How Paypal robs the Bank of England

Digital currencies might start creating a sticky situation for central banks.

Have you ever wondered how the rise of digital currencies will impact on the monetary base, and the effects that will have on seigniorage revenue to governments worldwide? No? Well, this pair of articles by the Financial Times' Izabella Kaminska, "Why central banks should take charge of their digital currencies" and "Turning mobile money into M0" is interesting nonetheless.

Kaminska examines the typical problem central banks have with digital currencies, which is that they tend to mess around with the way banks expect the money supply of the nation to work. The immediate downside of that is that it impacts on seigniorage, the revenue accrued to a government by its right to mint coinage.

In other words, when you use PayPal rather than posting a £50 note, you need never hold that currency, and the government never receives the revenue for having printed it.

She writes:

Consequently, what you end up with is something very different to cash of the realm. In many ways, it’s worse than zero-yielding money due to the natural decay associated with transactional, creation and redemption costs. The other point is that Safaricom [the vendor of a hugely popular Kenyan mobile currency] is actually behaving much like a quasi-autonomous state within a state that’s issuing its own private money system, the value of which is constantly pegged to the official currency of the land.

How can nations fight back? (Assuming, of course, they ought to fight back — but that revenue is likely to be mighty tempting.) One possibility is by working with digital currency vendors to create payment mechanisms which don't require holding a parallel currency to work. And make no mistake, even though PayPal denominates its accounts in pounds and dollars, it's a parallel currency in all but name.

Jean-François Groff, one of the pioneers of the Web at CERN, is working on that option. Mobino, his company, is a mobile payment system which works on real-time debiting, not on keeping a float of a second currency on tap:

Mobino’s system aims to cut out as many intermediaries from the debit process as possible by getting you, the customer, to strike up a single direct debit agreement with itself. The company then charges the customer for transactions conducted with partner vendors, whilst the customer deals only with Mobino rather than a multitude of online or retail vendors.

And if that scheme was done by Mobino — or a similar system — working with a central bank, then the costs of running it could be funded from the seigniorage revenue it returns to the government. Rather than the cost of "printing" money being the actual ink and paper, it would become the price of maintaining servers and bandwidth.

In an ideal state-controlled money world, you could imagine the system mutating into one where the central bank itself ended up billing you directly for the use of their digital cash. So, rather than withdrawing physical cash to conduct your payments, you’d be transacting state-issued digital cash, now credited or debited from your account as quickly as a bank credits or debits cash to you at the ATM wall.

But, while Kaminska mentions it in passing, it would be interesting to see the analysis applied to Bitcoin. Lord knows the currency has its flaws, but it's the only one of the successful(ish) mobile payment systems which actually embraces the fact that it is a parallel currency — and a freely floating one, at that. The Bitcoin ecosystem has a specific method for distributing the seigniorage it generates, but also gradually reduces that rate; by 2140, the system will likely be in de-facto deflation.

By moving the transaction entirely into a parallel currency, the system is also more efficient than even Mobino could ever hope to be — provided you don't plan on converting Bitcoins into real-world money. If you do, things get trickier; the exchanges have had a number of high-profile failures, and are probably the weakest point in a network which manages to combine cryptographic perfection with an incredible amount of possibilities for human error.

It may be the case that central banks have to start examining what their role would be in a world of digital currencies; but if they do, it may be better for them to skip the sticking-plaster world of PayPal and Mobino and move straight to something designed for an all-digital world from the start.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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"There's nowhere to turn": What it's like to be gay and homeless

Many LGBTQ homeless people cannot ask their families for help. 

Ascania is a 41 mother with a 24 year-old son, who came to the UK from Jamaica in 2002. “I was raped at gunpoint in the area I lived in Jamaica," she says. "They’d found out in the community that I’m a lesbian. They hit the back of my head with a gun- sometimes it is still painful. I had to move from that area, then I went to another part of the island. I lived there for 18 months. People in these communities start to watch you – to see if there are men coming to see you. They begin to be suspicious. Luckily I had a chance to come to the UK before something else happened."

A friend, who was also gay, paid for a ticket for her to reach the UK. She started a relationship, and moved in with her girlfriend, but the girlfriend turned abusive. "It was a nightmare," she remembers. "It ended then I started to sofa surf. Sometimes I would go into pubs meet different girls, go back with them, and sleep over just so I had somewhere to spend the night."

Eventually, Ascania received help from St Mungo's, a homelessness charity, after the LGBT charity Stonewall put her in touch. The charity helped her get food from a food bank, and find somewhere to stay. 

While all homeless people can struggle with physical and mental challenges, lesbian, gay, bisexual, and transgender people face extra stigma, discrimination, and rejection by their families.

“That’s why I think LGBTQ projects are important," says Ascania. "From being on the gay scene, I meet all these people and they don’t know about the support available. They’re out there having a really rough time. They don’t know where to turn."

She feels that in shared accommodation, people like herself can be judged for their friends. 

Homeless charities point out that transgender people are particularly at physical risk due to a lack of acceptance and are sometimes turned away from shelters.

Melissa is a trans women in her early 40s. She is now living in transgender accommodation in London provided by the charity St Mungo’s and says she is successfully engaged with drug and alcohol services and rebuilding relationships with her family.

Before beginning her transition she was married with two teenage children and had been in trouble with the police. 

She says the stress of denying her true self led to self-destructive behaviour.

She said: “I was sleeping rough, in graveyards and stairwells. In 2012 I went to prison for nine months. My probation officer put me in touch with St Mungo’s and now I have a really nice place and I hope to become a project worker with the charity. I can see a path forward.”

According to Homeless Link, a national membership charity for organisations working with people who become homeless in England, the causes of homelessness include poor and unsuitable housing, insecurity in the private rented sector, transitioning/leaving accommodation or institutions such as prison, and loss of employment. These circumstances are often coupled with mental health issues, experience of trauma, relationship breakdown, and fleeing domestic violence or abuse.

Awareness of the specific needs of LGBT homeless people is starting to enter mainstream politics. Last month, LGBT Labour passed a motion at its AGM to affiliate to the Labour Campaign to End Homelessness (LCEH). The two organisations will hold a joint event at Labour's annual conference in the autumn.

Sam Stopp, a Labour councillor in Wembley, is chair of LCEH. He said party activists launched the campaign two years ago, because they wanted to do more than talk about the problem. He said: “LGBT homelessness has some specific aspects. If your parents do not support you and you are thrown out of your home that may require a different approach to help people rebuild their lives. There’s not just an economic reason but your sexuality has closed them off.”

Stopp hopes that by aligning Labour activists with homelessness charities, his organisation will be able to provide practical support to people who need it. 

Chris Wills from LGBT Labour’s National Committee, and chair of LGBT Labour North West, said: “The homelessness crisis is worsening. I live in Manchester, where every day I see more and more people sleeping rough – and that’s just the ones we know about, let alone the “hidden homeless”, who are reliant on hostels or going from one friend’s couch to another’s floor night after night.

“This year marks fifty years since the decriminalisation of homosexuality in England and Wales, and huge advances were made for LGBT equality under Labour between 1997 and 2010. Society as a whole has become more tolerant. Yet even now, coming out as LGBT to your family can still often result in you being kicked out onto the streets, or forced to flee the family home due to verbal and physical abuse.”