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Governor Lachlan Macquarie created a new currency 199 years ago. To ease a shortage of fiat money in the fledgling NSW colony, he imported 40,000 Spanish dollars (£10,000 worth at the time) and cut the centres out of them to create the “holey dollar” worth five shillings and the “dump” worth 15 pence (1 shilling, 3 pence).
Two centuries after Macquarie’s out-of-the-vault thinking, not just physical currencies but the payment systems that have evolved from them, such as cheques and even credit cards, are facing an existential challenge from new virtual currencies that have their origins in online worlds and social media but are now marching into reality, consulting firm Deloitte says.
“The practical distinction between virtual and real currencies is being rapidly eroded as consumers become more comfortable with exchanging credits or points rather than dollars and cents,” the firm’sThe Future of Exchanging Value report says.
The rise of complementary currencies – those not backed by a national government and not necessarily even legal tender – have moved beyond the realm of frequent flyer points and store rewards programs. Facebook credits, initially seen as a means by which users of the social media site could buy games and applications, is the biggest one. The late governor may be pleased to hear there is even a global virtual currency called Bitcoin.
Used for low-cost peer-to-peer transactions to do away with the need for centralised payment processors, it can support anonymous transactions, just like real cash. But plus ça change, plus c’est la même chose. Bitcoin is subject to the same forces that created Macquarie’s dilemma in the first place. It in effect has a fixed money supply, “bringing with it all the associated problems of money hoarding, deflation and depression historically associated with fixed currencies”, the report says.