6 Unexpected Items That Could Replace Paper Money
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The Fiscal Times
May 8, 2012

The weekend’s election results in France and Greece have added to the uncertainty surrounding the future of the European Union and its common currency, the Euro. Voters in both nations firmly turned thumbs-down to the strategy devised by German Chancellor Angela Merkel and outgoing French President Nicolas Sarkozy revolving around austerity as the solution to the continent’s economic woes. The results also raise a new question over the fate of the Euro: To the extent that the two countries say “no” to the new fiscal rules introduced recently, can the Euro be saved?

RELATED: Smartphone Explosion Speeds the End of Cash

While not downplaying the gravity of Europe’s plight, it might be time to examine what really serves as a common currency these days – and what might, in a few years or decades, be in a position to replace bits of circular metal and pieces of paper as both a store of value and means of exchange. To the extent that the Euro and other such conventional currencies rely on complex political arrangements and thus the whims of voters, they may be untenable.

“Although predictions about the end of cash are as old as credit cards, a number of developments are ganging up on paper and metal money like never before,” author David Wolman writes in his recently released book “The End of Money” before going on to list the factors involved: “mistrust of national currencies, novel payment tools, anxiety about government debt, the triumph of mobile phones, the rise of virtual and alternative currencies, environmental concerns, and a wave of evidence showing that physical money is most harmful to the billions of people who have so little of it.”

So what could replace money as we know it? Of course, cashless electronic payments are the sexiest, most forward-looking option. But there clearly are other, more old-school items of value that could essentially fill the same role as today’s currencies, having value in the eyes of millions or billions of people worldwide regardless of where they live. Once, for instance, in the former Soviet Union, it was possible to swap blue jeans for tins of caviar; you didn’t even have to try that hard to make a contact, as people would approach tourists and offer to literally swap the clothes they were wearing for the fish eggs. Jeans in today’s Russia, however, don’t carry the same value and couldn’t serve as currency; vodka, however, is still likely to fill that role.

To work, they would have to be like commodities: The goods must not only have value but meet some kind of general standard. So, for instance, getting hold of George Clooney’s personal e-mail address clearly has tremendous value in the eyes of some people. But the potential value is limited not only by the fact the demand would largely be confined to women in North America, Europe and a handful of other countries familiar with the actor, by the fact that there is only one George Clooney, and by the fact that as soon as he realized his e-mail address had been used as a de-facto currency, he’d change it. On the other hand, a loaf of bread has a common utility value worldwide: Even if you don’t need it, you can exchange it with someone else for an item that you do need, the hallmark of a classic barter arrangement.

Here are some other suggestions for real global currencies that consumers could adopt without worrying about complex inter-governmental fiscal arrangements. They are arranged in a hierarchy, from low denominations – the nickel, say – to the equivalent of a very high denomination bill indeed.

1. Bottled Water: We can’t live without H20; assuming we can solve the pesky issue of all the plastic, whether via recycling or reusable containers, bottles of fresh water of various sizes could easily fill the role of a currency, whether in the gyms of Manhattan or the markets of clean water-scarce regions of Africa.

2. Big Macs: It’s already part of an economic index, so why not formalize its role in the unofficial economy still more, and recognize the global ubiquity of the McDondald’s (MCD) brand it represents? A bottle of Coca-Cola could also step in here.

3. Cigarettes: a tried and true black market good, used worldwide. People who use ‘em crave ‘em. One possible downside is the global health initiatives against smoking that may mean this isn’t as durable a means of exchange as in prior eras. But there are still some global brands, and you can visualize a pack being the equivalent of $5 or $10, and a carton carrying a higher valuation.

4. Baby formula: Like all of these “commodities,” even if you don’t need it yourself, odds are that someone in your economic circles does. (When Americans on welfare get their checks, formula and diapers are some of their first purchases.) It’s portable, there’s no ready substitute and its value has been high and reasonably stable. So let’s think of this as a $50 bill.

5. Smartphones: Is it possible anymore to live in any corner of the world without some kind of cellphone? And the trend is inexorably in the direction of smartphones, whether made by Apple (AAPL) or Samsung, over their plain vanilla counterparts. Swap a smartphone for an hour or two of professional services, such as filling out a simple tax return.

6. Diamonds and pearls: The traditional source of portable wealth, these commodities could easily serve as a currency for the ultra-affluent. Instead of using a charge card or check, they could toss down a few diamonds or other gemstones to pay for their stay in a six-star resort or the new BMW.

There are all kinds of ways to get creative around alternatives to our current “common currencies,” Wolman points out. Today’s means of exchange don’t even need to be tangible goods that you have to store and guard in the same way that you would a wad of $100 bills. For instance, why not use energy – literally, kilowatt hours of electricity – to pay your bills? Keep your kilowatt hours on a stored value card and whip it out like an ATM card to pay for groceries or the taxi home from the airport. Your employer could top it up every other week, paying your ‘salary’ in more kilowatt hours. It’s hard to imagine our world without electricity – however it ends up being generated, using coal or wind power – so this ticks most boxes.

Of course, we’re a long way today from being able to replace any currency – much less the Euro – with any of the above, as this somewhat tongue-in-cheek overview should have made clear. After all, today’s currencies were created in a barter-driven economy in response to a need for some store of value that would be readily accepted wherever the holder went. But those early coins were accepted as having value because of some intrinsic value in the item itself – in many parts of the world, they were made of metals that, when melted down, still had value.

Today’s currencies are backed by the full faith and credit of the governments issuing them (although that hasn’t stopped people hunting for older, copper-rich pennies). We’re seeing some of the risks associated with that in Europe right now, where experiments in currencies have gone further than anywhere else. It’s worth at least pondering what value we place on these conventional currencies – and what kind of barter system might replace them in the 21st century – as we wait for Europe’s central bankers and politicians to devise a new round of measures to keep the Euro intact.

Business journalist Suzanne McGee spent more than 13 years at The Wall Street Journal before turning to freelance writing. Author of the book Chasing Goldman Sachs, she has written for Barron’s, The Financial Times, and Institutional Investor.