Frijda's theory of money (1914): still relevant for bitcoiners today

This week, Mount Gox, a very large provider of bitcoin services, couldn't live up any more to its services agreements with bitcoin users. It provided exchange and storage services for bitcoins, but due to a technical implementation flaw, the bitcoin holdings of users were compromised. Essentially it wasn't clear who really owned the bitcoins. The website went black and users can no longer claim their bitcoins.

Tumbling off the learning curve
I view the failure of Mt Gox as a logical consequence of the learning curve that bitcoin holders and bitcoin companies face. The bitcoin, although considered decentralized, is just as centralised a system as any other value transfer mechanism. However, for ideological reasons, the developers chose to only describe the technical heart of the system (the algorithm) leaving the rest up to the market.

This open source code approach has some advantages, among which a very speedy development of applications. Yet, we are for some time now witnessing what it means if systems lacks a central authority or scheme manager. There is no entity taking responsibility for the proper application of this scheme so no one is chasing users or companies because they don't abide by:
- usage conditions (demanding user identification),
- security requirements and certification of tools,
- specific legal frameworks.

As a result we have seen a whole community of interested companies and users climbing up the payments, banking, investments and monetary learning curve. The inevitable consequence is that those who do not get it right, will pay a price, while the others continue to learn. Due to the digital nature of bitcoin, these developments unfold rapidly, allowing us a compressed overview of interactions and developments from financial history.

Frijda's theory of money (1914)
The essential lesson at stake is that the usage of any value transfer mechanism does not just rest on its acceptance by users, but just as well on the rules and regulations that underly the value transfer. In 1914, the Dutch lawyer Frijda analysed this topic in his dissertation on the theory of money. At that time discussions emerged on the nature of banknotes. Did they have value because they were exchangeable for bullion, because they were defined as legal tender or because the public used and accepted it?

Frijda pointed out that the underlying legal framework that safeguards property in a society constitute a necessary precondition for the use of payment instruments. Without such safeguards, people will tend to stick to other stores of value rather than attaching value to local bank notes. Until today this effect is clearly visible: consumers tend to hold and use foreign cash or commodities if they live in country with a lot of curruption, a weak system of justice and an instable monetary climate.

Trust is built by institutions and markets
What makes money tick is a solid institutional basis, upon which trust can be further developed. The latter part can be done by a combination of regulation (supervision) and self-regulation (market action). Which brings us back to the Mt Gox cas.

Following the events of this money, a statement was released by the bitcoin companies Coinbase, Kraken, BitStamp, Circle, and BTC China. The industry leaders committ to safeguarding the assets of customers, to applying strong security measures, to using independent auditors to ensure integrity of their systems and to have adequate balance sheets and reserves to be able to ensure continuity.

In sum we can now see both a gradual development of both the institutional framework for virtual currencies and the market-driven self-regulation. This reflect the fact that - whether you like it or not - trust for financial services is always built on institutions, regulations and self-regulation.

Financieel Erfgoed op de Kaart: opening digitaal museum over financiële geschiedenis

Vandaag lanceer ik officieel de site: 'Financieel Erfgoed op de Kaart'. Dat is een online 'virtueel' museum, dat de financiële geschiedenis van Nederland ontsluit op basis van de lokatie (Google Maps). De verhalen uit die geschiedenis zijn te vinden door in te zoomen en te klikken op de i, of door het menu rechts onder Amsterdam verder uit te vouwen en een informatiepunt te selecteren.

Ik heb Financieel Erfgoed op de Kaart gelanceerd om de verborgen verhalen uit de Nederlandse financiële geschiedenis op één plaats te ontsluiten en bewaren. Overal in het straatbeeld zijn namelijk nog sporen te zien van de financiële geschiedenis. Maar de verhalen erachter zijn niet altijd meer bekend, terwijl ze toch nog steeds boeiend en relevant zijn.

Neem bijvoorbeeld de Munt in Amsterdam. Dit gebouw is slechts één jaar in gebruik geweest voor het slaan van munten. Het gebouw brengt ons terug naar 1672 waarin Nederland onder de voet werd gelopen door Frankrijk, Engeland en twee Duitse prinsen.

 In feite bleek toen dat Nederland, als klein land, voor haar zelfstandige voortbestaan altijd erg afhankelijk is van de omringende landen en er het beste aan doet zich te voegen naar de dynamiek van de grote buurlanden in Europa: een inzicht dat ook nu nog steeds relevant is.

Op www.financieelerfgoedopdekaart.nl kan een bezoeker vanachter de PC thuis een 'wandeling' door het financieel erfgoed maken. En wie zélf op pad in Amsterdam is en de site op de smartphone opent, ziet de informatie over de meest nabije historische plaatsen getoond in een menu. Ook kan de augmented-reality toepassing Layar worden gebruikt. Op dat moment fungeert de stad feitelijk als openluchtmuseum.

In dit digitale musuem staat het verhaal van de financiele geschiedenis centraal. Per lokatie komt een deel van die geschiedenis aan bod: een persoon, een gebeurtenis, een gebouw of een organisatie. Op elke plek wordt informatie en audiovisueel materiaal gebundeld die normaal gesproken op allerlei afzonderlijke plaatsen te vinden is: de archieven van financiële instellingen, foto's uit de beeldbank, kennis uit wetenschappelijke artikelen, de collecties van musea, gedenkboeken, wikipedia enzovoorts.

Het platform richt zich nu nog op Amsterdam en is tot stand gekomen in samenwerking met het stadsarchief Amsterdam, het Amsterdam Museum en het Joods Historisch Museum. Het zal door samenwerking met universteiten, lokale museau en historische kringen in de komende jaren uitbreiden naar andere plaatsen in Nederland.

Daarnaast staat ook een Engelstalige versie op stapel, vooral gericht op de buitenlandse bezoekers/bewoners van de stad Amsterdam. In het Comité van aanbeveling voor dit project hebben zitting: K. Knot (President van de De Nederlandsche Bank), E. van der Laan (burgemeester van Amsterdam) en J. Jonker (Hoogleraar Bedrijfsgeschiedenis Nederlands Economisch Historisch Archief).

45 years ago: bankgirocentrale en betaalcheque announced

On this day, 45 years ago, the commercial banks in the Netherlands announced that they were going to set up the bankgirocentrale, a clearing platform for interbank payments. And while they were at it, they also announced the introduction of the betaalcheque, to facilitate point of sale payments by means of a cheque and cheque card. These announcements marked the beginning of the collective move of commercial banks to gain foothold in the retail market and penetrate the retail market with current accounts.

It should be noted that the decision to introduce a cheque payment system was inspired by the existing alternative of the credit-card. Banks had seen the cost involving the payment with credit cards and did not wish to penalize the shop owners with transaction fees of 2-5% of the amount paid. So they chose for the paper based system of guranteed cheques. This system existed 35 years and was abolished with the introduction of the euro.

Now, when in the 1980s technology had evolved and credit-cards moved to Europe, the threat of credit-card based Point-of-Sale systems made the Oil Companies of the Netherlands push the banks into building a Dutch point of sale system. And while it did take some time, we eventually ended up with the national PIN-system, as of 1987. And exactly this week, the system has seen its last transactions and is replaced by international debit-card systems.

It is interesting to see how the life-time of the cheque-system was 35 years and that of the PIN-system some 25-odd years. And while the credit-card penetration in the Netherlands is still comparably low, it is the mere threat of the expensive credit-card system that has made us introduce some inexepensive own Dutch-flavoured payment systems.

Bankgirocentrale building at Sloterdijkkade 22