Smart cities, smarter currencies
Maybe nation states aren’t the best way to organize money. So what is the alternative?
Last year I wrote that an economy that is a network of cities will require different services and financial institutions from those based on national economies and I have highlighted Jane Jacobs’ seminal work on “Cities and the Wealth of Nations” from a generation back as well as more recent work, such that the World Economic Forum (WEF) 2017 report that “cities, not nation states, will determine our future survival”.
Given this background, it is obvious that I have been interested in developing in the world of decentralized finance at the intersection of cities and cryptocurrencies. While cryptocurrency forces us to consider the relationship between money and the nation-state (as I like to point out, a fairly recent arrangement), it seems to me that the impending connection between cryptocurrencies and cities is a more interesting and potentially more radical stimulus for innovation.
There have already been some high profile experiments. MiamiCoin is one example, kicking off with a bang when Mayor Suarez tweeted, “Check this out about the first CityCoin of course being MiamiCoin!!!!!!!!!”. MiamiCoin is implemented as a token running on Stacks, which is a smart contract platform built on top of the Bitcoin blockchain. Other cities, including New York and Philadelphia, are actively exploring the same or similar ideas.
The idea behind these CityCoins is to allow users to mine coins for their favorite city while taking a cut and diverting funds to the city’s treasury. From a certain point of view, these initiatives are relatively uninteresting signals rather than real experiments with alternative monetary structures. But they reinforce the idea of the city as a monetary community.
(It seems odd that some of these same cities are simultaneously passing laws to force merchants to accept physical currency in mandatory tenders. These are both regressive anti-competitive measures and a stealth tax on businesses, because if it was cheaper for businesses to accept cash, they would.)
If cities are creating cryptocurrencies as speculative instruments, they are really only taking baby steps. If a city were to issue its own currency and, for example, require that taxes be paid with that currency or that certain city services could only be paid for using that currency, or if the currency was backed by certain assets of the city or whatever, that would be much more interesting. I can imagine that’s a big step for an existing city to take, so maybe it makes sense to look to new spaces for that kind of experience. Maybe on an island somewhere?
Indeed, this is where some utopians are already leaning, having abandoned the idea of floating harbors to sit beyond national waters. One such plan is to take a three million square meter island in the Vanuatu archipelago and transform it from an untouched rainforest into a “sustainable smart city“, filled with multi-story buildings and offices for cryptocurrency investors around the world.
Visions of the city
Another approach is, rather than escaping the nation-state, to create new cities within it. Private cities are already a thing. Although a recent phenomenon, China’s “contract cities” (to cite just one example) are already home to tens of millions of people. They host a wide range of businesses and have attracted huge amounts of investment. They operate through cooperation between local government and the companies that plan, build and operate cities. Companies rent the land and obtain income from economic activity in the cities. Residents have management companies for housing and other services.
Coming from another direction, in Africa rap star Akon is about to start building another crypto city in Africa. He has already started working on a city in Senegal and the news will be in Uganda. These cities (which use the “Akoin” cryptocurrency) fascinate me. I had the opportunity to ask Akon about the cities and he told me that his vision for them is like a “chance for the world to see the true potential of Africans and to inspire more Africans to join it”.
(He told me his goal was to build not just one city of Akon, but many cities around the world, “creating hubs of African innovation and excellence”, which I thought something far more valuable than cryptocurrency speculation.That’s not to say that cryptocurrency isn’t an important part of the vision, as he also told me that learning about the possibilities here was a “lightbulb moment”. He sees his cryptocurrency as the fuel that empowers and connects city dwellers to everything they need within and beyond Africa.)
I also asked him, specifically, how he intended his cities to improve the lives of their people and he said he intended to put them in target locations so they could be hubs, not only for tourism and business, but for education, health and entertainment. It is a broad vision that goes well beyond “simple” crypto-boosterism. When he told me he wanted to create modern smart cities in Africa, showing on the world stage what Africa can offer, I think he illustrates a trend towards currencies that are more closely tied to the communities they serve.
Ultimately, there’s no reason cities can’t share the laudable goal of decentralized finance (which is to create a lower-cost, lower-friction, low-barrier financial services infrastructure). entry to better serve the broader economy) with nation states and create new forms of currency that improve the lives of their citizens.
When you think about how nation states work, there is also a good economic argument for city currencies. Instead of London collecting the tax money which is then sent via government transfer payments to the regions, I think we should at least explore the possibility of the city-centric regions having their own money instead and allowing the free market to determine relative values (from which capital flows will follow).
If this amiable approach were to be taken, then city “cash” would become the most important type for the average person. In other words, after giving up sterling for the London Lolly and US dollars for New York Notes and LA Loonies, these will be enough to provide the medium of exchange for future citizens. Today, almost all transactions are local and even at national level, only 1-2% of European transactions are cross-border. If I live in London and I use London Lolly for the train, for lunch and in the supermarket, is it so important to convert it to Mumbai Moolah to buy something online? Especially when your phone does it for you and you don’t even have to think about it.
So why aren’t we already using these currencies? Well, as a recent Bloomberg article on the renewed interest in complementary currencies noted, a key issue for them has been “find an appropriate way to cover running costs“. This is where I think there could finally be a crossover. On the one hand, the pandemic means that large numbers of people are turning to city-centric means of exchange like a specific type of complementary currency that could help rebuild economies, while on the other hand currency technologies have advanced significantly in recent years as the e-money evolutionary tree has grown and grown. is flourishing.
(Brixton banknotes might be pretty – so pretty that David Bowie Brixton tenner sells over sixteen books – but a Brixton app makes more sense, especially in the post-pandemic contactless payment environment of the future.)
This is why I cannot prevent myself from returning to the subject of the city as a monetary community. The decentralized nature of new technologies may well move us away from nation-state fiat currency as a medium of exchange, but what will it push us towards? Are we going to decentralize to the level of the individual? It seems unlikely. Are we going to decentralize in the communities? It seems more likely. But which communities? Cities are the first candidates, but their money must embody values other than symbolic speculation.