Evan Davis on... the future of money

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Many people have tried and none have really succeeded in getting rid of our love of notes and coins as a way of paying for things. There have been contact systems cards, ECash, all these kinds of things, Mondex, Visa Cash, different ways of trying to get people to pay for things without the clunky use of the coin and the flimsy use of the note.

Now why is it so difficult? Well, one reason, a very obvious reason is that notes and coins are very anonymous, and people do value that. Sometimes they want to buy things that they don’t want people to know they’ve bought, and sometimes they want to disguise the fact that they’ve got cash to spend on things because they don’t want the tax man to catch up with them.

But there is I think a whole bigger argument as why it’s difficult to displace cash. It’s to do with the prevalence of standard. We’re all used to money. The infrastructure is out there, existing for the use of money, and it’s very hard to dislodge an infrastructure once it’s in place. Let me give you another example quite a bit talked about in economics the QWERTY keyboard that we use in Anglo-Saxon countries.

Now apparently the QWERTY keyboard is not the best designed keyboard for our fingers. You can come up with better designs. Why don’t we use them? Well, I don’t want to be the only typist in the world who learns to type in a different way only to find there are no keyboards for me and no one wants to produce the keyboard until there are a bunch of typists out there who are going to buy them.

It’s very hard to dislodge the QWERTY keyboard now it’s in place. And there are loads of examples of these standard battles where basically the winning standard is simply the standard that is most prevalent. It explains perhaps why the PC beat the Apple Mac, why VHS beat Betamax, all sorts of standards out there that have been won by the biggest rather than necessarily won by the best.

So if you’re someone who wants to displace notes and coins, what you have to do is not just produce something as good as notes and coins and hope people will buy it, you have to build something masses better than notes and coins so that people really have a compelling shift to go from something that they’re used to something that they’re not used to; something as big as moving from vinyl to CD rather than just as something as big as notes and coins to a different kind of coin and note.

That’s my view. You can join the debate with the Open University.