Money comes in many forms. Some are new, such as cryptocurrency, and others are no longer in use, such as notes backed by the Gold standard. In the future, there may be a new form of Money called a futures-backed Currency.
There is a specific type of financial instrument called a prepaid forward contract. It is classified as a ‘futures contract’, but is different from the majority of futures because it is not a derivative. A prepaid forward contract is the right to the future delivery of a good or service, paid in full. It is a more solid asset than a derivative.
It can be argued that a currency backed by the future delivery of a product or service is better currency than traditional money such as the Euro, new digital money such as Bitcoin, and even gold asset-backed digital currencies such as Digix. One of the improvements of futures-backed currency is that control of the economy is removed from banks and government. Interest, inflation and economic growth return to their natural functions, separated from government finances and international banking.
Regulation of the marketplace is still a good idea. Laws should prevent monopolies, unsafe products and unfair business tactics. Laws should also promote competition and innovation. Today money is under the monopolist control of the government and monopolies are known to lead to problems in the market place. A futures-backed currency can solve this problem and benefit people by eliminating the inflation caused by government decision making. It will also eliminate bank fees and allow anyone holding currency to benefit from interest payments.
Money is useful as a store of value. Gold was once money, since it was valued and could be traded as a useful commodity. Holding on to it would be a way of storing your wealth. There are new digital currencies backed by gold deposit certificates. This is unlike Bitcoin, because there is a commodity behind the valuation of the digital currency. Although Bitcoin is a digital currency, it is similar to the Euro and the US Dollar because the value is derived from a rarity due to a restriction in the number that is available. They are also valued by a social agreement; we use it so we value it, we value it so we use it.
Gold backing for a currency is different because the underlying commodity has a use and a corresponding value. The problem with single asset backed currencies is that they do not scale. The international depression in the 1930s was caused by mismanagement and uncoordinated responses of countries as they removed and then returned to the gold standard. By tying currency to a single commodity, countries created an artificial rarity of money that led to hoarding and a freezing of the economy.
Returning to asset-backed currency should not be done with a singular focus. Yes, you can digitally trade gold using new technologies with a speed that resembles money, but there is not enough gold to satisfy industrial or fashion uses and have some left to trade as a currency. You could even put every possible asset and commodity on a digital platform and start trading it as a currency and there would still be problems. Stuff is useful and should be put to use. Gold should be made into jewelry or electronics. Other commodities have expiry dates and need to be used before they rust. There is not enough unused stuff to back currency and it will cost too much to store it somewhere.
Futures-backed currencies solve this problem. Prepaying for a good or service that will be delivered in the future involves a trust and faith that it will be delivered. There are already futures contracts offered by large corporations and legal processes for compensation if a company does not deliver. There are even prepaid cards where companies are issuing ‘branded currencies’. A globally tradeable digital currency that can be issued by any size of business is on the path of this evolving trend.
The technology to trade currencies quickly is approaching maturity with blockchain and smart contract technologies. The search for a more stable form of currency that does not have the fluctuating valuation of Bitcoin or the inflation associated with the Euro or US Dollar could be over with the theory of futures-backed currency. Stay tuned for more on how it could all work.
Read more about the future of money:
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