Digital Payments and Mining Towns

The US dollar is actually a fairly recent currency for universal use within the United States. A significant portion of the Manifest Destiny, the expansion of the power of Washington DC westwards, involved the breakup and dismantling of company towns. The company towns were autonomous collectives (ha!) owned entirely by a single company. The employees who lived and worked there were usually hours away, if not days away from the nearest representative of the federal government. The company towns had police, supermarkets, schools all run and owned by the company.

Employees would be paid in company scrip and would only be able to purchase goods at the company’s stores within the company town. Naturally, in the middle of nowhere, people would want to get piss drunk, especially when their boss controls every aspect of their lives. The paternalistic company owners weren’t having any of that, of course.

Control over currency is very important to governments. As I talked about before in the nature of money, currency is tied to the power of the government. The United States Secret Service, descended from the Kingsguard is concerned with protecting two things - the holder of the office of the presidency and money. Every counterfeit note is a federal crime because it threatens the state’s power of monopoly over the trust in commerce.

Digital payments are fascinating in this context. Especially digital wallets. In Singapore one can find FavePay, AliPay, GrabPay and more options coming up every day. They all suck, in my opinion. There’s nothing fun about any of them, they trap you into their own alliance of companies. There’s a subtle loss in power for the state when you use GrabPay, instead of Singapore Dollars, but this isn’t why governments are worried. Governments are reluctant to miss out on the digital payments world since they (legitimately) fear what happened with company towns a hundred years ago: islands of their citizens out of view and outside of the information sphere of influence. Already, governments rely on telcos, banks, utilities to keep getting information about their citizens. The governments have two strategies: to partner, via the banks or to get ahead of the problem by creating a payment system that uses government servers.

Company towns were mini-states - offering postal service, police and other ostensibly government services at a very high premium. These little islands were opportunities for enormous arbitrage, especially for the owners. Since customers/employees were trapped in the towns, physically and monetarily, the owners could charge whatever prices they wanted in their secure monopoly. Geographical isolation was a big part of the company towns, but this is hard to do to the modern day urbanite, who is the target of these digital wallets. The far greater danger is a cartel which traps users’ money. $10 in the Amazon ecosystem might get you far more than in the Microsoft ecosystem, but if your money isn’t retrievable from one ecosystem into another, you cannot benefit.

China’s almost-cashless economy today is nearly 40% dark to the Communist party. This represents a big problem for Chinese officials who want to monitor criminal activity and anti-governemnt activity of any kind - they’d much prefer to have the levers of snooping in their hands rather than having to cave into the demands of a large provdier like AliBaba or Tencent. For a country known for heavy handed state enterprises and intrusion it is ironically the private sector that made a name for China in the tech world. Neither AliBaba nor Tencent had much help from the Chinese government prior to their phenomenal success. In fact, the payment wallets they provided to their users were originally investment accounts. Tencent and AliBaba were using their customers as part of their credit line. This of course pisses off the chinese government which wants to use its citizens savings as a credit line for itself. This type of conflict will continue between governments, corporations and banks as the world makes the transition to digital payments.