Legal challenges relating to the evolution of money in the Fourth Industrial Revolution (FIR): a new analytical framework

Abstract

In Clerke v Martin, Lord Holt, facing a diffusion of promissory notes, stated that these instruments were only an invention of “Lombard Street, which attempted in these matters of bills of exchange to give laws to Westminster-Hall.” Certainly, we could present a similar argument for “cryptoassets” and their obfuscated codes, which are being offered as a crypto lex mercatoria for the “Fourth Industrial Revolution”. However, authors like Sir Roy Goode, exhort us- building upon the commercially accepted practices -to not close the list of monetary instruments available to fulfil contractual obligations in different contexts. Therefore, if we want to be propositive, first, we need to answer two common, but key questions: “what is money?” and “are these innovations money?” To answer these questions, money tends to be defined in terms of its economic functions. In this thesis, we will argue that this is a good starting point; however, these elements by themselves are not enough to define money and “cryptoassets” in law. Money does not emerge nor evolve in isolation through these functions; it needs a set of infrastructures and social agreements that take us to ask a complementary set of questions: “who can create money?” and “how can it be created?” With that in mind, legal scholarship tends to rely on different theories with the aim to answer these questions. Among the most famous “money theories,” we can mention the Mengerian/Metallist, the State/Chartalist, and the Societary theories. Throughout this research, we will argue that both the State theory and the Societary theory of money are partially correct. Both are accurate but incomplete approaches that complement each other to configure a Socio-Legal theory of money. To support this assertion, we rely on the analysis of the ius cudendae monetae/lex monetae and its influence beyond the prerogatives related to the creation of sovereign currencies. We think that most of the analyses related to lex monetae tend to ignore the existence of payment systems and different expressions of “inside money,” which are tolerated and sanctioned by the State in exercise of its prerogatives. Accordingly, we will conclude that money in general terms is a social conception, but, just as in the case of lex mercatoria, new monetary instruments cannot be labelled as money in law if they –and their infrastructures- are not recognised as such and/or tolerated by law. Throughout the financial history of the world, the referred recognition has evidenced the need for the development of what we currently understand as central banking and its constitutional prerogatives related to the stability of the payment systems and the monopoly over money creation to uniform the economic interactions that derive from our social contracts. However, after the Global Financial Crisis (GFC), Distributed Ledger Technologies (DLT) innovators around the world have been working in the development of new decentralised/disintermediated payment instruments to brake this sovereign financial “panopticon.” Paradoxically, just as it has been verified with other Internet developments, we are witnessing, again, a gradual process of intermediation, which is characterised by its own set of market imperfections. In order to situate this novel analysis within the existing academic production (which tends to be heavily focused on the characteristics that define Bitcoin), this thesis divides the “cryptoassets’” market in three main generations to highlight the existence of a wide offer of cryptographic instruments, and the relevance of infrastructural elements like Intellectual Property Rights (IPRs), governance arrangements and intermediaries in the development of lex monetae. Based on this division, it is argued that we are following an historical trend by which a new generation of Financial Technology (FinTech) intermediaries is evolving to provide, not a “Global Coin”, but the infrastructure required for the optimal diffusion and consolidation of new payment instruments. As result of this trend, we conclude that the current constitutional prerogatives and regulations in force applicable to instruments like promissory notes, electronic money and payment systems could be useful to develop a fourth generation of “cryptoassets” and put in place an optimal regulatory effort beyond the crypto lex mercatoria inspired by the ideas found in the work of Satoshi Nakamoto. Consequently, we can argue that the set of proposals this thesis offers, could help us to keep supporting the evolution of money and the institutions relating to it in the “Fourth Industrial Revolution”.