It had to happen, sooner or later: money and finance are the most highly visible among the many topics of interest to economists. Since I am an economist, and easily accessible through this blog and my social media presence, Wired’s Fabio Deotto asked me for a comment on a piece of financial news: apparently Facebook is considering bringing Credits, the virtual currency used for buying Facebook apps, to the wider world as a universal means of payment. Is it possible to leverage Facebook’s 500+ million users to launch a new global currency and revolutionize the world of finance?
In the best tradition of economics, my answer was that the question is wrong, for many reasons: there are already dozens of virtual currencies that work quite well but did not revolutionize anything; currencies need to be aggressively backed by reserves and open market operations, or they’ll depreciate; credit card companies have already in place globally accepted virtual money operations with many more users than Facebook — only in the USA there were 1.3 billion credit cards in 2006 (the full article, in Italian, is here. But the real answer is that I know nothing about finance, so I recommended that Fabio talk to a real money expert.
This made me realize that not knowing anything about finance is a bad idea for an economist as of 2010. The rising tide of social innovation contains a lot of financial innovation: just think of internet-based microlending agency Kiva; of Italian “community lending” platform Del community lending dell’italiana Prestiamoci; of crowdfunding services for the arts; of Solidarity Purchasing Groups, another Italian invention (yes, Italians, seem to be right on the frontier of social financial innovation). My conclusion: time to go back to studying money. Money is difficult, counterintuitive: its hard to figure out just what it is and where it draws its magical powers to get us the things we need. Can anybody suggest a book to start from? Rigorous, but starting from the basics, ideally with a historic approach? I tried reading Niall ferguson’s The Ascent of Money, but that’s maybe not advanced enough. Thanks in advance for any suggestions you might pass along!