What will money look like in the next 20 years? What is the major driver of the evolution of money? This article may answer some of these questions.

1. THE EVOLUTION OF MONEY
1 INTRODUCTION
In this presentation, we will prove that it is very difficult, if not impossible, to discuss
the evolution of money without discussing the evolution of trade. It is an
indisputable fact that money came into existence because of trade. We will,
therefore, assert (and perhaps, conclude) that money is a function of trade, in
which money is a dependent variable, and trade is an independent variable.
We will further prove that as this independent variable (trade) changes in form
and dynamism, the dependent variable (money), is propelled to change in form,
quality, nature, demand and supply, among other features. This view is further
corroborated when you consider the generally accepted definition of money:
Money is anything that is generally acceptable as a medium of exchange and in
settlement of debts.
Mathematically, we will state the relationship between money and trade thus:
M = f(T) ----------------------------------------------------------- (1)
Where M = money (demand or supply); T = trade
2 THE EVOLUTION OF TRADE AND THE EFFECTS ON MONEY
If there ever was any such time when there was no trade – no exchange; no
commercial interactions between people – that would be the only time when
there was no need for money. At every evolution in trade, there is an evolution in
money. This evolution is traced in the following paragraphs.
3 MONEY – WHEN TRADE WAS BARTER
3.1 Trade by Barter – Within a Community
At some point in human history, subsistence and self-sufficiency proved
unsustainable; the barter system – a system where a good or a service is
exchanged for another good or service – evolved. This development changed
the money function.
MB = f(TB) ---------------------------------------------------------- (2)
Where M = MB = Barter money
Where T = TB = trade by barter
What was money at this point in time? Since there was need to establish double
coincidence of wants: both parties must automatically be buyers and sellers of
each others’ goods (or services) at the same time. Therefore, the two

2. commodities exchanged by both parties qualified as money. We will call this
barter money.
3.2 Advanced Barter – Trade Between Different Communities
The major challenges of the barter system (double coincidence of wants and
indivisibility) were enough to restrict such a trade to a very small locality or
community. To ease trade, certain commodities like grains, silver, gold and salt
were singled out, among others, to serve as a medium of exchange. We will call
this commodity money. Mathematically, we will represent as:
MC = f(TB) -------------------------------------------------------- (3)
Where M = MC = commodity money
This is an advanced barter system; the only difference from the barter system
described earlier is that a constant good became a medium of exchange.
Commodity money solved the problem of double coincidence of wants, but not
the problem of divisibility. Besides, there was no general acceptability of
commodity money – different communities, ethnic groups or people in different
locations had different commodity monies.
4 MONEY – WHEN BARTER WAS GONE
4.1 Trade within a Sovereign State
Trade further evolved to include people of different cultures, ethnicities,
communities, languages and distant locations, but within the same sovereign
state. Money also passed through several evolutionary phases until the fiat money
(coins and papers backed by law of a State) was introduced.
Mathematically, this can be further represented as:
M = MF = f(TH) ---------------------------------------------------- (4)
Where MF = fiat money; TH = home trade
Fiat money overcame the all of the problems associated with the commodity
money, including general acceptability.
Scenario 1:
Sanusi, a cattle-rearer who is based in Malete, Kwara State, needs 100 tubers of yams
for the traditional wedding of his first son. For over 30 days, he has made fruitless
search within Malete for anyone who needs a cow (what he has) and has tubers of
yams (what he needs). Just 3 days to the wedding, a neighbour who just arrives from
Patigi after ten days of journey (trekking) informs him that Alhaji Umaru a popular yam
farmer based in Patigi is in dire need of cows. Would this wedding still hold?
Scenario 2
Imagine that the Hausa community has made gold their commodity money because
of its abundance in the region and the Yoruba community has chosen cocoa seeds.
How will people in these two communities trade with each other? Will there be a
clearing house to take care of the commodity monies?

3. (Note: coins were first introduced in the first millennium BC by King Croesus of Lydia
around 700 BC.)
4.2 When Trade Became Cross Border
Fiat money was just perfect for home trade. But apparently, trade would never
stop evolving. Once again, it became a bit more complex – it became cross
border – people of different countries and nationalities with their own legal
tenders (fiat monies) commenced trading with each other. Evolution of trade from
domestic to foreign created a vacuum in the fiat monetary system and raised
questions like:
 In what currency should a cross border trade be settled? The issue of
general acceptability has just resurfaced.
 Which currency should be generally (internationally) accepted for the
settlement of cross border trades?
 How many units of a home currency should be exchange for a foreign one
when engaged in cross border trade?
This added another change to the form, demand, nature, supply of money:
M = MX = f(TX) ---------------------------------------------------- (4)
Where:
MX = foreign exchange currency
TX = foreign trade (import and export)
Note: foreign exchange currencies are just fiat currencies of some sovereign
nations which are internationally agreed to be used as foreign exchange
currencies. Initially, it was only U.S. Dollars because of its stability.
Every evolution in trade brings out the loophole in the monetary system; it shows
the inadequacies of money. Foreign trade glaringly shows the inadequacies of
fiat money.
While Sovereign States are still battling with the challenges confronting foreign
exchange currencies, trade has further evolved adding more complexities to
money.
Scenario 3:
The Federal Republic of Nigeria uses the naira as her legal tender while the United
States of America uses dollars. In what currency will a Nigerian is importing laptops
from the U.S. settle his trade with the American counterpart?
Scenario 4
The US Treasury Secretary under the Obama Administration, Tim Geithner, told US
senators that Obama believes that China has been manipulating its currency.
A country like China would manipulate its currencies to gain advantage over a
America whose factories rely hugely on Chinese exports. A country with weaker
currency is better off when exporting than importing.

4. 5 NOW THAT TRADE GOES DIGITAL; WHAT WILL MONEY LOOK LIKE?
5.1 Digital Trade and the Quasi-Digital Money
The earliest stage of the digital trade (the current reality at the time of writing this
presentation) allows exchange and debts to be settled using non-digital money.
This implies that while the trade is carried on electronically, payments are made
by transferring fiat money (or its equivalent when converted to foreign exchange)
via electronic channels in settlements of the trade or related debts. We will call
this quasi-digital money.
Aided by financial technology (FinTech), financial institutions came up with
different products including, but not limited to:
 Automated teller machines (ATM)
 Point of sale (POS) terminals
 Electronic banking (e-banking or internet banking)
 Mobile banking applications (mobile apps)
 USSD for banking transactions
Monetary authorities also issued policies to encourage quasi-digital money (e.g.
CBN’s cashless policy). To prove the extent to which quasi-digital money has been
adopted, the national bureau of statistics (NBS) puts the total value of electronic
payment transactions in the banking system in 2016 at N65 trillion. This figure is
(over or about):
 8 times the value of the 2016 national budget
 6 times the total value of the narrow money (M1) in circulation as at
December 2016
 4 times the value of the 2016 GDP
 3 times the total value of broad money (M2) in circulation as at December
2016
Table 4.1: Sample payment solutions companies
International Local
Mastercard Paga
Visa Interswitch
Paypal Verve
SecurePay Quickteller
Authorise.net e-Tranzact
Remita
Payattitude
Simplepay
PayPal in 2016 ranked Nigeria as the third highest mobile shopper worldwide; it
claimed that Nigerian mobile shoppers spent $610 million in 2015 using PayPal (i.e.
55% of its overseas online purchases in 2015).

5. However, the peculiar nature of the digital economy (to which digital trade is a
subcomponent) shows that the current payment system (using fiat or foreign
exchange money on digital platforms) is not fully compatible or blended with
digital trade, hence the need for a digital currency or cryptocurrency.
Mathematically, we will represent the relationship between digital trade and
quasi-digital money as:
M = MQ = f(TD)
Where: MQ = quasi-digital money; TD = Digital trade
5.2 Digital Trade and Digital Currency
That technology has altered trade is an understatement. Market is no longer a
place. Market participants (buyers and sellers) no longer have to meet to
exchange of goods and services or make and receive payments (settle debts).
Money in its current form is highly incompatible with the digital trade model.
The blockchain technology, for instance, will not only alter trade, it will also deform
money. It is a matter of time; we will all be spending cryptocurrency. When money
is fully digitisesd, the function will look like this:
M = MD = f(TD)
Where: MD = digital money (cryptocurrency); TD = digital trade
5.3 The Blockchain Technology
The blockchain is a distributed ledger that allows two or more people to carry out
transactions often without the need for a third party verification of the
transactions, as the validation is done by the whole network. Information on the
blockchain is not forgeable once recorded.
In trade, the blockchain will lead to automatic execution of contracts and
eliminate intermediaries. This technology also creates its own unique payment
system and currencies (e.g. ripple, monero, bitcoin, litecoin, dogecoin, namecoin,
NXT, etc.) This means that digital currencies or cryptocurrencies are built on the
platform of this technology. The days of fiat money are numbered.
5.4 Features of the Digital Economy
The organisation for economic cooperation and development (OECD)
highlighted the following six (6) unique features of the digital economy:
1. Mobility
2. Reliance on data
3. Network effects
4. Multisided business models

6. 5. Tendency toward monopoly or oligopoly in certain business models relying
heavily on network effects.
6. Volatility due to low barriers to entry and rapidly evolving technology.
We will briefly explain only “mobility” in the light of trade.
Mobility
1. Of intangibles: most goods from which the consumers derive utilities are
now intangible (see scenario 3 above)
2. Of trade participants: buyers and sellers can remotely or virtually travel
across continents without restrictions of obtaining visas or other travel
documents. Buyer and sellers (and the transactions) may anonymous.
3. Of business functions: business functions may be centralised; a global
operation may be managed from a central location that may different
from operational locations. Economic activities may be carried with
minimal need for physical presence of the entity or its personnel.
6 VIRTUAL CURRENCIES AND MONEY MARKET
Virtual currencies will change the form and roles of the money market regulators
and operators across the world. It will alter the roles of the central banks and the
functions or forms of the commercial banks, among others.
Cryptocurrencies are digital units of exchange that are not backed by
government-issued legal tender.
6.1 The Future Central Banks
Traditional Functions of
Central Bank
Future Functions of Central Bank
Issue of Currency Maybe not. The miners who mint crytocurrencies are
not linked to central banks.
Miners of bitcoins, for instance, install bitcoin mining
software on his computer to solve complex equations
for the bitcoin network. If the equation is successful
the miner will receive a block of 25 bitcoins.
Banker to Government Yes but in a redefined capacity. Government
accounts will be in wallets and addresses. A bitcoin
wallet, for example, is a program that stores bitcoin
Scenario 5:
Prasandi Nigeria Limited is a logistics company; it runs a chain of warehouses
across Nigeria. To effectively carry out its operations, it invests heavily on
software. In year 2016, it acquired software online (downloaded by a click and
installed on its system) for N5 billion from a U.S. based company.
Representatives of both companies have never met.
Would you classify the software as a good or a service? What form of money
would be the best match to settle this kind of transaction?

7. addresses on a hard drive, internet or any data
storage device.
Controller of Credit and
Money Supply
This function might be out of control of the
government. Only possible if the government can buy
over the miners of virtual currencies. How is that
possible?
Exchange Control With virtual currencies, there may not be need for
foreign exchange currencies; hence the control will
not be necessary. Digital currency will be the same all
over the world.
Lender of Last Resort If the central bank has lost control over issue of
currency and the money supply, how would it be the
lender of last resort to the government?
Custodian of Foreign
Exchange or Balances
Foreign exchange will not be required, let alone a
custodian.
Clearing House Function Commercial banks may go into extinction: cheques
will not be drawn so clearing will not be necessary.
Besides, payments will be instantaneous,
notwithstanding locations or geography.
Collection and
Publication of Data
With the blockchain technology, this function would
be widely decentralised. The central bank will not be
the sole custodian of data and statistics, in the first
place.
6.2 The Future Commercial Banks
Traditional Functions of
Commercial Banks
Future Functions of Commercial Banks
Accepting Deposits May not be applicable if wallets (bank accounts) are
digitised. Payments are made directly into bitcoin
wallets, for instance.
Advancing loans Will be totally redefined. The processes will be
streamlined, among others. Besides, there will be
much competition from many nonbank sources.
Agency functions: fund
transfer, forex dealing, bill
payments and collections
Most of these will be eliminated.
Safekeeping of money May no longer be necessary. Digital wallets are
securely kept online.
safekeeping of other
valuables
Maybe only valuables that cannot be digitised.
Creating money or
multiple deposits
May be eliminated or perhaps it will be shared with
nonbank competitors.

8. 7 CONCLUSION
We hereby conclude that money, at any point in time, is a function of trade. It is
highly volatile and dependent on the exogenous variable (trade). More so now
that technology is causing a disruption in trade.
In preparation for this disruption, multinational entities are already investing heavily
in research on blockchain technology. Smart financial institutions (over 80% of
global banks) are running pilots (of banking services) on blockchain.
However, while the Central Banks in some advanced economies have set up
research desks on the blockchain technology, there appears to be some
resistance in Nigeria. In a circular dated 12 January 2017and titled “Circular to
Banks and Other Financial Institutions on Virtual Currency Operations in Nigeria”;
the CBN only pointed out the dark side of the technology and directed banks not
to embrace virtual currencies. While nothing was wrong with the directive, it
would amount to lack of foresight for the CBN not to give a disruptive technology
of this magnitude the benefit of the doubt by, at least, carrying out some
research.
We would advise universities in Nigeria to modify their academic curriculum like
some of their counterparts in the advanced countries have done by inctroducing
courses like “The Economics of Blockchain Technology” at the graduate and
undergraduate levels.
Cryptocurrency is the future of money.
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