In the past, paying for things while traveling overseas was complicated. You had to convert some of your native currency into the local currency or get travel checks demarcated in local currency. Today, you can just hop on a plane with whatever major credit cards you have on hand and fly anywhere in the world and pay for anything with a swipe of the card.
Has this widespread adoption of credit card effectively made them a universal currency?
Of course, behind the scenes, the financial institutions who actually lend you the money you spend with the card must do all the swapping of currency that individuals used to do in the old days, but they do so today with computerized systems that operate almost automatically. From the perspectives of buyers and sellers the transaction looks like one transacted in their respective native currencies.
Credit cards have evolved into a meta-currency much as paper currency evolved as a meta-currency for deposits of gold. Paper money began as a convenience that allowed people to stop schlepping around standardized chunks of precious metals — i.e., coins — and to instead merely swap pieces of paper representing gold that hopefully existed in a vault somewhere. Eventually, paper gold notes became so widely accepted that people stopped worrying whether the gold actually existed. Likewise, we might see a time in the near future when people stop paying attention to the existence of national currencies.
Only their inability to transfer payments to ordinary individuals (as opposed to a business) prevents credit cards from immediately serving as a full-fledged currency. Yet, services like Paypal, which lets individuals receive payment from virtually any country for goods sold via Internet services (such as ebay), show that very little work remains to create a system in which individuals could exchange money without being members of a formal business. Direct deposit and debit/credit cards already make it possible for a person to live a near-cashless life. Most large-scale institutional transactions today involve nothing more than computers in one bank deducting numbers from an electronic ledger while a computer in another bank adds numbers to its ledger. Soon all transactions will take this form. In twenty years or so, young adults may lack the intuitive understanding that the numbers in their credit card information once represented slips of paper.
What consequences might this shift have? I have some ideas but I would like to open up a discussion.
[note: I don’t want the thread to devolve into a discussion about the gold standard. This is a dead issue as far as I am concerned.]