E-Currencies and the Future of Money – Part 1 – Is There a Future For E-currencies?

E-currencies have been around for some time, and are in wide-spread use on the internet. E-currencies are certainly here to stay, and will become an increasingly important part of internet commerce. Eventually, e-currencies may become the preferred medium of financial exchange between consumers and merchants, and a popular means of transferring money between individuals. Popular e-currencies include e-Gold, e-Bullion, c-Gold, Pecunix, Liberty Reserve, and GoldMoney. Unfortunately, e-currencies are tainted by association with so-called “HYIPs” (High-Yield Investment Programs) which are basically scams of one kind or another promising unrealistic returns on “investment.” Yet more unfortunately, many of the characteristics of e-currencies make them appealing to a wide variety of low-lifes, among them terrorists and pedophiles.

I recently became interested in e-currencies as a way to easily send money to relatives overseas. Quite simply, I became tired of the effort required to send an international bank wire. Not only do international bank wires incur high fees for both sender and recipient, they seem to invoke suspicion at most US bank branches. Alternative money wiring services are often even worse. And of course, the US government takes a keen interest in any transfer of funds outside the US of any size or frequency. Finally, e-currencies offer the opportunity to diversify outside of the US dollar, into gold-backed currency.

It is no surprise that governments are not in love with e-currencies. The issuance of money has long been the domain of sovereign governments around the world. Governments around the world retain the rights to essentially steal from their citizens by diluting the value of the currency they hold by simply printing more money. Control of the monetary system, and a monopoly on the legal use of violence, are precious privileges of any government, since control of these is control of the citizenry.

But these are not the concerns you will hear about from the US or other governments. They are also (legitimately) concerned with their inability to regulate the exchange of value among parties, some of whom they are supposed to protect. Currencies in use by their citizenry outside their control can easily be used for all sorts of illicit activity. But, targeting e-currencies is a ridiculous way to thwart the objectionable intentions of the underbelly of society. In a later article, I will directly challenge the irrational logic of the US government’s persecution of e-currencies.

Like all currencies, e-currency value is directly tied to the confidence level that consumers and merchants have in the purchasing power of that currency. If the US government announced tomorrow that they were going to issue thousands of trillions of new US dollars, no one would want to be caught holding the resulting worthless paper on the morning after. Similarly, if consumers and merchants do not have confidence in an e-currencies future value, they will assign it little or no current value.

Since most e-currencies are backed by gold or a cache of sovereign currencies, the issue of inherent value is not a problem. The challenge for any e-currency is to answer the potential for future de-valuation by some major act of man or government. Will the company behind the e-currency suddenly disappear with all the gold? Are they lying about the 1:1 ratio of gold to currency units in their reserves? Will a government body suddenly seize their assets, imprison the principals, or inhibit the ability of people to exchange value through the e-currency system? In fact, e-currencies share many of the value-risk characteristics of smaller countries whose future governance is uncertain, and who may have pegged their own currency to the US dollar.

So then, what is the future of e-currency? I believe that for a select handful of e-currencies, the future is bright indeed, though one must tread carefully in the short term. It would seem equally foolish to either ignore e-currencies or trust them completely. I will expand on these assertions in subsequent articles.

Stephen Madigan is an emerging expert in e-currencies and their role in the global enconomy. His new scam-busting blog (www.scambuster.info) attempts to make clear what is scam and what is real in the current hype cycle, online and offline.

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