Walmart’s patent application opens the door for an unholy mashup of privatised fiat currency, stablecoin and storecard loyalty points
Nothing is simple any more. As far as your average shopper was concerned in the 20th and early 21st century, ‘money’ was the pound or peso in your pocket or the dollar or Deutschmark in your drawstring purse.
‘Money’ was printed paper or sometimes stamped metal rounds issued by your country’s central bank which sometimes bore an inscription promising to pay the bearer the requisite amount.
Mythology and national pride often surrounded these national currencies — and still does, to some extent. Newspapers reverentially spoke of a ‘strong’ dollar or a ‘strong’ pound, although for exporters, this was usually a Very Bad Thing.
But one thing was for sure: you could take your paper bills or metal coins and exchange them in shops for food and items that you needed. Unless you had the misfortune to be in a country at a time when something dramatic was happening to the national currency (such as Germany in the Thirties or Argentina in the Eighties), you probably didn’t pay the store of value in your purse or pocket any attention, beyond grumbling about not having enough of it.
You could walk into a shop, hand over your cash and walk out with whatever you wanted. Unless the shopkeeper happened to know you, it was a relatively anonymous process.
Even when more and more shops started accepting credit cards and debit cards, and the majority of cash in circulation existed as 0s and 1s in a bank’s internal ledger system rather than physical notes and coins, this perception of one’s national currency as a fixed and finite supply of something that would retain its value from day to day persisted. Most people gave the mechanics of money no more than a fleeting thought, if they considered it at all.
When you waved your card at the contactless POS terminal, the amount that was displayed on the screen and on your receipt was denominated in familiar units of account: the same pounds, dollars, euros or yen that you would have paid if you’d handed over the physical equivalent.
Ask the average person on the street whose responsibility it was to issue money, to set its interest rate and its supply, and people would answer that it was the government’s job — if they thought about it at all.
Yet this notion of money issuance as a public service tied to a nation state is not as obvious or natural a conclusion as it sounds. If we take the broad definition of money — “something generally accepted as a medium of exchange, a measure of value, or a means of payment” [Merriam-Webster] — as our guide, we can see that many things circulate that fit that definition.
Store loyalty points are an obvious example. In Japan, where there is slower fintech innovation than in surrounding countries, there is a whole parallel economy in loyalty cards, with the average shopper carrying upwards of 20 different cards in their wallet. These can be used to store value and buy goods or services, hence they are a form of money.
Gift tokens, too, fit these criteria. We’ve all heard of content creators who bypass the popular Patreon model to request items from an Amazon wishlist, for example.
Modern gift tokens are usually digital, but there is the odd intriguing exception. The picture above shows Dishoom pounds, issued by the popular London-based chain of upmarket Indian restaurants. The coins themselves are an attractive alternative to a paper or digital voucher. But instead of thinking of them as a voucher, we should think of them as a form of private currency, or perhaps a stablecoin.
The idea of private currency, especially scrip, is as old as the hills; the latter term a neologism that originated in the years after Bitcoin, to describe a digital currency (usually based on a blockchain) which is pegged to the value of either one or multiple fiat currencies.
While private money and stablecoins are different concepts, they both challenge the very basis of how we view money and currency.
Many governments now legislate against private banknotes, including the United States, after the trend reached its peak in the nineteenth-century Free Banking Era. Yet other countries are happy to tolerate — or at least, not legislate against — a certain number of currency alternatives, such as the UK’s Totnes pound and Brixton pound, which are locally issued money to encourage community enterprises in a geographically bounded area.
International rules around non-government money vary wildly, which is why Facebook’s Libra project has stirred up so much controversy [I wrote up some thoughts about it here]. And, ten years after its invention, Bitcoin continues to confound lawmakers who are still grappling with the idea that a decentralised entity presents an entirely new kind of challenge.
At least one lawmaker understands this: Senate Banking Committee Chairman Mike Crapo, who said last month: “If the United States were to decide — and I’m not saying that it should — if the United States were to decide we don’t want cryptocurrency to happen in the United States and tried to ban it, I’m pretty confident we couldn’t succeed in doing that because this is a global innovation.”
Unlike Bitcoin, private currencies are easy to ban, regardless of the size of the institution that issues them. Yet Facebook’s travails with Libra have not deterred Walmart from applying for a patent for their own stablecoin, which would enable low-income, unbanked households to store value in a currency pegged to the dollar, directly exchangeable for dollars.
While Libra was mooted as an international currency, pegged against a basket of currencies, Walmart’s patent application looks more like Tethers, tied to the dollar, and entirely centralised. As other commentators have pointed out, the words ‘decentralised’ and ‘node’ are distinctly absent from the patent application, unlike Libra, which purports to operate on a partially distributed basis.
Essentially, Walmart’s offering looks more or less the same as nineteenth-century scrip, issued to company employees who could spend it only in the company’s stores. There is no word yet on whether Walmart employees will be paid in WalCoin, but it is a reminder that history has a habit of repeating itself, just with new people and new technologies.
As for how stable this centralised stablecoin will be, time will tell. I wondered aloud whether Libra would carry some kind of premium against weak local currencies, and it is also worth noting that while notionally pegged against the dollar, Tether and DAI (the most popular stablecoins) are both trading at $1.01 at the time of writing.
One last point worth noting: anyone voluntarily signing up to WalCoin is automatically revoking their right to anonymity over their purchases and could ultimately walk a dangerous line over what they are permitted to buy. Storecard loyalty programs reward shoppers not for their loyalty, but for their data. By analysing our shopping patterns, they can know us more than we know ourselves. And who would bet against governments deciding to make welfare payouts in WalCoin or an equivalent scheme in the future, especially given Walmart’s ideas about using the payments system as a biometric proof of identity?
Forget the headlines about corporate stablecoins being somehow ‘competition’ for Bitcoin. They are not. But it will be interesting to watch regulators and lawmakers grappling with the philosophical questions posed by these innovations… time to grab the popcorn.