able to tie customers further into a network of banks, supermarkets and other companies that will encourage loyalty – customers will be that much less likely to shift suppliers if they have to change bank accounts, phone companies and money-type too.  Money issuers may link themselves together in global keiretsu, to give customers as broad a buying power as possible.

Utilities and local authorities that also want to encourage good citizen behaviour will be issuing other kinds of social money or volunteer money.  These may also be backed by the groupings of branded currencies issued in the private sector.

A multi-currency future would imply a range of online brokerages, helping people to shift from one kind of money to another – but using the rival currencies to underpin different aspects of their lives.  This will mean corporate money backed by shares to store value, loyalty money backed by belief in brand to make purchases, local money backed by local trust to underpin local life.  It could also mean a new generation of currency trading opportunities, between sectors or between regions, though some currencies will lose their entire raison d’etre without strict rules that you must not use them to buy conventional cash.


A multi-currency world is difficult to envisage, even though the first signs of it are appearing already.  It is not clear yet how people will cope with another level of complexity in their increasingly complex lives, but - assuming that the right loose regulatory framework is in place, and e-money issuers take their responsibility seriously for the whole of society - people should welcome it.  The new system could spread purchasing power to more people.  It could broaden the definition of work to include a much wider range of activities than currently recognised by the market, and reward them with buying power.  It could usher in a period of monetary experimentation that might create a more sustainable economy - one that conserves natural resources and uses its waste as assets.  There, of course, dangers that the multi-currency economy could turn out to be more exclusive, and avoiding that scenario requires more public debate. 

The following themes have run throughout the report:

Competition and convergence

Both are two sides of the same coin.  As the technology allows new kinds of money to converge, we can expect groupings of issuers to gather around the new corporate currencies, as they are now doing around internet portals.  They will converge to provide their currencies with more buying power, and to compete more effectively.

But the range of new currencies will not all follow the same pattern.  There will be more informal buying networks that choose to deconnect from the main system.  There will be social currencies and time money systems that work to different values - though they may still have buying power in the main system, as part of the issuers' social conscience.  This mixture of co-operation and competition looks set to create the cutting edge for the new currencies.  We have already seen the beginnings of groupings using the same virtual currencies, for example in the Air Miles network, and using digital TV payment portals in the powerful grouping of brands around digital TV.


Many of the electronic currencies described in this report are not yet money in the accepted sense, but they do have something in common.  They give value to wasted assets and they make those assets available in return for a currency that encourages certain behaviour – be it loyalty to brand or being a local volunteer.  Within companies, it might be rewarding people for good time-keeping or it might be for sharing knowledge or know-how.  This is a possible solution to one of the key problems for building intellectual capital inside large corporations, under development at the New Economics Foundation as ‘intellectual currencies’.  Among the assets re-valued by electronic currencies are:

  • Excess productive capacity.
  • Excess or perishable services or stock.
  • The loyalty of customers.
  • Local trust in run-down neighbourhoods.
  • The work and skills of people on the fringes of the economy.
  • Reject computers and electrical equipment.
  • Carbon debt – an asset created by international agreement.
  • Garbage.

From global to local

As trade becomes more global, there appears to be an equal trend towards the local.  Consumers are increasingly demanding fresh food, traditional services and local production.  It seems likely that the growth of private currencies will be mirrored by an increasing reliance on local currencies - some informal and some backed by local authorities and other local organisations.   These have the potential to protect local economies against the uncertainties of the international markets, but they are likely to be used increasingly as methods of providing start-up finance to small business and encouraging local production – especially fresh food.

On a large enough scale, regional currencies could float independently.  At the same time, small currencies will remain neighbourhood systems enhancing local life, but linked to excess stock in the main system.


Many of the business opportunities arise out of the clash between converging sectors sharing similar methods, objectives and technology.  Government and business, government and voluntary sector all have parallel interests in the converging technologies.  That means that virtual currencies will probably mean a broadening of the definition of financial services, as the boundaries with social regeneration, marketing and customer loyalty begin to blur.  In those alliances of electronic money, the banks may not be necessary to the process.  The challenge for them is to provide the portals through which people access their virtual cash, to build alliances to give that money buying power – especially with government departments – and to inject the trust which customers will need before embracing new kinds of money.

Many of the currencies will be the result of accounting for assets differently, and giving that counting buying power.  Virtual money will often be even less rooted and underpinned in the real world of concrete reality than ever before, but there may be benefits for that too.  Virtual currencies which are widely accepted have different attributes to the simpler national currencies we use now: they could be used by banks to provide innovative new methods of financing, providing start-up loans – for example – at low or no interest, in return for fees in government money.  Some of the opportunities include:

  • Using virtual currencies as stores of value based on pollution permits, which are in turn created by international agreements like the carbon debt negotiations.
  • Experimenting with new ways of rewarding bank customers in other ways than relying on paying interest, just as interest rates are rapidly shrinking.
  • Issuing pre-payment cards which can be denominated in a range of different units, including public transport trips, phone units, but also other commodities like water, energy or food.  These would not be subject to inflation.  
  • Using virtual currencies as collateral for hard currency loans by developing ways of getting them underwritten by a third party - either by regional government in the case of time dollars in the USA, or by insurance companies in the case of trade dollars.
  • Providing alternatives to prison, fines and community service by converting debt into electronic money based on time.
  • Setting up local electronic currencies which allow people to buy excess capacity in the economy in return for the time they spend volunteering.
  • Helping develop new supermarket and town centre loyalty schemes – based on smartcards – and using them to provide backing for volunteer currencies like the successful time dollars in the USA.
  • Enabling brokers like Comic Relief to turn corporate donations in time or loyalty points into goods or cash.
  • Setting up new kinds of money system – like ‘Training Pounds’ – which organisations use to boost the amount of training happening locally.
  • Helping large organisations develop ‘intellectual currencies’ which encourage different departments and sites to share their knowledge.

Do financial service companies have a unique role in the development of virtual currencies?  Probably not, but they are in a good position to capitalise on them, because of the inherent trust which the industry can provide to new kinds of money.  They will be helped in this process by building a two-way co-operation with central and local government on the issue – committing themselves to making sure the new virtual currencies are used to enhance social inclusion.  In return, government should be encouraged to introduce enabling regulation for the new currencies, along the lines of those in New Zealand and the Netherlands.  The key to preventing the emergence of currency monopolies may be to protect the rights of corporations and individuals to innovate, and backing the ability of small-scale projects to do so.

The result may be a complex, inter-related currency system that operates on a series of different geographical levels.   Different currencies may be used for payments to different levels of government, and used for different aspects of life.  Some may attract interest, some may not; some may have negative interest rates to encourage their circulation.  It will be a more complicated world, and finding a way through it for people should provide a vital new role for the financial service industry.

Measuring Business Excellence, Vol 3 No 2, 1999.

Angell, Ian, ‘For life, liberty and property’, LSE Magazine, Summer, 1995.

Turnbull, Shann, Evidence to the Australian Financial System Inquiry, January, 1996.

Robertson, James. The new economics of sustainable development, report to the European Commission, Brussels, 1997.

Back to top









title: books by David Boyle
Broke Voyages of Discovery Money Matters Blondel's Song Leaves World to Darkness The Little Money Book Funny Money The Tyranny of Numbers