_18 Money, Politics and a Future for the International Financial System_ As even currently prudenit and competent monetary authorities may at some point fall prey to the incentive to issue excessive amounts of currency, it will always be good to have a number of strong currencies around.

Citizens may then come to trust those currencies most that are backed by safe and liquid assets, for example gold, oil or highly rated bonds of governments or corporations. The issuer of money backed in this way may well be a private party as has been the case in the free banking systems of past days (or Russian Veksels in the 1990s). In a world of e-money a particular challenge for private issuers may be how to establish trust in their currency. In the past holders of currency could take comnfort in banks with big marble buildings that could not disappear over night. Big buildings, i.e. significant sunk costs, de facto acted as a commitment mechanism for bank owners. In the future, maybe mining and oil companies could become credible issuers. In a sense, in the "weightless" economy issuers of money may need to be asset-based to establish credibility.

The use of competing currencies as a means of payment has several historical examples in times when payment technology was much more primitive. In the l9 'h century United States store clerks had large books providing guidance on which paper issued by competing banks to accept and on the relevant discount. With electronic payment systems it will be even easier to assess the value of a "currency" offered in payment, for example in real time at the store counter.

The functions of money, unit of account, means of payment and store of value can thus be completely unbundled. We can already use a vast array of assets to store value (stocks, bonds, real estate, bank accounts, gold, antiques etc.). For the choice of store of value, return, risk and diversification expectations guide the investor. For the choice of unit of account tradeoffs between credit and exchange rate risk may guide contract design. For the means of payment liquidity considerations are key.

# VII. **Conclusion**

**_Thefinancial systew in_** _2025._ The scenario presented above assumes that current ffiorts to find a globally agreed framework for financial markets fail. Likewise efforts to render monetary authorities independent are assumed to fail over longer periods of time. Meanwhile the advent of low cost financial transaction technology effectively erases limits to trade in financial instruments of whatever denomination. As individuals, corporations and nations ry to grapple with the consequences we may start to see the emergence of a new global financial system.

By 2025 key elements of the new system may already be in place. In a number of countries, where monetary discipline was too hard to introduce and where citizens took move and more advantage of their capital flight option, currency systems have imploded. In some of'tLese countries governments turned to formal commitment mechanisms like currency boards or unions."<sup>3</sup> In others, citizens routinely use "foreign" currencies to settle transactions. The sr read

> 13 Both in currency unions and among "dollarised" zones balance of payments statistics become of less use. A.s iin Hong Kong today, full balance of payments statistics may no longer be produced and thus may not forn the basis of macro-economic policy-making anymore.