Mobile money and airtime: emerging forms of money Sunduzwayo Madise Abstract The emergence of mobile phones brought a new currency; ‘airtime credit’, commonly called ‘airtime’ or simply ‘credit’. The concept results from the fact that in exchange for money, one is given credit in the form of airtime in their phone, making it the currency for the mobile phone. To mobile network operators (MNOs), selling airtime, has proved profitable, making them to become financial conglomerates within a short period of time. To the phone user, without airtime, the mobile phone cannot function, especially in most parts of Malawi where Wi-Fi is not readily available and affordable. With time MNOs have another added another other service on the rails of the telecommunications backbone; the mobile money service. In doing so MNOs have also added a second and lucrative stream of revenue. In most countries, mobile money is now accepted as a means of payment, falling under the category of electronic money or electronic payment systems. This paper analyses the emergence of money by going back in time. It argues that the future of money may actually be more in keeping with the past than the present: ‘back to the future’. It analyses the emergence of decentralised cryptocurrencies such as the Bitcoin which are not controlled by state authority. Using a framework developed based on fiat money, it examines mobile money and airtime as emerging forms of currency. While mobile money has quickly been accepted as a new form of payment, and Malaŵi’s central bank has issued guidelines regulating it, the emergence of airtime as a currency is still an uncrystallised ambulatory concept. The paper uses lessons from Malaŵi where the two dominant mobile operators; Airtel and Telekom Networks Malaŵi have introduced mobile money services largely modelled on the successful M-PESA, a financial service that was developed in Kenya by Safaricom in Kenya. The paper argues that airtime, like mobile money has characteristics of money. It can be used as a means of exchange for value. The paper therefore proposes that in the same way that mobile money service is quickly being embraced as a constituent part of the national payment system, airtime too may have to be so recognised. This calls for a new legal and institutional approach to the regulatory framework of these emerging forms of money.
Keywords: cryptocurrency, currency, economic money, fiat money, legal tender, legal money, money, mobile-money, airtime, currency
BSc LLB(Hons) (Mal); LLM cum laude (UWC); PhD Candidate (Warwick); Lecturer, Faculty of Law, University of Malawi. Email:
[email protected] .
1. INTRODUCTION When Airtel and Telekom Networks Malaŵi introduced Khusa M’manja and Mpamba respectively as mobile money services,1 the question among most Malaŵians was whether anything other than fiat money can even be called money. The two mobile money services have since grown and may be said to have gained some level of acceptance. The fundamental question however is whether the concept of them as money has gained the same acceptance as the concept of them as payment systems (mainly for remittances and paying utility bills). An interesting by-product of the mobile phone is how the airtime has emerged not only as a credit for communication but also as a commodity that can be traded or exchanged; as money. Money has always been around since civilisation began. It emerged as a product or a need of the market to facilitate commodity exchange. State sanction only emerged later, giving it the status of legal tender. It has changed form and although it may have been a different commodity to different societies, it has always maintained the same basic function; serving to facilitate exchange and trade. As societies developed and civilisations flourished, money also evolved with time. Recently the world has seen the emergence of new forms of money such as Bitcoin. The emergence of new forms of money which are not state-issued has raised questions as to whether anything that does not have state guarantee can effectively serve as money. This paper discusses mobile money and airtime as emerging forms of money. It essentially asks the question: what is money and retraces back to the origins of money to find answers. It argues that that new forms of money do serve as money. It is divided into three main sections. First is a brief discussion of the development and evolution of money over time. Then, using a framework based on fiat money, an analysis is made of mobile money and airtime as emerging forms of money. This section provides a discussion of virtual currencies and how these currencies have shaken the foundational concepts and theories of money. The main argument is that although mobile money and airtime may not satisfy the key requirements of money in the legal sense, looking at the origins of money, they do serve as money in the economic sense. The last section discusses the regulatory issues arising from risks that mobile money and airtime as emerging forms of money pose or may pose from both prudential and business conduct fronts. 2. ORIGINS AND NATURE OF MONEY Money as a medium of exchange has existed since time immemorial. It is a ‘sign which represents the value of all merchandise.’2 Take the example of a farmer in the old days. Suppose he harvested his corn and put the corn into bags. Ordinarily he would go to the marketplace to exchange (barter) his produce with goods which he needed. But suppose he wanted a rabbit to cook. He would then have to take a portion of the corn in exchange for the rabbit. But what if the owner of the rabbit (hunter) already had enough corn? An exchange was not possible unless the farmer first exchanged with another person who had something that the rabbit owner desired. But even if the rabbit owner wanted the corn; how much corn would be exchangeable for the rabbit? And what would happen to the remaining corn?
1
2
For discussion of mobile money, see: Sunduzwayo Madise, (2014) ‘Payment Systems and Mobile Money in Malawi: Towards Financial Inclusion and Financial Integrity’ Volume 2 ANULJ (Juta) 71-96. Baron de Montesquieu Charles de Secondat, (2001) The Spirit of Laws (1748) (Thomas Nugent tr, Batoche Books 2001) 407.
- 1-
What is clear is that in the marketplace, almost everyone is looking for something and they are prepared to exchange their produce or ware. But supply and demand does not always ‘quantitatively coincide’.3 Since in the marketplace ‘there may be many people wanting, and many possessed those things wanted’ barter will only occur where there is a ‘double coincidence’.4 As it is not always possible for any two traders to be looking for the exact thing that the opposite side holds, then a third, somewhat, neutral commodity may just be the answer. Suppose this third commodity is called “X” then the farmer may demand a certain number of X to trade with his bag of corn. On the other hand, the hunter may demand a fraction of X to exchange with his rabbit. This therefore, allows the farmer to exchange his bag of corn for a certain amount of X and since the hunter is also looking for a fraction of X, it allows the farmer and hunter to trade directly. Assume the corn exchanges at 5X and let us assume the rabbit at X. This means the farmer will be able to have 4X [the result of 5X – X] left for use to exchange for other commodities he needs or to keep. It is this commodity referred to as X that came to be called money. Money then took up the function as a medium of exchange.5 It also offered a means of setting up the standard of value. 6 Using the above example therefore, it can be said that the value (price) of a rabbit would be a fifth of that of a bag of corn; or a bag of corn would procure 5 rabbits. This allowed each commodity brought to the marketplace to be converted to the money equivalent and therefore to set up its price. Money therefore became a ‘common denominator or common measure of value in terms of which [to] estimate the value of all other goods [and services] so that the value becomes capable of the most easy comparison’.7 Money also allowed goods and services which could not be subdivided to be monetised such as the product of a tailor.8 For a commodity to perform the function of money, it had to be readily saleable (liquid).9 In other words, all other commodities brought to the market are not as liquid as money. It is this aspect that makes money an attractive commodity to all.10 Menger used the Latin expression percuniam habens, habet omnem rem quem vult habere translated as when you've got money you have got everything you want.11 The corollary is therefore that if one comes to the marketplace with anything other than money, then one places themselves at a disadvantage as his commodity is less saleable, compared to the man who comes to the marketplace with a ‘stock of money’.12 Whatever it is, money is that commodity that is accepted by all as a medium of exchange. It serves as a facilitator of exchange. In doing so, it also provides a solution to the question: at what rate will an exchange be made.13 Money becomes the unit of exchange. It also performs another key function, it acts as a storage of value. A trader can sell his goods at the marketplace and does not have to buy anything in return; he may keep the money until the day he wants to buy something. In so doing money becomes a storage of value; whereby one 3 4
5 6 7 8 9 10 11
12 13
Carl Menger, (1892) On the Origins of Money (Ludwig von Mises Institute 2009) 20. William Stanley Jevons, (1919) Money and the Mechanism of Exchange, vol XVII (D. Appleton and Company 1919) 3. RTS, (1854) Money; its nature, history, uses, and responsibilities (The Religious Tract Society 1854) 75. Ibid 75. Jevons (n4) 5. Ibid 6. Menger (n 3) 39. Ibid 39. Ibid 40; translation from ‘Can anyone translate this Latin for me?’ (Yahoo!, 2011) accessed on 19 February 2015. Menger (n 3) 40, 39. Jevons (n 4) 5.
- 2-
can temporarily convey and indeed transform value from one form to another using money as a common denominator.14 The first items of commodity to serve as money were either smelted precious metals or rare articles or stones.15 The natural scarcity of the commodities serving as money (and the cost of their extraction and processing) ensured the stability of their value.16 They benefited from the fact that precious metals were both homogeneic and fungible.17 There was a one to one match in value: between the commodity and the value of money it represented. In other words, the money could never be more than it was worth.18 Therefore reduced to its lowest level of trade, selling and buying is no different from barter. One exchanges one’s wares for a commodity, only that this commodity is treated by all as money. But it is an exchange nonetheless. And if one has the commodity accepted as money, then one can exchange it with other commodities that one desires. But unlike other commodities of barter, money offers convenience in trading as opposed to exchange of other commodities.19 It also gives the holder a bargaining advantage and control as he has what everyone else in the marketplace is looking for, resulting in superiority of the buyer (who has the money) over the seller (who covets the money).20 2.1 Money as a manifestation of sovereign power Sovereigns and states have always had the power to issue and control money and its circulation.21 In modern times, this has been delegated to central banks, who issue money in the name of the sovereign or the state. This sovereign power is however limited to the jurisdiction in which the sovereign exercises legal and political control. The principle that a state has monetary sovereign was made sacrosanct in international law by the Permanent Court of International Justice in 1929 in the Serbian Loans Case where the Court said ‘it is indeed a generally accepted principle that a state is entitled to regulate its own currency’. 22 Part of this sovereign power includes the power to withdraw money from circulation and issue new money. In modern times, monetary policy of most central banks include mopping up excess liquidity when there to control money circulation and also to check inflation. In the old days, Kings would use this for profiteering. They would withdraw money and issue new money with a reduced content of the metal in the money, but present it as containing the same value, with the sovereign keeping the rest and making a profit and plundering their subjects.23 Monopoly in the power to issue coinage by the sovereign meant that there was no opportunity
14 15 16 17 18 19 20 21
22
23
Ibid 6. RTS (n 5) 77. Ibid 78. Menger (n 3) 49. RTS (n 5) 77. Ibid 80. Menger (n 3) 42, 43. Friedrich August v Hayek, (1976) Denationalisation of Money: The argument refined (Ludwig von Mises Institute 1976) Chapter III. Case Concerning the Payment of Various Serbian Loans Issued in France (France v. Serbia) and Payment in Gold of the Brazilian Federal Loans Contracted in France (France v. Brazil) PCIJ Rep Series A Nos 20– 21 (Judgment of 12 July 1929), p ‘Summaries of Judgments, Advisory opinions and orders of the Permanent Court of international Justice’ (United Nations, 2012) accessed on 19 February 2015. Thomas H. Greco Jr, ‘New Money: A Creative Opportunity for Busines’ (Global Development Research Centre [first published in Perspectives on Business and Global Change (World Business Academy) Vol 11, No 3, September 1997], 1997) 2 accessed on 19 February 2015.
- 3-
for an honest competitor to check the sovereign’s profiteering.24 It is the power to regulate supply of money that creates value. Money, like any commodity, will only be valuable and useful ‘when supplied in moderate quantities, and at the right time’25 2.2 Money as a creation of the market place Traditionally money has always been viewed as a creation of the sovereign or national governments. It has however, been suggested that that the sovereign merely adopted money ‘on account of its intrinsic utility.’26 Menger has argued that actually government edicts do not create money, it is rather the marketplace) that creates money.27 No accident, nor the consequence of state compulsion, nor voluntary convention of traders effected this. It was just apprehending of their individual self-interest which brought it to pass, that all the more economically advanced nations accepted the precious metals as money as soon as a sufficient supply of them had been collected and introduced into commerce.28 Money is not a creature of the law and ‘sanction by the authority of the state is a notion alien to it’ but through state sanction and recognition (and regulation), ‘money has been perfected and adjusted to the manifold and varying needs of an evolving commerce, just as customary rights have been perfected and adjusted by statute law.’ 29 3. DEVELOPMENT OF MONEY With passage of time, money soon became recognised in the form of minted coins, made by turning smelted precious metal into discs usually emblazoned with the sovereign’s crest or features. Coinage served two important purposes; an assurance that the coins were genuine in all aspects and that through their general circulation they served as a recognisable demonstration of the authority of the state.30 With time it became clear that the coins were susceptible to wear and tear and costly to produce since the value in the metal usually represented the value of the coin.31 Valuable coin was also susceptible to being lost or destroyed.32 It also became evident that although the coin was valuable, in trade it served no valuable utility except as a medium of exchange such that if a cheaper payment system was devised, and accepted, it could serve the same function. 33 This led to the introduction of paper money, mostly riding on the industrial revolution that led to the development of the printing press.34
24 25 26 27 28 29 30 31 32 33 34
Ibid 2. Jevons (n 4) 9. RTS (n 5) 77. Menger (n 3) 8. Ibid 49. Ibid 51. Ibid 51. RTS (n 5) 111. Ibid. Ibid. Edward W Kelley Jr (1997) ‘The future of electronic money: a regulator's perspective’ 34 Spectrum, IEEE 21.
- 4-
3.1 Representative or token money This arises when the society accepts a commodity as money which has replaced the precious metals and therefore stands in representation of them. The basis of value is therefore no longer the value of the metal but the value presented by the token money, even though it may be valueless in itself.35 Usually their value and existence is owed to a force of law or custom.36 Because of its nature, such token money is only accepted as legal tender within the borders of the issuing state.37 Therefore, although there may be currencies in the world which have attained global acceptance and are easily convertible; such as the United States Dollar (USD) and the British Pound Sterling, such currencies are nonetheless only legal tender in their issuing countries. An interesting case however is of Zimbabwe which in 2009 dollarised.38 Zimbabwe stopped using its own Dollar and adopted the USD as its national currency. It is however argued that this does not signify loss of monetary sovereignty by the Zimbabwe government but is rather an economic necessity which may pass with time.39 Modern paper money is in the form of a promissory note or an IOU (I owe you). As Maurer says, it is not money until someone accepts it.40 In this case it is money because society within a jurisdiction is obligated to accept it by legal decree. Historically these IOUs were issued by goldsmith banks as receipts to signify that the bearer had certain gold reserves with them.41 Because of what they represented, and being bearer notes, these IOUs served as money and could be passed on for the value they represented.42 These IOUs were later replaced by banknotes (paper money) but essentially serving the same function.43 But this feature of money still remains today, where the money basically is an IOU or ‘a series of claims’ not against gold bullion, but against a bank in the form of deposits.44 3.2 Legal tender Money in the classical sense is usually distinguishable from other forms of money on the basis that it is legal tender. Fiat money is the term for paper money or coins ‘deemed to be money by law.’45 Fiat money has ‘little or no intrinsic value in [itself] and not convertible into gold or silver, but made legal tender by fiat (order) of the government’.46 It means one can pay such money to settle pecuniary debts and obligations within a particular jurisdiction in which the said money is issued and that it would be deemed unlawful for anyone to reject it.47
35 36 37 38 39
40
41
42 43
44 45
46 47
Jevons (n 4) 188. Ibid 73. Ibid 188. Charles Proctor (2012) Mann on the Legal Aspect of Money (7th edn, Oxford University Press 2012) 25. For more on dollarization in Zimbabwe and the possible reintroduction of the Zimbabwe Dollar see Joseph Noko, (2011) ‘Dollarization: the case of Zimbabwe’ 31 Cato Journal and Margaret Mutengezanwa and others, (2012) ‘The possibility of re-introducing the Zimbabwean dollar’ 2(6) Australian Journal of Business and Management Research. Bill Maurer, (2012) ‘Payment: Forms and functions of value transfer in contemporary society’ 30 Cambridge Anthropology 15, 17. Robleh Ali and others, (2014) ‘Innovations in payment technologies and the emergence of digital currencies’ 54 Quarterly Bulletin (Bank of England), 264. Ibid 264. Robleh Ali and others, (2014) ‘The economics of digital currencies’ 54 Quarterly Bulletin (Bank of England), 277. Ibid 278. ‘Definition of fiat money’ (Financial Times) accessed on 19 February 2015. Ibid. Jevons (n 4) 75.
- 5-
For example, the notes issued by the Bank of England have the words: ‘I promise to pay the bearer on demand the sum of [X] Pounds’. The note issued by the Reserve Bank of Malaŵi says: ‘Promise to pay the bearer the sum of [Y] Kwacha’. The note issued by the Federal Reserve in the United States is worded somewhat differently manifesting the legal character of the note: ‘This note is legal tender for all debts, public and private.’48 While it may be argued that strictly speaking the notes issued by the central banks in England and Malaŵi are promissory notes, there is no doubt that the note issue by the Federal Reserve settles all obligations to the value of the note issued. 3.2.1 Economic versus legal money From the needs of the market, money emerged essentially to fulfil the function of a commodity of exchange. A commodity that served as money had to function as a medium of exchange (making payments), a store of value (purchasing power) and a unit of account (standard measure of value).49 The term economic money is used here to define a commodity that satisfied these three functions. However, as noted, money has evolved and so has its attributes. It is no longer essential that money exist as a chattel or a physical concept.50 Money now is for all purposes an abstract concept although it may still be issued in physical form by the state.51 The modern money not only serves an economic function but a legal function as well. State authority now defines, through legislation, what is to serve as money within the jurisdiction of the state, thereby transcending from economic to legal money. This then calls for a legal definition of money (legal money). Proctor described three elements comprising the legal definition of money (fiat money): (a) It must be expressed by reference to a name and denominated by reference to a unit of account prescribed by the law (b) The currency and unit must be intended to serve as the generally accepted measure of value and medium of exchange within the state (c) The legal framework for the currency must include a central bank or monetary authority responsible for the issue of the currency, and including appropriate institutional provisions for its management through the conduct of monetary policy and the oversight of payment systems.52 Looking at the two, it becomes clear that legal money comprises all the attributes of economic money but that the two are not congruent, as the opposite is not true. So in the past, commodities like gold (or gold coins) served as money based on their value without necessarily having to be given a name. Now each state denotes the name for its currency such as The British Pound (and Penny); the United States Dollar (and Cent) and of Malaŵi Kwacha (and Tambala). It is also customary now to have symbols representing these currencies and usually these symbols have are prescribed by law, such as £ (Pound), $ (Dollar) or K (Kwacha). States are able to define legally what is money because of the public international law principle of monetary sovereignty which says ‘if a State enjoys sovereignty over its monetary system, then no international wrong or any resultant claim can arise from any action taken by that State to control or manage that system.’53 It is submitted that unless specifically defined, money as defined in the modern times refers to legal money or money in the legal sense. 48 49 50 51 52 53
‘Banknotes’ (BANKNOTES.COM) accessed on 19 February 2015. Greco Jr (n 23) 2 & Ali and others (n 43) 278. Proctor (n 38) 40-41. Ibid. Ibid 41. Ibid 526.
- 6-
4. FRAMEWORK OF MONEY From the previous section, the standard of classical money can be represented in terms of its functions (properties) and its characteristics; a medium of exchange, a store of value and a unit of account. The classical definition requires that any commodity that fulfils the function of money should have all these three attributes. These three attributes satisfy the requirement for economic money. However to satisfy the requirements of legal money, the state sanction and a legal framework enabling the issuing of currency needs to be in place. This section looks the framework comprising the standards and qualities of money and then develops a framework for assessing whether any money can function as ‘money’ based on this framework. 4.1 Standards and qualities of money 4.1.1 Utility and value – with time, money was no longer valuable by itself. Since it was a coveted commodity, it became valuable because of its utility. 54 The piece of paper or coin that one has in their pockets may itself not be worth much in itself (especially in the case of paper money). It is therefore not the worthiness of the money itself that prompts people to take it but the fact that people accept that it has utility to stand as a standard payment system and facilitate by its passing the transfer of property.55 4.1.2 Portability – Money must not only be valuable but must also be easy to carry and store. In this regard, paper money is much easier to carry than heavier coin money. Portability therefore allows large amounts to be transferred across space with ease and at minimal cost (relative to the value of the money).56 4.1.3 Indestructability – Money must not be easily destroyed or lost to the elements. Extremely put it ‘must not evaporate like alcohol, nor putrefy like animal substances, nor decay like wood, nor rust like iron.’57 The substance used as money must therefore be able to withstand the elements. 4.1.4 Homogeneity – The commodity that is used as money must be uniform in all aspects. This ensures that it maintains the same value across time and space. So although originally this was easy with precious metals (their weight gave the value); with token money, the key thing is for the money to maintain the same value by its representation. 4.1.5 Divisibility – Money must be able to be divided into smaller denominations. But what is more fundamental is that the reverse must also equally hold true. The ‘aggregate value … after division should be … exactly the same as before division.’58 4.1.6 Stability of value – The value of money must be stable over space and time. But this does not mean that money cannot lose value. It is an intrinsic nature of money to lose value over time. The concept referred to as time value of money essentially means money will gradually lose value (depreciate) over time. In order to compensate for the loss of money of time, something must be done to the present value (PV) to make it equal to the future value (FV). This something is the rate of interest r at which PV must grow over a time t so that the value of FV has the same purchasing power. Therefore the formula for calculating the value of money at a future time would be: t FVt = PV + (1+r) . 54 55 56 57 58
Jevons (n 4) 31. Ibid 31. Ibid 34. Ibid 35. Ibid 37.
- 7-
In Bryant v Foot it was said the court must take judicial notice that the value of money has fallen since 1189; it being the year set to represent time immemorial.59 This characteristic of money is important as it is the one that makes banking a profitable business. Figure 1 below shows that the value of money is not static over time
Figure 1: Scale representing value of money over a time t 4.1.7 Tangibility – Tangibility is a key feature of money. Everyone wants to satisfy themselves that what they have, what they have been given or what they have given out is money. Money is something everyone can see, feel and for newly printed paper money even smell! Invariably, it must also be deemed to be genuine and not a counterfeit. 4.1.8 Cognisability – The commodity that is used as money must be easily recognisable by all. Usually this will be manifested by an impression representing the issuing authority as well as a mark setting its value.60 Now whatever form money is, a key point is that it must be coinable. Strictly speaking this term was used to refer to coins. However it is submitted that the concept can be used for all types of money. In other words, once issued, ‘according to proper regulations with the impress of the state’ it must ‘be known to all as good and legal currency.’61 A key factor in coinage is that good money should not only be difficult to counterfeit but must also reflect the ‘artistic and historical monument’ of the issuer as well as its users.62 4.2 Framework for identifying money From the foregoing, a framework may be developed on identifying money and this framework will be used in assessing whether mobile money and airtime credit fit the billing. The yardstick for the framework is fiat money.
Money
Medium Store of of Exchange Value
Unit of Account
Utility IndestructLegal and Portable Homogeneity Divisible Cognizable Tangible ible tender Value
Fiat Figure 2: Framework for identifying money
This framework defines money in the legal sense (legal money) as opposed to money in the economic sense (economic money).
59 60 61 62
Bryant v Foot 1868 LR 3 497 QB. Jevons (n 4) 39. Ibid 39. Ibid 58 and Kelley Jr (n 34) 21.
- 8-
5. EMERGING FORMS OF MONEY New forms of money seem to emerge from a reversal of the concept of monetary sovereignty. Traditionally, states and central banks have issued and controlled money. In doing so, money has been used in the power relations between those with power and those without it. Emerging forms of money seem to be reversing this flow, breaking the monolithic monopoly of central banks, decentralising issuing of money and leading to what can be described as ‘liberation of money.’63 Greco argues that the fundamental flaw with the dominant theory of money has been the obsession that it is ‘something substantial, as a thing to be created, exchanged, borrowed, and accumulated – an object of speculation and gain. In reality, money is just an accounting system. Once recognized as such, it will cease to be an instrument of power used to exploit the powerless.’64 Greco seems to lucidly unravel the mystery around emerging forms of money and that money is at its basic just an accounting system. This agrees with what Proctor describes as the ‘institutional theory of money’ which basically looks at money from an accounting viewpoint: ‘no longer a chattel, but a transferrable credit … against an obligor, whose acceptance as a store of value and as means of payment by the public is dependent on a comprehensive legal framework.’65 In the end money can be reduced to a series of claims that exist within the financial institutional framework.66 Looking back, the emergence of new forms of money can be traced back to the invention of the telegraph all the way to the introduction of computers and now the ubiquitous internet.67 It is imperative at this point to point out that although electronic banking is a rapid developing means of processing payments, this is not a new form of money or currency but rather ‘a new way to access a number of traditional bank services with traditional money’ using new technologies.68 For this reason, the discussion that follows does not include electronic banking. 5.1 Digital currency The term digital currency refers to a range of currencies which are usually represented and used via electronic means; through the use of digital networks. Although it is sometimes used to mean virtual currency; it means more than that and includes electronic money as well.69 Usually digital currency or money is used in comparison with fiat money, commonly just referred to as money. Virtual currency is a ‘digital representation of value that can be digitally traded as’ and functions as money but is not legal tender.70 It is an ‘electronic string of numbers that exist on a computer.’71 Since it is not issued by any state authority, it has no state guarantee and operates as money on the basis that it is accepted by the community which uses it.72 An example (discussed below) is Bitcoin. 63 64 65 66 67
68 69
70 71
72
Greco Jr (n 23) 1. Ibid 1. Proctor (n 38) 25. Ibid 27. Kelley Jr (n 34) 21. For a discussion of the the impact of the development of the telecommunication industry on new forms of money such as mobile money and payment systems: Sunduzwayo Madise (2015) ‘The Mobile Money Service in in operation’ (forthcoming). Ibid 21. Virtual Currencies Key Definitions and Potential AML/CFT Risks (Financial Action Task Force (FATF), 2014) 4. Ibid. Judy Taylor, ‘New money, new rules’ accessed on 19 February 2015. Virtual Currencies Key Definitions and Potential AML/CFT Risks (n 69) 4.
- 9-
Electronic money or e-money ‘is a digital representation of fiat currency used to electronically transfer value denominated in fiat currency.’73 It is therefore virtual currency with a one to one ratio and connection with fiat money. In other words, it is a virtual currency representing a currency which serves as legal tender.74 In itself, e-money is not legal tender such that a vendor may validly declare that they will only accept payment in cash (fiat money) and not through a debit or credit card, a common form of paying with e-money. Because of its direct linkage to fiat money, e-money has been the subject of debate, one of which is whether its issuance can be characterised as a deposit taking activity. The European Union has however categorically stated that it does not and that issuers of e-money should not grant credit using the fiat money to which the e-money is tied to as guarantee.75 Furthermore, no interest is payable on the fiat money held in trust of the e-money.76 Examples of e-money is the so-called ‘plastic money’ (represented via debit or credit cards) and mobile money (discussed below). So although virtual currency and e-money are all digital currencies; digital currency is not just virtual currency or e-money; but the sum of the two. Compared to other currencies, because of removal of intermediaries, digital currency offers the least transactional fees, a crucial factor that has led to their fast-growth in contrast to the traditional financial system which relies on revenue from the payment industry.77 Digital currencies are not just new forms of currency but also serve as complete payment systems.78 5.2 Cryptocurrency This is a decentralised virtual currency, based on a mathematical formula that is protected by cryptography.79 It is not e-money and does not depend on any state currency for its value. Cryptography ensures that the digital currency is secure and protected from being interfered with by third parties. This usually means information unique to users is encoded to the currency which makes it difficult for third parties to decode unless they are authorised. It also prevents duplicate or multiple use of the same currency so that once it is used in a transaction then it cannot be used again.80 The most famous cryptocurrency is Bitcoin. Despite its name, there are no coins in Bitcoin except virtual ones which are a digital representation of ‘unique strings of numbers and letters that constitute units of the currency.’81 Bitcoin is not the only cryptocurrency, there are already estimated to be over a hundred such currencies.82 Bitcoins have no value in themselves and are not issued and backed by any central bank. There is no value in the strings of numbers and letters comprising the currency. While central banks are known for using monetary policy to control the currency they issue, Bitcoin achieves this by a clever complex mathematical
73 74 75 76 77 78 79 80
81 82
Ibid. Ibid. Directive 2009/110/EC of the European Parliament and of the Council, section 13. Ibid. Ali and others (n 41) 267. Ali and others (n 43) 276. Virtual Currencies Key Definitions and Potential AML/CFT Risks (n 69) 5. Félix Brezo and Pablo G Bringas, ‘Issues and Risks Associated with Cryptocurrencies such as Bitcoin’ (SOTICS 2012, The Second International Conference on Social Eco-Informatics), p21. Virtual Currencies Key Definitions and Potential AML/CFT Risks (n 69) 5-6. Iwamura Mitsuru, Yukinobu Kitamura and Matsumoto Tsutomu, Is Bitcoin the Only Cryptocurrency in the Town? Economics of Cryptocurrency and Friedrich A. Hayek (Institute of Economic Research, Hitotsubashi University, 2014) 7.
- 10 -
algorithm.83 Bitcoin is internet based, requiring no intermediation by banks and privately owned, but not by one individual, but all the anonymous participants of this distributed payment system.84 Its value solely lies in the fact that people will accept it as payment and because it will be accepted, then it can be bought and paid for using fiat money.85 Normally operations in the digital domain always leave a trace, a foot print, but thanks to cryptography, Bitcoins allow users to trade with ‘a high degree of anonymity’.86 In this respect, Bitcoin mimics fiat money. When one gets a note, say in Pound Sterling or Malaŵian Kwacha, the note does not contain any information of where it originated from or who has handled it. The closest one can get is to identify, if it is at all possible, the giver of the note. Because of this, Bitcoins, like cash, have become attractive to criminals and those dealing in illicit financing.87 To avoid double spending, Bitcoins use a time stamp as part of its encryption.88 Double spending is possible in digital currencies because digital information can be copied and edited easily.89 Once processed, Bitcoins transactions are irreversible.90 Vendors adore this because it ensures that they will always get their money and are not exposed to risk of fraud.91 On the other hand if the owner of the Bitcoins were to be defrauded, the irreversibility of transaction would mean this would be irrecoverable. In a way, this is no different from losing cash to an unknown fraudster or thief. The Bitcoin system therefore comprises a currency as well as a payment system. Like fiat currency, Bitcoins can also be subdivided and split into smaller denominations and each split denomination carries with it a unique digital signature as part of its encryption that makes it impossible to forge.92 Unlike e-money which is fiat-tied; other forms of digital currency like Bitcoin, as a currency, may suffer from stability of value since their value is not intrinsic in the currency but on how much it is wanted and demanded.93 However, Bitcoin which is generated and released in bits; has a concrete ceiling of 21 million Bitcoins. 94 Therefore similarly to the knowledge that precious metals were finite, and this gave them value, Bitcoins also have this ceiling as a basis of value apart from its present needs (demand and supply). Like precious metals, Bitcoins are also mathematically mined and cannot be created 83
84 85 86 87
88
89 90 91 92 93
94
The Economist, ‘Virtual currencies: Mining digital gold’ The Economist, 13 April 2013 accessed 19 February 2015. The algorithm is said to have been written by Satoshi Nakamoto, Bitcoin’s inventor in 2009. It is not known whether this is a real person. Ali and others (n 41) 265. Virtual Currencies Key Definitions and Potential AML/CFT Risks (n 69) 6. Ibid 6. The Silk Road is a hidden website (part of the so-called ‘dark web)’designed to enable users to buy and sell illegal drugs, weapons, etc. anonymously and beyond the reach of the law; romanticised as the Amazon of illegal drugs - Brezo and G Bringas (2012) 23. Mitsuru, Kitamura and Tsutomu Is Bitcoin the Only Cryptocurrency in the Town? Economics of Cryptocurrency and Friedrich A. Hayek (2014) 2. Ali and others (n 41) 267. Economist (n 83). Ibid. Economist (n 93). Mitsuru, Kitamura and Tsutomu Is Bitcoin the Only Cryptocurrency in the Town? Economics of Cryptocurrency and Friedrich A. Hayek (2014), p4 Bill Maurer, ‘Mobile money regulation: A story arc of best practices and emnerging realizations’ Notes from the Field, December 2011 accessed on 19 February 2015. The Economist, ‘Digital currencies: A new specie’ The Economist, 13 April 2013 accessed on 19 February 2015.
- 11 -
as is the case with other digital currencies or printed or minted as does happen with fiat money.95 Because it operates outside jurisdictions of states, there are fears that Bitcoin may suffer from a lack of monetary policy and sovereign guarantee which are essential for stability of national currencies. Indeed there have been steep value fluctuations of Bitcoin, defiant of every-day market forces. Considering the secrecy involved, the small circle of the people who actually control it; the question of whether the Bitcoin is another Ponzi scheme is a valid one to ask. Only time will tell whether it is, and if not, in what form it will evolve as a virtual currency, especially as the 21 million celling approaches. 6. MOBILE MONEY Mobile money, despite its name, is not part of mobile banking. It is not an extension of one’s bank account accessible by the mobile phone or other internet based gadget. Mobile banking technologies that extend the banking service across time and space are what are referred to as ‘bank-led’ models.96 The mobility of mobile money is not in the fact that it can be carried around in a mobile phone, rather it is because it is the kind of money that can be carried in a mobile phone without having a bank account. It is a money service that uses the mobile phone itself and the technology it is based on, as a means of payment. Mobile money is a ‘techno-led’ or ‘carrier-led’ model,97 sometimes also referred to as telco-led.98 Mobile money is a service offered up by telecommunication companies (carriers) and operates as an added-on service to the normal telecommunication services. The usage of the mobile phone to access financial services and transact was therefore only an event waiting to happen. The mobile phone achieves this by the use of an interactive short messaging service (SMS),99 a data messaging service channel available on phones using the Global Systems Mobile (GSM) platform100. The mobile phone essentially mimics key ingredients that are essential for the offer of banking services. The subscriber identification module (SIM) can authenticate users and the phone can also be employed as a point of sale (POS) terminal.101 Jenkins calls it ‘money that can be accessed via mobile phone’. 102 He however cautions that mobile money is [real] money and not ‘pseudo money’.103 Porteous defines mobile payments as ‘transactions undertaken using mobile devices such as a mobile phone’.104 Mobile payments are therefore a subset of a broader set comprised of electronic payments (e-payments) and
95 96 97 98 99
100
101 102
103 104
Economist (n 83). Maurer (n 92). Ibid. Called this because of the telecommunications industry. William Jack and Tavneet Suri, Mobile money: the economics of M-PESA (National Bureau of Economic Research, 2011) 7 Ignacio Mas and Daniel Radcliffe, (2011) ‘Mobile payments go viral: M-PESA in Kenya’ 32 The Capco Institute Journal of Financial Transformation 169; 170 Ibid 172. Beth Jenkins,(2008) Developing mobile money ecosystems (2008), Washington, DC: International Finance Corporation and Harvard Kennedy School, 2008) 5. Ibid 21. David Porteous, (2006) The enabling environment for mobile banking in Africa (2006) (Report Commissioned by Department for International Development (DFID)) 3.
- 12 -
electronic banking (e-banking).105 Hughes and Lonie have called the mobile money service; ‘turning cell phones into 24 hour tellers.’106 Jenkins argues that mobile money ‘reduces the cost and risk inherent in dealing with cash’ and that the range of transactions and services which can be accessed by the mobile phone are limitless thereby resulting in significant implications for economic activity across the world. 107 According to Maurer mobile money ‘represents a collision of two ubiquitous technologies, each with similar but internally contradictory set of symbolic associations and social practices.’108 He argues that both mobile and money represents modernity; the former an ‘index of technological savvy’ and the flashing of money denotes a symbol of importance. 109 Using mobile money also helps bring into the formal system money that is kept in the informal system. Just imagine the impact of raking into the formal economy all those millions of Kwachas that Malaŵians have kept in their ‘safe deposit boxes’ buried deep into the ground or some other ‘safe’ place in the household? Malaŵi has seen the emergence of two mobile money services: Khusa M’manja (money in the hands) and Mpamba (money). Khusa M’manja ‘is a service that allows [one] to load cash into [one’s] mobile phone and then use it as a mobile wallet’.110 It allows a user to ‘send and receive money, deposit and withdraw cash, make purchases, pay bills [and] top up airtime’.111 Mpamba works in a similar manner.112 Khusa M’manja is provided by Airtel while Mpamba is provided by Telekom Networks Malaŵi. The mobile money interface is the same as that of regular everyday [text-based] communication. If one can procure goods and services, it invariably means one can also receive payments for goods and services sold. As noted, there is no requirement to possess a bank account.113 6.1 Is mobile money; money? The greater the number of people and business (mobile money ecosystem) who can accept payments via mobile money, the greater mobile money mimics the qualities of fiat money. Within its ecosystem, mobile money is therefore accepted as a medium of exchange. It is not accepted because it represents a valued commodity, but it begets its value from its utility. It therefore has value and utility brought about by its acceptance as a medium of exchange within its ecosystem. It is therefore part of the digital currencies genus but specifically of the e-money species. To satisfy regulatory requirements, mobile money has a one to one ratio or relationship with fiat money that is kept in a bank.114 This one-to-one ratio also ensures that the mobile money maintains its characteristic as a unity of account. The expression of the value of e-money is the 105 106
107 108
109 110
111 112
113 114
Ibid. Nick Hughes and Susie Lonie, (2007) ‘M-PESA: mobile money for the “unbanked” turning cellphones into 24-hour tellers in Kenya’ 2 Innovations 63; 63. Jenkins (n 102) 5. Bill Maurer, (2012) ‘Regulation as retrospective ethnography: Mobile money and the arts of cash’ 27 Banking and Finance Law Review 299; 308. Ibid. ‘Airtel Money launch in Malawi’ (Airtel) accessed on 19 February 2015. Ibid. ‘Mpamba, TNM Mobile Money’ (Telekom Networks Malawi) accessed on 19 February 2015. A customer due diligence of some sort is however done. Guidelines for mobile payment systems Malawi.
- 13 -
same as that of fiat money. One Kwacha in mobile money is the same as One Kwacha in fiat money. Although mobile money is a digital representation, that representation manifests itself as a store of value. One can therefore transfer the value in the digital representation to another person and the person who receives such transfer can deal with it in any manner as would befit money. The storage of value is also closely tied to the fact that the digital representation is that of fiat money, held at a bank. In this regard mobile money mimics token money only that in this case it is a token of a token. In other words, mobile money represents fiat money, which itself is token money. Personal mobile money accounts are stored in one’s own mobile phone. Usually the information is kept in the SIM card or shared between the SIM card and the phone memory. Once the mobile money is credited to a particular user (through his mobile number) then the value is attached to this user almost forever. It cannot dissipate, does not reduce (except by the usual method of time value for money – see figure 1 above). It is therefore virtually indestructible. Unlike fiat money, even if one were to lose one’s phone, or have the SIM card corrupted, it is possible to replace the SIM and retrieve any information that may have been stored on the servers of the mobile network provider. The provision of a unique passcode also ensures that even if the mobile handset is lost or stolen, the value of the mobile money is still intact and is only available to the bona fide owner. The ubiquitous nature of the mobile phone has meant that mobile money can also be carried virtually anywhere and everywhere but it can also be shared easily. Because it is a digital currency, it adds no extra weight to the weight of the mobile phone handset. Compared to fiat money, mobile money can be said to be safe to carry around. When one produces a wallet full of notes, one attracts attention. When one produces a mobile phone, no one really pays attention, unless to admire (or covet for) the phone, if it is one of those in the smartphone category. In this case mobile money is not only portable but also a convenient way of carrying money around. Mobile money costs nothing to carry around and very little to transmit, much less than fiat money. Mobile money does not even have to physically move across space as it is a digital representation. Since it is tied on a one-to-one ratio with fiat money, mobile money may be said to be homogeneous. It maintains the same value by representation. X amount of mobile money in one place will be the same X amount in another area. There is uniformity across time and space. Mobile money is easily divisible into smaller units. In this regard it closely mimics fiat money and this also follows from the one-to-one ratio between the two. Among the mobile money ecosystem, the digital representation that is mobile money is easily recognised and accepted. Within the ecosystem mobile money, is therefore cognisable. The recognition is not so much in the digital representation, but usually manifests itself when a transaction has been completed and someone has been paid. In this way, it may be said therefore that the recognition is ex post facto. It is only after the payment has been credited that the recognition comes. With fiat money, once it is presented, it is cognisable at that level, even before the vendor puts the cash in his cashbox. Unfortunately since it is a digital currency, mobile money cannot be seen. Its representation can be seen, but as discussed above, this representation means nothing until one’s account is
- 14 -
credited. It is not something one can hold or feel or be satisfied with. So although it is cognisable, it is not tangible in the physical sense. Mobile money is easily accepted within its ecosystem. But there is nothing to obligate anyone within the ecosystem to accept payment in the form of mobile money. In other words, one can opt out and demand payment in fiat money. Outside the ecosystem, mobile money is not money at all. Mobile money therefore lacks the key feature of fiat money; it has no state authority behind it that makes it legal tender. Even within the ecosystem, its acceptance does not amount to accepting it as legal tender since it has to be converted to fiat money in order to have utility and value outside the ecosystem. 7. AIRTIME The currency of the mobile phone is the airtime, also called airtime credit or simply credit. Currency in this regard is used loosely in the sense of the commodity that enables one to communicate on the mobile phone network. Credit is also used loosely and does not denote credit in the financial sense. It denotes a concept that you purchase the commodity called airtime and then the commodity gets credited to your phone. With time, airtime has emerged not only as a means by which to communicate but also serves as a form of currency which can be transferrable. For example, a popular service on most mobile phone service providers is the Me2U115 (me to you). In this service one mobile phone user can transfer airtime to another. This can be for gratis but may also be in exchange for cash or other form of payment. 116 This has led others to suggest that airtime is a form of e-money or at least an alternative currency.117 Across Africa and Asia where it has its footprint, the mobile network operator Airtel has provided a unique mobile telephony product called one network.118 This allows one to use Airtel services when in another country within the footprint as if they are at home. One can therefore purchase airtime in country X and travel to country Y and use it. Better still, one can be in country D and purchase airtime in country E if one has means. It is this aspect that makes airtime unique and also easily remittable across borders. Initially both Airtel and Telekom Networks Malaŵi (TNM) used to denominate airtime units in United States Dollars such that although payment could be made in the local currency, the value was usually a fixed rate of the local currency to the Dollar. Following complaints by consumer groups as well as concerns and directives by the Malaŵi Communications Regulatory Authority (MACRA), this has stopped and the airtime units are now sold in Kwachas. However the dollarisation of airtime had its value as it allowed for it to maintain unit of value across time and space. One Dollar of airtime had the same value in country X as it had in country Y in terms of airtime units although the local monetary value varied.
Airtel ‘Me2U’ (Airtel, Malawi) accessed on 19 February 2015 and TNM ‘Me2u Service’ (TNM, Malawi) accessed on 19 February 2015. Safaricom call theirs ‘Sambaza’ (Safaricom, Kenya) accessed on 19 February 2015. 116 As where two persons are in a remote area far from any airtime vendor and one of them needs to top up his or her airtime. 117 Porteous (n 104) 23. However airtime is not redeemable at par into cash and may therefore not meet the strict definition of currency. 118 ‘one airtel makes it easy’ (Airtel) accessed on 19 February 2015. 115
- 15 -
7.1 Is airtime; money? An example of the author’s own experience will demonstrate the across border remittance capacity of airtime. In 2008, I went to Uganda to participate in a University Challenge competition sponsored by Zain, the predecessor company to Airtel. I took both my Airtel and TNM phones.119 In Uganda, the TNM phone was able to recognise the local network, Uganda Telecom, but I could not do much with it. When I tried to send a text message it could not go through. It required a reconfiguration of settings. I gave up. The Airtel phone however immediately provided a message, ‘Welcome to Airtel Uganda’ and informed me of the keys I had to use to access certain information. I noted that except for a few differences, this was very similar to what I was used to. I was able to send messages back home at the same rate as though I was home and even receive calls from home. For the people calling me from Malaŵi, they were being charged the local call rate. That is when I realised the uniqueness and enormity of the one network service by Airtel. But I soon ran out of airtime and was unable to go outside to buy more airtime credit. So I thought of using my mobile banking application, called Mo626 Ice,120 running on the mobile phone platform, to procure more airtime credit using funds in my bank account in Malaŵi. I was not sure if this would work though and proceeded with utmost caution by buying a small value of airtime. When I received the code, I used the same value entering system as I would in Malaŵi and voila credit topped up! I then realised that several people had also run out of airtime and were either sending people to procure airtime using Uganda Shillings or were just out of communication. I offered to exchange airtime with them for whatever of value they had which I could use. So I procured airtime from Malaŵi using my local account and gave the codes or used the M2U service to transfer the airtime credit to others. In return I received money, in various currencies or goods and services that I coveted. The above example illustrates that airtime can be transmitted across borders. This means that if the airtime has value, this value can also be transmitted. This transmission of value does not go through any foreign exchange regulatory agency or intermediary. It is all via the telecommunication network of the mobile phone provider. So airtime is a commodity capable of serving as a medium of exchange. It could be used to exchange with other commodities such as currencies of other countries, goods or services. However, although it serves this purpose, its main use is not as a medium of exchange. Its use as a medium of exchange is ancillary. In 2008, airtime was still dollarised. It therefore not only stored but maintained its value. However, even now, although the airtime is no longer denominated in Dollars, it still serves as a unit of account and a store of value. This is because the value in the airtime represents the value in fiat money. Instead of sending fiat or mobile money, one may therefore send airtime to a relative in the village. The relative may decide to redeem the airtime from whosoever needs it (commodity of want) or even exchange it for other goods and services. This value is one-toone although not always. An example may help to illustrate this feature. Suppose one has an abundance of airtime in a village where there are no vendors selling airtime. One will in this case be able to exchange the commodity of airtime with other commodities that maybe be exchangeable, including fiat money. It also means that a 100 Kwacha value of airtime may in an area where there is no airtime credit available be able to be exchanged for a Because of non-uniform coverage, it is common for Malaŵians to have two mobile phones for each of the two networks. Recently we have witnessed an import of Chinese phones with dual SIM capability. 120 A mobile banking service offered by National Bank of Malaŵi. 119
- 16 -
value greater than 100 Kwacha. On the other hand, it follows, that where there is plenty of supply for airtime credit, and one wants to exchange his credit, he may have to do so at a loss of value. This deviation in value that demonstrates that airtime is a form of money and that it mimics the trading that takes place between two forms of money such as in the case of a foreign exchange transaction. Airtime credit is the fuel that drives the phone, the power energising the invisible wires that connect two connection points. It has no value other than to users of mobile phones (and of that network). It is coveted because without it one’s mobile phone is just another useless device.121 However, it has no value in itself, as a string of digits. It is only the phone (connected to the right network) that will recognise the value and lead to the topping up of credit. Its value therefore, comes from its usage, its utility. By its very nature, the airtime credit goes with the phone. It is embedded in the SIM card as well as on the servers of the mobile network operator. This prevents the creation of counterfeit airtimes which would be rejected by the computer servers operated by or for the mobile network operator. Therefore like mobile money, airtime is highly portable. It has no weight or personality of its own but can easily be transmitted across time and space. Similar to mobile money, it can be redeemed if the phone is lost even if it has been partially used. To prevent airtime from being used with a lost or stolen phone, one can provide for a passcode for the phone (different from a passcode for mobile money). Once airtime credit is created or generated, it is indestructible but to a limit. It retains its value because it is a digital representation. Therefore if one buys a paper voucher containing an airtime credit code, and the voucher gets defaced, it will usually contain information which can be used to retrieve from the servers of the mobile network operator the code for the airtime credit. Although it is termed airtime, it does not dissipate or disappear into the air if stored in the phone. It only does this when it is being used. However, in Malaŵi, Airtel have a time limit for their airtime credit. The credit will expire at a designated time unless one procures an additional amount of credit. This has been criticised as a means of forcing customers to continue procuring airtime as well as robbing them of money they have already paid for. In this regard, Airtel airtime cannot be said to be indestructible in the strictest sense. Airtime also maintains a uniformity of value. It is homogenous over space and time, mainly because it is expressed in terms of the label used for fiat money (Kwacha), although it may itself vary. A bundle or packet of airtime can also be unbundled into smaller parts. It is therefore possible for one who has 100 Kwacha worth of airtime credit to transmit this to 10 people airtime credit worth 10 Kwacha each. There is no service charge for this service making it perfectly divisible. Although officially the mobile network operators have provides coupons with specific values, vendors, act as agents have devised means of breaking the values in the coupons further. For example, supposes the minimum value of a coupon is 50 Kwacha. Vendors can load this into their phone and then sell a fraction to a customer who may not have 50 Kwacha. The balance can then be sold to other customers or combined with other credit vouchers to create a higher value. When presented as a coupon, the airtime credit is easily recognizable in Malaŵi. In fact one can exchange value based on its presentation. This illustrates how much the system is trusted 121
This may not be necessary true however in the age of Wi-Fi technology and for the so-called smart phones which are able to connect to this technology and still operate, on a reduced level though.
- 17 -
and that so far there have not been attempts to flood the market with fake coupons. But the coupons are not the airtime credit, they merely contain the code which when entered translates into credit. On its own, airtime credit is cognisable if it is shown as a balance on one’s form or if it is transferred from one person to another (person to person; P2P). Like mobile money, airtime cannot be seen, it cannot be touched or held. It is therefore not tangible in the physical sense. However, the coupon maybe seen, touched and held. The coupon is tangible. It is important to emphasise that although most people may refer to the coupon as airtime, the coupon is not and is a merely representation of airtime. In that regard it may be said to be a representative token and that even the coupon, itself a representing airtime, may be regarded as money also. The production of coupons in many ways mirrors what the mint does when producing fiat money and the unique number of the coupon would be akin to the unique number on most banknotes. Furthermore, the coupon producer has to create a database which links with the mobile network servers so that they can be able to recognise and accept as money the airtime when it gets issued. Invariably this also means, the system must be able to recognise as not money, coupons which have not been officially issued. Unlike mobile money, airtime is not traditionally used to pay for goods and services even within the mobile phone community. It may be so used but this is not its primary use. It means no one can be obligated to accept it in settlement of any debt. Like, mobile money, it is therefore not legal tender. Earlier on, a discussion was provided about the time value for money (figure 1). The formula t FVt = PV + (1+r) shows a key indication of the behaviour of money. In the European Union, issuers of electronic money or prohibited from creating money by granting credit using the fiat money to which the e-money is tied to as guarantee.122 In Malaŵi, the regulatory framework is silent on this. However the EU Directive is unclear what happens if the credit granted is not based on fiat money but on the e-money itself. This is what Airtel has done in Malaŵi. It grants airtime to its customers on credit terms, denominated in Kwacha to be paid back at a rate time, t, at a rate r. In so doing, Airtel is clearly recognising that airtime credit loses value over time and therefore the future value must factor in the loss of value in the intervening period. It is submitted that this is an area which the financial service regulator in Malaŵi may have to look at and clarify. However, the substantial regulatory issue that may have to be considered once airtime has acquired the key characteristics of money and started being accepted as money is how to regulate it. Currently airtime is not regulated as a financial service or product, it is regulated as a communications service. Although airtime, like mobile money, throw classical monetary theory upside down, the reality is that with the emergence of the digital age; digital currencies maybe here to stay. However mobile money is now regulated, somewhat, using a soft-touch regulation model. Therefore in time, depending on how airtime evolves, the financial services regulator may wish to start looking at how the service can be regulated, as a financial service. For now it is submitted that further research needs to be done to measure the extent at which airtime is being used as money. And if it is money, what form would it be categorised as; virtual as opposed to e-money? It is submitted however that the better approach would be for the regulator to allow the airtime to evolve on its own as it is still unclear what the end product maybe in terms of whether it is a financial service or not.
122
Directive 2009/110/EC of the European Parliament and of the Council, section 13.
- 18 -
8. ANALYSING MOBILE MONEY AND AIRTIME USING THE LEGAL MONEY FRAMEWORK The discussion above on whether mobile money and airtime are money can be reduced to Figure 3 below. The standard of comparison is traditional fiat money. Money
Medium Store of of Exchange Value
Unit of Account
Utility IndestructLegal and Portable Homogeneity Divisible Cognizable Tangible ible tender Value
Fiat Mobile Money Airtime Figure 3: Framework for identifying money
From figure 3, mobile money fails to satisfy the requirements of classical money in that it is intangible and is not leger tender. Airtime fails because it is not primarily a medium of exchange, it is intangible and is not legal tender. Traditionally money will only get recognised within a jurisdiction if it is accepted as legal tender. However this assumes the theory that it is the state that decrees what money is. On the other hand the alternate theory proposes that it is the market that designates what commodity will perform the function of money, and the state merely endorses this. Looking at the alternative theory therefore, and removing the category of ‘legal tender’ it is clear that mobile money does fulfil the market function of money. Looking at airtime, in the areas where it is used as a medium of exchange, it may be said that it also does fulfil the function of money. From the discussion of currencies, it can be said that both mobile money and airtime are forms of digital currencies. Mobile money is clearly a form of e-money since it is backed by a oneto-one ratio with fiat money. Airtime is not e-money as it lacks this characteristic. Both mobile money and airtime have in-built security features that prevent interference by third parties. They may not be cryptocurrencies in the traditional sense but it is clear that there is some low level of encryption. This allows a digital tracking of mobile money and airtime transactions. On the other hand, an airtime code which may be written in the form of a coupon may be obtained by an unauthorised third party who can use it. The system would not prevent this as it would assume the airtime code is being validly used. As indicated, there is always a digital trace left by airtime and mobile money transactions. This allows for example the mobile network operator to cancel out a batch of codes in the event that coupons have been stolen. Validation of action also prevents double-transacting based on the same value of airtime or mobile money. Figure 3 presents a useful array for assessing whether a commodity fulfils the function of money. However, if we consider the basic three functions of money: store of value, medium of exchange and unit of account,123 then it is submitted mobile money qualifies as money. Airtime would not fully qualify because as it has been noted, its use as a medium of exchange may be accidental or ancillary. However where it is so used, then it would qualify as money.
123
Ali and others (n 43) 278.
- 19 -
It is submitted that although airtime may lack the key features of traditional money, the innovation by Airtel to start offering airtime on credit and charge an interest on it has demonstrated that airtime has features of money. The value of Airtime is offered at the present time to a customer to use, and the customer is expected to repay the value of the airtime at a future time based on a set rate of interest. If one were to substitute the term airtime with money, the statement would read like the typical intermediary function of banks. In answering the question whether mobile money and airtime are money, it may be said that in the classical sense they are not. However as Bitcoin has proved, the future may lie in decentralisation of sovereign monetary power. Being legal tender may no longer be the yardstick for money. It may well all depend on whether one provides an economic definition of money or the legal definition of money. It can therefore be said that mobile money and airtime are emerging forms of money. How successfully they will fulfil the function of money will depend on how they develop. As has been shown earlier, evolution of money has been a constant attribute of money from its origins. Evolution is a part of the character of money. It can therefore be asserted that with advances in technology, demands of society and changes in procurement habits, ‘money will continue to evolve’.124 Of the two, mobile money has shown characteristics that demonstrate that it is on a faster route to being accepted as money. However it is argued that although airtime does not at first glance come out as money, it should also start being considered as such, especially in the context of rural areas of countries such as Malaŵi. 9. RISKS POSED BY THESE EMERGING FORMS OF MONEY This section looks at risks posed or that may be posed by mobile money and airtime as emerging forms of money, from a prudential and conduct of business point of view. 9.1 Prudential risks 9.1.1 Credit risk Airtel offers airtime on credit. What happens if a large portion of its subscribers were unable to repay the credit? Would this affect Airtel’s obligation to its creditors, including the producers of the coupons? Would this have a domino effect on the financial system? In terms of tax, once the airtime is credited to a customer, the applicable value added tax accrues there and then. Would a default by the customers lead to Airtel failing to pay the tax collector? 9.1.2 Liquidity risk Mobile money works on the principle that there is fiat money in a pot somewhere on which it is tied to on a one-to-one ratio. However in reality there is no such pot full of money. The money is deposited in a bank which is at liberty to use it as part of its loan portfolio. Since interest is not payable to the mobile money customers, this presents a cheap source of financing. There is a risk that banks may engage in moral hazard125 as the only obligation they have to meet is to match the deposit but not pay a commercial interest on the deposit. This potentially exposes the system to a liquidity risk in the event that a bank has lent out most of the money deposited against the mobile money and for whatever reason mobile money users want to cash out. This can lead to a domino effect where a run on mobile money results on a run on the bank. 124 125
Kelley Jr (n 34) 22. The risky financial practices that banks engage in on the basis that should they fail the state will bail them out.
- 20 -
Suppose mobile money customers in a certain town have problems withdrawing their money as cash. This may lead to a run on the mobile money system in the town. Because of the contagious nature of runs, this may affect the whole country. A run on the mobile money system in the whole country would force the mobile money agents to rush to withdraw money from the bank. But as indicated, this money may have been lent out by the bank. This would lead to mobile money agents (under pressure from customers) being informed they cannot access their money. The jump from panic in the mobile money system to panic whether the bank has enough money would be inevitable. A bank run may be the result. A run on mobile money and/or the bank would have systemic effects on the whole financial system. Insolvency on the part of the mobile money provider, the mobile network operator or indeed the bank (in the case of mobile money) may also leave customers with worthless values of airtime or mobile money. 9.2 Conduct risks 9.2.1 Operational risk This is a risk associated with failure of operations including cessation of business. Mobile money and airtime all operate using a telecommunications backbone. Any failures in the telecommunications backbone invariably affects mobile money and airtime transactions. Also, any failure in the chain of operations of either mobile money or airtime can pose a risk. For mobile money this includes the risk posed by mobile money agents, the bank that holds the pooled funds, the mobile money service provider and the mobile network operator. For airtime the risk includes the company that produces the airtime coupons, the vendors who sell the airtime and the mobile network operator. If any link were to cease function or derail, it would affect the whole chain and pose an operational risk. 9.2.2 Fraud So far, there have been no reported cases of fraud involving mobile money and airtime. However, the encryption used for these services are low level, implying they may be susceptible to hacking. If fraud was perpetrated on either service, it may have catastrophic results for the entire system. This is because the system is built on trust. People trust that the mobile money value they have is directly tied to fiat money. People trust that when they have bought a coupon worth 100 Kwacha, when they load the code into their phone, it will translate to K100 worth of airtime. On the other hand there is an implicit trust that if a person approaches a mobile money agent to cash out, the mobile money in his phones constitutes good value. If someone were to break down the passcode system of mobile money it would lead to many mobile money customers losing out on their funds. In Malaŵi one does not need an identity to procure a SIM card although some form of identification is required for registration of the mobile money service. It is submitted that one may also easily obtain or produce fake identification papers for purposes of mobile money registration. This means it is theoretically possible to cash out money transferred to one’s account fraudulently and disappear. A breakdown of trust would be almost irreparable. 9.2.3 Money laundering and other illicit financing Because of the loose identification requirements for mobile money accounts, and no requirement at all for procuring a SIM card, there is potential risk of these services being used for money laundering and other illicit financing. The amounts transferred are not large, and have a cap both on value and daily transactions. Mobile money and airtime may act as a laundry - 21 -
or mixer of funds in such a manner that what comes in cannot be connected to what comes out. Furthermore, the fact that the units of value can be subdivided would make it easy for funds to be channelled to several sources as well as to have funds channelled from several sources and consolidated into one account. The ultimate recipient may cash out fiat money (for mobile money) or exchange his airtime for other commodities. 126. 10. CONCLUSION The paper has provided an overview of the development of money and what qualities need to be satisfied for a commodity to function as money. A distinction was made between legal money (fiat money) and economic money, appreciative of the fact that fiat money is the dominant form of money. The journey back to the origins of money was important as it demonstrates that although money has evolved into the legal form it is today, it started out of the needs of the market (economic money). Initially being legal tender was not a prerequisite of money. It is therefore possible that the future of money may lie more in the past than the immediate present. The development of other virtual currencies like Bitcoin has evidenced a shift in the sovereign foundations of money. A framework was developed based on the attributes of legal money and applied to mobile money and airtime as emerging forms of money. It was found that both mobile money and airtime fail to satisfy, at least for now, the required attributes of legal tender but that they generally satisfy the attributes of economic money. Of the two, mobile money satisfies the broad qualities of economic money but airtime is only money in an ancillary way. Looking at the origins of money, it can be said that both mobile money and airtime would qualify as money in the market place, although the market for each may be different. An interesting issue arises with airtime because unlike mobile money, it is not issued as money. Interesting also is the concept of the airtime voucher functioning as money. It will be interesting to see how the issuer would respond should airtime and the voucher gain sufficient recognition and acceptance as money. Although they fail to satisfy the requirement of money as present-day defined, one thing that that can be said from the analysis of mobile money and airtime is that they can in the least be categorised in the grouping of emerging forms of money. These new currencies have also proved that something else other than state guarantee can be used to back up new forms of money. Fundamentally this also raises the question of how these emerging forms of money can maintain the value independent of state guarantee. Due to their extra-territorial nature, the question that may also need to be considered is how these emerging forms of money will be regulated. Setting up an enabling legal and institutional framework that is responsive to the evolution of money over time is therefore important. This may need initially to have a soft-touch regulatory model and scale up as the ecosystems gains momentum and reaches saturation.
126
For a deeper discussion of this risk especially in view of counter terrorism financing See Madise (n 1).
- 22 -
Reference Directive 2009/110/EC of the European Parliament and of the Council Guidelines for mobile payment systems (2011) Reserve Bank of Malawi Bryant v Foot 1868 LR 3 497 (QB) Case Concerning the Payment of Various Serbian Loans Issued in France (France v. Serbia) and Payment in Gold of the Brazilian Federal Loans Contracted in France (France v. Brazil) PCIJ Rep Series A Nos 20–21 (Judgment of 12 July 1929) Ali R and others, Innovations in payment technologies and the emergence of digital currencies (Q3 edn, Bank of England: 2014) –––, The economics of digital currencies (Q3 edn, Bank of England: 2014) Charles de Secondat BdM, The Spirit of Laws (1748) (Nugent T tr, Batoche Books: 2001) Greco Jr TH, ‘New Money: A Creative Opportunity for Busines’ (Global Development Research Centre [first published in Perspectives on Business and Global Change (World Business Academy) Vol 11, No 3, September 1997], 1997) accessed on 19 February 2015 Hughes N and Lonie S, ‘M-PESA: mobile money for the “unbanked” turning cellphones into 24-hour tellers in Kenya’ 2 Innovations 63 (2007) Jack W and Suri T, Mobile money: the economics of M-PESA (National Bureau of Economic Research: 2011) Jenkins B, Developing mobile money ecosystems (Washington, DC: International Finance Corporation and Harvard Kennedy School: 2008) Jevons WS, Money and the Mechanism of Exchange, vol XVII (D. Appleton and Company: 1919) Kelley Jr EW, ‘The future of electronic money: a regulator's perspective’ 34 Spectrum, IEEE 21 Mas I and Radcliffe D, ‘Mobile payments go viral: M-PESA in Kenya’ 32 The Capco Institute Journal of Financial Transformation 169 Menger C, On the Origins of Money (1892) (Ludwig von Mises Institute: 2009) Proctor C, Mann on the Legal Aspect of Money (7th edn, Oxford University Press: 2012) RTS, Money; its nature, history, uses, and responsibilities (The Religious Tract Society: 1854) v Hayek FA, Denationalisation of Money: The argument refined (Ludwig von Mises Institute: 1976) Brezo F and G Bringas P, ‘Issues and Risks Associated with Cryptocurrencies such as Bitcoin’ (SOTICS 2012, The Second International Conference on Social Eco-Informatics) Madise S, ‘Payment Systems and Mobile Money in Malawi: Towards Financial Inclusion and Financial Integrity’ Volume 2 ANULJ Volume 2 Issue No. 2 (Juta: 2014) Madise S, ‘The Mobile Money Service in in operation’ (forthcoming: (2015). Maurer B, ‘Mobile money regulation: A story arc of best practices and emnerging realizations’ Notes from the Field accessed on 19 February 2015 Maurer B, ‘Payment: Forms and functions of value transfer in contemporary society’ 30 Cambridge Anthropology 15 (2012)
- 23 -
–––, ‘Regulation as retrospective ethnography: Mobile money and the arts of cash’ 27 Banking and Finance Law Review 299 (2012) Mitsuru I, Kitamura Y and Tsutomu M, Is Bitcoin the Only Cryptocurrency in the Town? Economics of Cryptocurrency and Friedrich A. Hayek (2014) Mutengezanwa M and others, ‘The possibility of re-introducing the Zimbabwean dollar’ 2(6) Australian Journal of Business and Management Research (2012) Noko J, ‘Dollarization: the case of Zimbabwe’ 31 Cato Journal (2011) Porteous D, The enabling environment for mobile banking in Africa (Report Commissioned by Department for International Development (DFID), 2006) Taylor J, ‘New money, new rules’ accessed on 19 February 2015 Virtual Currencies Key Definitions and Potential AML/CFT Risks, Financial Action Task Force FATF (2014) ‘Airtel Money launch in Malawi’ (Airtel) accessed on 19 February 2015 ‘Banknotes’ (BANKNOTES.COM) accessed on 19 February 2015 ‘Can anyone translate this Latin for me?’ (Yahoo!, 2011) accessed on 19 February 2015 ‘Digital currencies: A new specie’ The Economist accessed on 19 February 2015 ‘Definition of fiat money’ (Financial Times) accessed on 19 February 2015 ‘Me2U’ (Airtel, Malawi) accessed on 19 February 2015 ‘Me2u Service’ (TNM, Malawi) accessed on 19 February 2015 ‘Mpamba, TNM Mobile Money’ (Telekom Networks Malawi) accessed on 19 February 2015 ‘one airtel makes it easy’ (Airtel) accessed on 19 February 2015 ‘Sambaza’ (Safaricom, Kenya) accessed on 19 February, 2015 ‘Summaries of Judgments, Advisory opinions and orders of the Permanent Court of international Justice’ (United Nations, 2012) accessed on 19 February 2015 ‘Virtual currencies: Mining digital gold’ The Economist accessed on 19 February 2015
- 24 -
