Innovation in money and music (and agriculture)

In the third quarter this year, as prices fell, central banks made their largest purchases of gold for 40 years. The buying was led by the central banks of emerging countries such as Thailand, Mexico, and South Korea. The value of foreign currencies and government debt at the moment are volatile at best, so it seems to make sense to buy gold seems as a ‘hedge’ that will be tradable whichever way the wind blows. But other commentators see gold as a bubble set to burst, even despite the fact that (adjusted for inflation) gold is still 30 per cent below its 1980 peak. With China in the third quarter becoming the world’s largest consumer of gold jewellery, and India (traditionally the biggest) buying more than 25% less, volatility in gold seems to be the order of the day.

Change also seems to be in the air in global currencies. A US commission reports that China is extending agreements to spread international use of its currency. (This would remove exchange rate risks from its manufacturers, and bring more predictability to its economy. It would also extend China’s to influence by printing more money.) A series of bilateral agreements with foreign companies and financial trading centres means that the renminbi “could mount a challenge to the the dollar, perhaps within the next five to ten years.” At the same time America is reasserting its interests in the Pacific zone, and setting up a small military base in northern Australia. The president of Indonesia hopes the two superpowers will be able to coexist together in the Pacific, but that remains to be seen.

Technology, meanwhile, continues to provide occasional stories of growth and innovation. This time Google has announced the launch of a rival to Apple’s iTunes store (available initially only in the US). Google says the store “is about artists and their music and new ways to connect artists to their fans” and will integrate the store closely with google+. If new value really is unlocked, will we expect to see Apple sign a deal with Facebook and mimic the model? Or will it follow a different paradigm, with different customers choosing to align themselves with one model or the other? Either way, google’s cash pile means that for now many music publishers and are rushing to licence their collections for ‘generous’ upfront-payment deals.

And finally, an innovation suggested in today’s letters page would provide a novel solution to the eurozone crisis. The idea is that countries wishing to leave the eurozone would do so; then denominate their currencies into lira/drachma/whatever; and then instantly rejoin the euro at a lower exchange rate. Asset values would be reduced (which is why so many people have been buying houses in London). But exporters would be helped, although net importers would find costs would rise. Householders would be largely unaffected, but government indebtedness to foreign banks (that bought its bonds) would increase.

And we see here what money is. Money isn’t gold. It isn’t currency. Money is an agreement with another party to help each other out — one now and one in the future. Money is an exchange — a giving and returning — of favours. As with all agreements, you need to look carefully at the relative size of the favours, and the likelihood that the other party will still be willing and able to return the favour. And… there is also the possibility that another party might come along and make a more attractive agreement with your friends. This is what Google has done with the music publishers, no doubt to the dismay of Apple. And that is what China is attempting to do with the Pacific countries and companies, this time to the dismay of America. Money is about who your friends are.

Those countries buying gold are hedging who their friends will be. And just as with Google/Apple, the ability of China and America to co-exist in the Pacific will depend on their ability to find different rather than competing models, that appeal to different sets of players in the region.

Each country is attempting to build its own ecosystem, and to the extent that they are different they will be able to co-exist.

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Those interested in the ecological metaphor will be interested to read this piece on how agroecology and payment for ecosystems services could mitigate damage to the environment.

“If we fail to restore our ecosystems, we face catastrophe, and if we fail to increase our food production for the growing population, we face catastrophe. Financing the adoption of agroecological practices in the hopes of restoring ecosystems could help deal with both problems at once”, says Professor Joshua Farley at the University of Vermont.

The idea is that clean air, clean water and a healthy environment have financial value. Payments for ecosystems services means putting that theory to work to finance land uses that meet the farmer’s needs while also creating a healthy environment: hence “agroecology”.

“In a typical industrial agricultural field the land is clear cut, and a single crop grows in neat rows. But this method relies heavily on chemical input in the form of pesticides and heavy use of fertilizer, which can lead to a degradation of the soil over time and leach contaminants into nearby water sources. Agroecology, on the other hand, uses ecological principles — like plant diversity and the use of natural predators — which helps keep the surrounding ecosystem intact.”

Agroecology is a form of permaculture that has been found to outperform large scale industrial farming, by a UN expert .