The Verge speculates
on why Amazon wants to start issuing its own currency:
Three things: loyalty, an easy way to reward customers without simply giving away free money, and flexibility on their balance sheets. So in the future, will every company have its own branded currency? Varoufakis said that’s doubtful, because creating a currency is hard, contains hidden costs, and is rarely worth it for a company to bother with the intricacies of designing their own.
Here is another. Let’s say you buy my argument
that Jeff Bezos using expert cash-flow management to allow him to generate shareholder value without consistently generating profit.
Then its not far fetched that he is taking that knowledge of monetary economics to the app realm. There is reason to believe that like urbanization, virtualization creates generalized returns to scale.
Nations have been tempted to take advantage of this through industrial policy that seeks to funnel a lot of money into the hands of an emerging industry. However, as China has shown, a much more effective method is currency policy.
Instead of being caught up in the drama of picking winners and losers simply stack the deck in favor of the emerging sector by manipulating the exchange rate. This allows you to subsidize the winners – whomever they might be .
The dynamics are a bit involved but in short export industries will tend to be folks who gain from increasing returns to scale. Otherwise, its not clear why there is bilateral trade in such industries. A depressed currency benefits exporters at the expense of everyone else. A so voila, a depressed currency promotes the very sectors where there are increasing returns.
Amazon’s likely method is a little different but creates a similar effect. Amazon simply gives regular shoppers “reward” Amazon Coin whenever they make a purchase. Yet, then its allows developers to redeem Amazon Coin for one coin to the cent.
For customers this means products priced in Amazon Coin are unusually cheap. In general a customer won’t have to give up 100 cents to get 100 Amazon Coin, since she’ll collect “reward” coin from the purchase of ordinary Amazon products.
This in turn implies that exporters in the Amazon Coin world – which is now app development – experience a currency subsidy. Their customers find their products cheaper than pure resource exchange would imply.
As a result we would imagine investment in app development in Amazon Coin world to accelerate. And, if there are increasing returns then the agglomeration of lots of developers into this world will mean lower cost products and an even stronger advantage to enter ingapp development.
If it works then you could have a take-off economy similar to China’s.
The wrinkle of course is who bears the short term cost of the subsidy. However, Bezos may already have this worked out – Wall Street bares it. It bares it because Bezos’s cash-management policy gives the Street an incentive to shovel him cash at well below market rates.
If all of this works then what we are talking about is Amazon as a private company effectively taking on the traditional roles of a nation state: managing liquidity demand and internalizing externalities.
: Matt Yglesias has a particularly trenchant
take on the matter.