Payments Tech Undermines Core Purposes of Money

Modern payments technology simultaneously shows the beauty of technology as well as its fragility. Through compression of information and allowing for lower data use when transactions are being made, they are able to allow transactions to occur more fluidly and they let the underlying currency fulfill its role as a medium of exchange more effectively. Allowing more granular exchange rates between different currencies allows them to serve as a unit of account even better than in a world where each currency had days or hours between adjustments in exchange rates. However, there are a few risks that modern financial payment systems have when it comes to fulfilling money‘s role as a store of value. When money is disproportionately transferred using private platforms, one of those platforms going down can mean vast disruption to the business using that platform. While it supercharges the other two positive purposes of money, they make users subject to regulatory and geopolitical risk in a way that they were not before.

Exchange is enabled more quickly between a much wider range of people far more securely than it was in the past. Consumers experience greater speed than before when they use their mobile wallets and do not have to pull out cash or credit cards. Businesses provide faster service times when they have transactions processed instantly rather than over the course of several days. International transactions are conducted with ease and lower fees due to the technology that reduces the power and data cost of transporting money between countries. The proliferation of payments apps has made payments in a cashless world possible between nearly anyone. The constant competition between payment companies is allowing consumers to access higher quality services that let more transactions occur much more smoothly and reliably.

As more transactions are enabled between different countries, the greater security and granular exchange rate adjustments between countries lets money be used in its unit of account role far more effectively. The relationship of one currency to another, if not updated frequently enough for the needs of buyers and sellers, allows small distortions to exist in which some citizens are damaged due merely to the slightly higher valuation of their currency in relation to another before exchangers have recognized it. While governments can constantly shift, their people should not be penalized for that. Multiple countries with a near constant relationship between their currencies can trade at a more fair price, and this is particularly important in today’s extremely financialized world. The ability of payment systems to detect odd behavior in exchange transactions. Additionally makes international exchange rates more stable. Market manipulation that used to go undetected is now much more easy to recognize.

While both of these capabilities of payment technology empower money to fulfill its economic definition far better than before, the final risk of payment technology makes it much more difficult to fully trust in. Payment technology is operated by companies, and those companies are housed in specific countries. At any point, the government of a country can, whether rightly or wrongly, deemed that that company can no longer exist. While some countries are more stable than others, the probability of such an event happening is never zero. This happened in the case of the Russian war with Ukraine, where most of their payment technology providers left the country within the span of just a few weeks. People were unable to purchase as they once had and were cut off from the financial world of the Internet, so they had to create their own national alternatives.

Although most Americans would look at the Russian payment ban and assume that it could never happen to us, it is possible, and exactly the sort of risk that makes gold so appealing. While dollars gradually inflate and there are radical risks associated with business-based methods of exchange, precious metals provide a safe haven, particularly in times of crisis. The times when payments technology companies are most likely to provide limited service are the times when gold is at its highest value. While payments technology is able to smooth transactions and connect people far more flawlessly than gold, the small probability of its complete instability makes gold a necessary backup option. Gold is not optional in a world where institutions are constantly shifting and modifying trade regulations, as well as imposing unique sanctions on specific companies. While with almost every other asset, some geopolitical situation could lead to an “eggs in one basket” situation, gold is the only asset that is truly in every basket.