I participated in a debate about currencies the other day. A colleague posited that the future of money was power. Well, all power is based upon money, but his point was that money would be based on energy. The energy industries – oil, gas and electricity – are key to providing power to the world.
This is true – and you could add wind, solar and other renewable energy providers to the list – but is it the future? I speculated previously that water would be the currency of the future. Anything could be a currency. But in this discussion, I pushed back and argued that the currency of the future would be reputation.
Reputation is the underlying currency, as reputation creates trust. If I trust you, I will trade with you. If I don’t trust you, I won’t. This hit home for me years ago, when I got ripped off by a fraudster that I trusted. Money and investing has little to do with assets – it’s all about trust. But what is it that backs your investment? What is it that reinforces that trust?
This is where it gets interesting, as we were talking about what it is that backs anything of value. When you buy something, can you guarantee it will be delivered? How can you believe in this thing you are buying? When you invest in or buy anything, you have a belief that it has value, but does it really?
Whether it involves bitcoin, the US dollar, a work of art or a rare commodity, the core of any trade or transaction is your belief that the thing you are buying and trading with holds a specific value. That belief is based upon trust. That trust is based upon reputational history.
Trekonomics
This is why the economic vision of Gene Roddenberry, creator of Star Trek, is interesting. Trekonomics governs in the show’s utopian future where money does not exist. It is a framework in which trades are made purely on trust, backed by reputation. It was as I remembered this that I realised, as we debated reputational currencies, that this concept hits the nail on the head.
The only reason we accept a currency is because we trust it. The only reason we invest in something is because we trust it. If you buy something, whether it be a Picasso painting or a book from Amazon, you trust it will be delivered. Obviously, it makes a difference when it costs $100m versus $1, but trust in the follow-through is the golden thread.
And how is that trust built? It’s based on reputation. You must attract reputational trust to, in turn, attract investment.
Abuse of trust
To illustrate my point, I was ripped off years ago when investing in property – but how did this happen? First, the company boasted celebrity endorsements including sporting legends Steve Redgrave, Geoff Hurst, and Rory Underwood, creating trust. Second, the sales team made me feel warm and happy, encouraging and nurturing that trust. Third, the company had the relevant market endorsements and government licences, improving their credibility.
However, the whole business turned out to be a scam.
After investing, I discovered that the celebrities were also ripped off. The sales team began to behave perfunctorily and were subsequently sacked. And the government endorsements came from Delaware, which allows shell companies to trade without trust.
After that experience, I no longer trust many, and came to realise that trust and trade is purely created through reputation, which is built over time by past actions.
Precious but fragile
During our debate about currencies, reputation and trust, we touched upon Prince Andrew, whose reputation was trashed overnight by his 2019 BBC interview. Before that interview, would you have trusted an investment backed by Prince Andrew? After that interview, how did your view change? Reputation is maintained through consistent actions and crucially can be lost in a second.
Trust is the mainstay of all monetary and market movements and investments. We must ask ourselves: do I trust it? What’s the provenance? Can I accept its reputational value? Gene Roddenberry recognised something I only just realised myself. We do not trade in commodities, assets, products and services, but trust.
So, the currency of the future, as in Star Trek, is trust backed by reputation.
“Reputation and honours replace economic wealth as markers of status.” – Trekonomics: The Economics of Star Trek, by Manu Saadia.
