Recent sharp falls in crypto-currencies such as Bitcoin has prompted claims that these digital innovations may fail and lose money for owners, but such predictions miss wider changes in the global monetary order, Gary Dugan, CIO at , said in a recent note.

Crypto-currencies try to deal with three forces: the relative decline in the US as a financial power and the search for alternative global forex systems to the dollar; fading trust in fiat currencies amid central bank money printing, aka quantitative easing, and desire for a currency that fits with the modern digital age, Dugan writes.

The paper puts Dugan into a controversial area. While some crypto-currency enthusiasts hail news forms of money as having potential to put traditional systems under pressure and solve potential challenges, regulators, policymakers and some commentators fear that crypto-currencies are too volatile to count as money. Also, it is claimed criminals such as money launderers use the relatively anonymous transactions involved. A separate fear may be that, if crypto-currencies did challenge fiat currencies such as the euro, dollar or yen, that central banks could demand controls or bans to avoid losing power to set interest rates. (Arguably, moves by central banks such as an in India and eurozone to outlaw high-value bank notes are caused by such considerations.)

Intrinsic
As with gold, human and other resources are spent in "mining" new digital currencies such as Bitcoin, which means there is an intrinsic value in play, Dugan writes. He states that Bitcoin, for example, has a base value of $1,350, equating to the approximate electricity cost of mining a Bitcoin. (It should be noted that some commentators argue that the cost of mining every new Bitcoin rises exponentially, including the amount of computer power and electricity required to find one, to the point where this could be seen as environmentally wasteful.)

The plethora of digital currencies in play - just under 1,500 at the time of writing - may only be the start of a broader shift in how monetary systems operate around the world, Dugan continued.

Citing a paper paper by James Zdralek at SAP entitled “The Future is Money” Dugan notes how the author proposes a new blockchain-powered monetary system running on inflation-proof, bubble-resistant digital currencies. "The backing to this new futures-backed currency would be agreed-upon future deliveries of products and services. In essence companies producing products and services would be able to issue money against future contracts they have in respect of things they are selling in the future," Dugan said of the study.

Such a new system would not be far different from the original currencies that had flows of goods and services with intrinsic value that backed privately issued currency, Dugan said, without referring explicitly to the old gold/silver-backed currencies of the early/mid-20th century and previous centuries.