You want to develop a new product or service. Expand your market. Attract, hire and retain the best knowledge workers. But there’s one nagging issue that keeps coming up. It both tantalizes and torments. And it ranks right up there with knowledge in terms of difficulty to grasp and reluctance to reveal its secrets.
As much as people want to avoid it, you can’t have a serious discussion about building and growing an enterprise of the future without including the subject of … money.
Let’s take a closer look at that elusive yet unavoidable abstraction. You’ll quickly realize that you’ll need to bring your full array of organizational brainpower to bear as it morphs through its various incarnations. And like many aspects of today’s global marketplace, the changes are rapidly accelerating. But first, a brief history is in order …
Things were simple back in the good old days. You could take a one-ounce silver coin and cut it into eight equal slices, just like a miniature pie. Those were called “pieces of eight.” Two bits were a quarter, or 25 cents.
As people got tired of lugging around chests full of precious metals, paper currencies began to pop up. Among those were “certificates” redeemable into predetermined quantities of bright shiny ingots.
Under that system, the value of a dollar remained reasonably stable. That is, until August 15, 1971, when President Richard Nixon declared that the United States would no longer convert dollars to gold at a fixed rate. Which brought us to …
All those redeemable certificates were eventually replaced by notes backed by the “full faith and credit” of the issuer. Freed from the redeemability requirement, the supply of U.S. notes in circulation skyrocketed. Since Nixon’s world-changing pronouncement, the money supply as measured by the U.S. Federal Reserve’s M2 indicator increased 19-fold from $686 billion to $13.1 trillion.
During that same period, debt in all U.S. economic sectors went from $1.7 trillion to $63.5 trillion, a 3,800 percent increase. Anxious to get in on the game, many other countries followed suit.
And just like those annoying gold bars, why have all that paper sitting around? After all, we’re in the digital age! Paper money, bonds with coupons and stock certificates have now mostly been replaced with zeroes and ones moving from account to account, limited only by the speed of light and the bandwidth and storage capacity of the servers and networks connecting them.
But why stop there? Derivatives, complex financial instruments representing “bets” on the future value of underlying paper assets, have exploded to the point at which nobody knows how many are really out there. Estimates of the value of all derivatives worldwide run as high as $600 trillion. Compare that to a global GDP of around $74 trillion and you quickly realize that such leverage is likely to be unsustainable.
And just in case you think we’re being excessively U.S.-centric, 60 percent of the entire global economy is dollar-based, and 88 percent of all foreign exchange trading involves the U.S. dollar, with daily volume in the $4 trillion to $6 trillion range. For more detailed data, scholarly papers and other information, you can visit the Fed’s economic research website at fred.stlouisfed.org.
The upshot of all of this is frightening. We’re talking about over half a quadrillion dollars in the form of binary electronic signals stored in servers all across the globe. That brings us to …
Cryptocurrencies are an attempt at reining in the runaway monetary freight train by imposing limits on the amount of money that can be created out of thin air (see kmworld.com/Articles/Column/The-Future-of-the-Future/All-aboard-the-blockchain-express-102652.aspx). But like their traditional cousins, cryptocurrencies are denoted by a single trading unit such as a bitcoin (bitcoin.org).
In response to that limitation, multifaceted forms of value exchange based on integral accounting are beginning to emerge. One of the leading examples was developed by Dr. David Martin. In addition to money, Martin’s framework consists of five other key forms of value exchange: commodity, custom and culture, knowledge, technology and wellbeing.
Dig deeply enough and you’ll find no shortage of examples in which each of those forms of value exchange are being applied in various parts of the world. Many investment funds are devoting significant percentages of their portfolios to impact investing, in which performance is measured using the triple bottom line of financial-social-environmental return.
The knowledge component is of particular interest to us as KM leaders. Designers share their intellectual property with manufacturers and vice versa. Billion-dollar companies merge without a single dollar changing hands.
Whether one or more of those alternative forms of currency become mainstream remains to be seen. But you can count on at least two eventual outcomes. First, the current credit-driven system will come to an end either gradually or cataclysmically. It simply is not sustainable. Second, one or more new forms of currency will take its place, possibly a hybrid that combines financial, social and other measures.
What it all means
In less than half a century, money has moved from being a simple, reliable, commodity-based medium of exchange to a massive, complex web of mostly credit-based transactions that can change you and your organization for better or worse, literally overnight.
But regardless of what form it takes—metal, paper or electrical impulses—money is information. Nothing more, nothing less. A yardstick for measuring various forms of wealth.
As such, it will always be subject to attempts at distortion and manipulation. This introduces an element of uncertainty that can have serious consequences for those who don’t adequately anticipate and prepare for the inevitable changes.
That’s where agility comes into play. There is no way you can accurately predict what will happen and when. But big changes in the global monetary system are coming. Agile, knowledge-based enterprises will have the best chance of making it through those changes.
We will always need money. The good news is that in a global knowledge economy, other modalities of value exchange are also possible. Trading arts and culture for food, energy and water. Or technology for health and wellbeing. The possibilities are endless.
Start putting your brain trust to work figuring out how best to make use of those different forms of currency. Or perhaps even discover some new ones. By doing so, you might just end up with a generous portion of the good old-fashioned variety jingling in your pocket as well.