A 1997 story about virtual money and the global economy

Interestingly, virtual money and the globalization of our economy is a field with depth and many publications refer to this topic. Particularly, the global economy cannot be stopped, unless we understand how to make everything by ourselves. But, as the latter is impossible, we must link our local economies to external competitive advantages of other countries and their economies.

   Drucker on his work titled “The Global Economy and the Nation-State” (1997, Foreign Affairs, Vol. 76, No. 5), remarkably noted that “selling, servicing, public relations, and legal affairs are local. But parts, machines, planning, research, finance, marketing, pricing, and management are conducted in contemplation of the world market.”.

   As Drucker claimed, “the global economy imposes new and more severe restraints on government. It is forcing government back into fiscal responsibility. Floating exchange rates have created extreme currency instability, which in turn has created an enormous mass of “world money.” This money has no existence outside the global economy and its main money markets. It is not being created by economic activity like investment, production, consumption, or trade. It is created primarily by currency trading. It fits none of the traditional definitions of money, whether standard of measurement, storage of value, or medium of exchange. It is totally anonymous. It is virtual rather than real money.”.

   The European Banking Authority (EBA) defined virtual currency (so virtual money) in 2014 as “are defined as a digital representation of value that is neither issued by a central bank or public authority nor necessarily attached to a fiat currency but is used by natural or legal persons as a means of exchange and can be transferred, stored or traded electronically.”.

   Drucker noted that “its power is real. The volume of world money is so gigantic that its movements in and out of a currency have far greater impact than the flows of financing, trade, or investment. In one day, as much of this virtual money maybe traded as the entire world needs to finance trade and investment for a year. This virtual money has total mobility because it serves no economic function. Billions of it can be switched from one currency to another by a trader pushing a few buttons on a keyboard. And because it serves no economic function and finances nothing, this money also does not follow economic logic or rationality. It is volatile and easily panicked by a rumor or unexpected event.”.

   Digital representation of value is close to the monetary concept of a “unit of account” but includes the option to consider virtual currencies as private money or a commodity. It also avoids referring to a standard numerical unit of account for the measurement of value and costs of goods, services, assets, and liabilities, which might imply that it needs to be stable over time, as EBA said.