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The UN Monetary Conference in Bretton Woods, New Hampshire on July 4, 1944: digital coins are a bet that money is no longer just the purview of states in a post-global world. © ASSOCIATED PRESS
I voted for Eric Adams, the new mayor of New York, because I thought he’d be the best person to tackle the city’s growing crime problem, which I wrote about in a previous Note, here:
I never figured him for a crypto advocate. Last week, the mayor made good on promises to take his first pay cheque in cryptocurrency, using Coinbase (an online trading platform) to get paid in bitcoin and ethereum.
Wow. Just wow. There are many things to think about here. First, this is New York, and if we are shifting to a world of digital currency (which it seems we may well be, given that dozens of the world’s central banks including the Fed, are now experimenting with it) then it’s understandable that the mayor wants the city to be at the centre of it.
He’s not the only one. Suddenly, any collection of individuals can create their own digital coin, backed by both public and private entities. El Salvador’s Bitcoin City, Miami’s MiamiCoin, and NYCCoin are all versions of this brave new world in which public entities are encouraging investors to put money into works projects backed by digital coin. Miami Mayor Francis Suarez and Eric Adams are embracing “city coins” in part to lure money into the burgeoning crypto industry in order to fund things that the city needs. In late 2021, Los Angeles allowed crypto.com, a digital currency trading platform, to pay $700m for the naming rights to the Los Angeles Lakers stadium. Wyoming’s decentralised autonomous organisation law (DAO) will allow new types of companies to start up that are entirely digital, with the hope of making the region a hub for Web3.
Much of this is very likely about getting in on the late stage hype of the most recent tech bubble. We won’t really know until the bubble bursts. But some of it is about the way in which cities, countries and regions are eager to control their own financial destiny. As my Financial Times colleague Brendan Greeley has noted, “There is a long history of city states producing their own money.” In medieval Europe, financial skills became a tradable asset, and the places that had the most of them — like Venice and Florence — prospered. “If you think crypto is the future of finance, you want to make sure you invite Fibonaccis and Paciolis to your city.” Thus, Miami is trying to lure fintech start-ups and paying salaries in city coin, in order to fuel the boom. In some ways, these combined public private efforts, along with the purely commercial ones, are a bet that money is no longer just the purview of states in a post-global, post-Bretton Woods world.
Personally, I’m playing it quite cautiously with anything that isn’t backed by a legitimate central bank, at least for now. But assuming we do shift to digital currency, the entire financial system will change. Commercial banks themselves, which are traditionally the way in which money is distributed from the government to individual consumers and businesses, would no longer be necessary. Governments could simply give consumers digitised tokens inscribed on the computer ledgers of central banks themselves.
As Jens Weidmann, former head of the German central bank, said in 2021, the process will very likely shatter revenues of commercial banks and create a much more decentralised, and localised financial system — governments and consumers would be interacting directly with each other in a totally new sort of banking system. While the legal framework and logistical and technological issues have yet to be worked out, it’s telling that JPMorgan Chase CEO Jamie Dimon’s 2021 investor letter gave a nod to this possibility, as have international banking agencies like the Bank for International Settlements and the IMF.
In a way, this is all a bit back to the future. Had British economist John Maynard Keynes prevailed back in Bretton Woods, we’d be using a “bancor,” or an international currency which would essentially be a basket of multiple currencies from various countries, rather than a dollar. This was really about preventing the sort of trade and capital imbalances that we have today. When a single country has both the privilege and the burden of being the international reserve currency, as the US has since the Bretton Woods period until today, then there is only so much that can be done to curb economic imbalances. The dollar not only allows, but in some sense forces, Americans to become debtors, as investment from around the world naturally flows into the dollar, pushing up its value, and encouraging financialisation, and speculation.
But all this may be about to change. Decentralised technology has made possible what may be remembered as a new kind of Bretton Woods style shift — away from the dollar as the sole global reserve, and to a new system in which countries, cities, and communities of all kinds will be able to take more control of their financial systems, for good and for ill. As I’ve argued in columns past, I think currency flows will begin to mirror the trust that people have in various institutions, be they public or private.