In a few years from now, cash may no longer exist. Instead, we might be using microchips in our hands which will communicate with a digital currency system. As humans, we want things (and processes) to become more uncomplicated. That is how we measure progress.
Right now, technology facilitates economic activity but may soon supersede the need for faulty monetary policies (by creating more efficient economies) in the long run. Robert Solow was right all along. Despite this, we still use archaic paper currencies. This form of legal tender, however, in a decade or sooner, might be replaced by another official means of exchange of many nations – or at least be in heavy use.
Society needs a safer, easy-to-use means of exchange and incidentally, as you read this, digital currencies are being designed and studied at Universities and information technology ‘thinktank’ companies the world over.
It would require a monumental shift in thinking for people to stop using cash at all. At a human level, it seems simple. Paper money is (literally and figuratively speaking), dirty and it takes up space. It’s also possible for cash to cause stress as when you have it – you have a target on your back.
So, what could replace cash?
Central Bank Digital Currencies (CBDCs) are currently in hypothetical planning stages with some countries conducting proof of concept programmes. CBDCs are a means of monetary exchange (by a Central Bank) that exist in a digital state on a server in a cloud.
The idea of using a CBDC was prompted by the emergence and prevalence of Bitcoin and other cryptocurrencies. Believers in the mass use of CBDCs want the world to use less cash. They believe people are safer if they do not have money at hand, which can be stolen, and that commerce can be more efficient in a cashless society.
We could say that the history of money is a story of its gradual dematerialization from tangible objects to intangible computer code. Programming code is written for and used to facilitate many facets of our lives, so why not with money?
An ETA is sooner than you think
Over time, what has been used as money has changed, starting from trading large objects which were seen as a basic store of value. Gradually people started shrinking those objects into paper and then turning paper (IOUs) into a special paper. Later, they formalized the process by setting up a financial system to support it – Lo and Behold – the adoption and use of cash was borne.
Some progressive nations have shown genuine and committed interest in testing the viability of CBDCs. Seven Central Banks in October issued a statement in which they said they were studying common principles and salient features needed for a viable CBDC.
The Central Banks in Canada, Britain, the European Union, Japan, Switzerland, Sweden, and the United States now believe there is a threat that private digital currencies pose to the control of monetary policy.
More specifically, they are also competing with China, who they purposefully excluded from their group. They plan to have a viable digital currency system to prevent a case in which China gets the first-mover advantage.
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Advantages of CBDCs
We want to create a more efficient payment system. Managing cash can cost money mostly because of securing the safe use of it. We can include more people in a financial system as there is no need for consumers to have a bank account to hold a CBDC.
Safety is, therefore, a huge “positive” to having a cashless society. This is especially in emerging countries where many people still use cash as opposed to cards and electronic transfers (ETFs). Cash is trusted while banks aren’t necessarily trusted at all. Consumers also might not want to pay fees to keep their bank accounts open.
One salient case for a contactless (digital) payment system would is due to the advent of the Covid-19 virus. This has awakened us to the potential emergence and spreading of potential viruses in the future.
CBDC might also make micropayments cheaper which would allow for new services and business models. So, one can enable the efficient sale parts of products and services, such as individual news articles or television series episodes for a few cents rather than relying on subscription models.
A CBDC may also reduce friction between payment systems and increase the speed of transactions while ensuring their finality. This can be achieved by achieving delivery versus payment in securities transactions.
Interest-bearing retail CBDC might boost monetary policy efficiency. CBDC can provide a Central Bank with an additional financial instrument – the rate of interest it carries. CBDCs would provide competition to stable coin exchanges such as Bitcoin and Facebook’s Libra.
Issues with digital currencies & CBDCs
Cryptocurrencies currently exhibit huge swings in value (volatility) as people use them as a speculative asset. This could change if they were somehow monitored and administered by Central Banks.
The disintermediation of commercial banks would occur if consumers move money from bank accounts into CBDC. This could start a vicious cycle as banks raise deposit rates to attract more money and less bank credit will be extended at these higher interest rates.
A Central Bank could need to provide additional liquidity to banks and hence take on credit risk. There could be an increased reputational risk for Central Banks. Digital systems need to be protected and the system’s staff monitored.
Many questions remain unanswered
Cross border transactions will also create new paradigms for central banks. There are risks of a type of dollarisation for economies with volatile exchange ranges and high inflation.
‘Dollarization‘ is when a country replaces its currency with the US dollar because the dollar is so stable and widely used. In the foreseeable future countries may then opt to replace paper money with the best (continental) CBDC available – like a digital Euro for the EU.
The future depends on the goals of the CBDC. It would grant the public access to the state’s balance sheet when, right now, cash is the only way for private individuals to hold central bank money. All other types of money holdings are based on centralized/private money creation systems. These are still prone to manipulation and abuse by central banks themselves or their subsidiaries.
Did you know that there are still more than 700 million people in the world who live in extreme poverty? These people must scrimp, starve, and struggle to survive off less than $1.90 per day.
By 2030, the World Bank estimates that more than 90 percent of those people will be concentrated in Sub-Saharan Africa.
This is perhaps one of the greatest developmental failures of the modern world. Despite the continent’s expansive natural resources and increasing connectivity, foreign actors still feel it’s too risky to heavily invest in their markets.
Blockchain could be the key!
Bitcoin and “Blockchain” were created in the mass wave of distrust in banks after the 2008 financial crisis. Therefore, the technology enables individual, distributed data storage that could become the perfect evidence (trust) base and financial infrastructure for a developing country.
With the right implementation, Blockchain holds the potential to completely revolutionize and revitalize such economies, especially in Sub-Saharan Africa.
So, what is this Blockchain?
Blockchain is essentially a kind of decentralized database that allows you to have a safe, secure way to handle their data without the need for third parties.
For example, you could with Bitcoin, make or accept payments in real-time without needing a centralized bank.
“[It is] a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer,” said software entrepreneur Marc Andreessen.
“The consequences of this breakthrough are hard to overstate.”
Historic background
Until the mid-twentieth century, most of Africa was ruled under a colonial system meant to exploit the people and their natural resources for European benefit. Africans, in addition, were rushed into development according to European standards rather than homegrown ones.
The legacy of rapid development, distrust and corruption left behind an economic system failing to recover in the 21st century.
While the World Bank celebrates a decrease in global poverty levels, the number is expected to remain stagnant in Africa. Today’s poorest people are living in places with the least economic growth.
Sadly enough, poverty and lack of investment in many developing countries stem from how they were integrated into the world system.
The land was cut into countries according to European treaties and agreements, rather than by traditional and tribal land divisions. This situation worsened upon the handover of colonial power to so-called “democracies.” Power often shifted to the ethnic groups that former colonizers favoured.
Corruption multiplied in the form of bribes, political persecution, rigged elections, and a massive wealth gap. All of this still affects the wealth distribution and investment potentials of many developing countries.
Of course, this created a lack of trust in banks and government throughout much of Sub-Saharan Africa.
The perfect fit for Africa
During a 2012 study conducted in rural Western Kenya, Stanford University researchers waived the costs of opening basic savings accounts for a number of unbanked individuals.
While 63 percent of the subjects opened an account, only 18 percent of them used the accounts. This was likely due to three factors: a lack of trust in banks, unreliable service and prohibitive withdrawal fees.
Unfortunately, the prevalence of unbanked individuals in the informal sectors scares off foreign investors, who heavily rely on transactional evidence to make investments. Otherwise, pouring money into markets is too risky. That’s where Blockchain comes in.
How would it work?
Blockchain can host an entire evidence base of transactions, loan repayments, and asset titles. The technology is also decentralized and requires individual confirmation, creating an element of trust and transparency beyond traditional banking systems.
According to Victor Olorunfemi, Director of Products for Pan-African tech and crypto-exchange, KuBitX, Blockchain’s major benefits lie in “frictionless P2P and cross-border payments, transparent elections, land registry management [and] transparent crowdfunding.”
Let’s look at some of the different ways Blockchain could benefit developing economies, especially in Sub-Saharan Africa.
1. Creating financial infrastructure and accountability
According to a study by the Milken Institute, viable financial markets require consistent, accurate data on assets and credit histories. Luckily, Blockchain may fulfil these needs.
The use of Smart Contracts technology is ideal in areas lacking accountability, such as the real estate or land/agricultural sectors. In Africa, a lack of record-keeping practices often leads to “missing” or non-existent title deeds. In some cases, this is intentional.
Title deeds “go missing,” only to end up in the hands of benefactors other than the rightful owners. Smart Contracts could eradicate these issues through the use of special tokens that cannot be duplicated, changed or removed. See the article on tokenization.
Likewise, Bitland, a company in Ghana, currently helps individuals record deeds and land surveys. By resolving land disputes, Bitland creates more stability while accurately recording land asset data.
“There’s a massive number of people in the informal sector, but there’s not much data being collected on them right now.”
Merit Webster, co-president of the MIT Sloan Africa Business Club.
“That means you don’t have that credit history or payment history for them. If you have a decentralized approach to collecting data, you end up with more malleable data. [This] is very valuable for creating credit histories.” The agricultural industry also has the potential to thrive using Blockchain.
“Blockchain could be used to track goods around the world. This allows farmers to earn a fair wage for their goods.”
Also, farmers could use record-keeping technology to streamline the supply chain and document resources. This would lead to better efficiency, lower transactional costs, and improved logistics.
2. Security in banking
According to the World Bank, there were 1.7 billion people with no bank account in 2017. This situation is worst in developing countries, especially African ones. For example, over 62 million of these people lived in Nigeria.
Besides, data from Google Trends reveal that Lagos, one of Nigeria’s biggest cities, ranks globally as the number one city based on the volume of online searches for Bitcoin (BTC). Clearly, for the city’s 21 million-odd people, there an immense interest in some form of an accessible payment system.
Of course, it’s unrealistic to expect bank branches to magically appear in every remote corner of the world. However, a digital database using Blockchain technologies has the potential to reach far beyond physical banks.
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Many Africans value trust and transparency. In developing countries, this lack of trust goes beyond the Internet. Developing countries with less industrialization tend to have higher levels of corruption.
This reduces national investment opportunities in the public sector and instills a lack of trust in centralized oligarchs handling an international investment.
Because its power lies within the community of users, Blockchain can combat these trust issues. All data logs and amendments must pass through this community and identification confirmation tests.
Blockchain technology also secures your data incredibly. Hacking and data breaches are all too common nowadays. In 2017, for example, around 3 billion Yahoo user accounts were stolen.
When information is stored in the same place, hackers have one, easy target. In contrast, Blockchain is a distributed entity. This dissemination of data leaves it far less vulnerable to cyberattacks.
3. Fostering Entrepreneurship
Coupled with the Internet, Blockchain technology could be the perfect platform for aspiring African developers. Because the ‘source code’ is free of charge, skilled coders can adapt, create, and configure special applications, called DApps.
These are available on Crypto platforms and provided by companies like Ethereum, and a South African firm specializing in what they called the Keto-Coin.
Rather than waiting for governments to drag their feet trying to create jobs—individuals on the continent can form small firms that build and sell Crypto-based Apps locally or abroad.
“Despite the frictions and impediments mentioned,” said Olorunfemi. “Blockchain can still provide an avenue for promising African tech projects to access capital (FDI) via token offerings on digital assets exchanges.”
Many courses are even readily available online to quickly learn about new technology. Microsoft, for instance, offers a platform via Azure for you to build and learn about the Blockchain.
One-man shops in countries with unfavourable economic systems, like Zimbabwe, can also adopt smaller, stable, Cryptocurrencies to facilitate or payments. In cases of rampant inflation, they can temporarily act as a store of value or help you pay for things until your currency stabilizes.
As with the Venezuelan hyperinflation case study, Cryptocurrency intervention could help many developing countries troubled with economic instability.
There is also the option of Crypto-mining. But before you pull out the ‘high-consumption energy’ argument – think outside the box for a moment. What about energy sources that are free and available nearly 24/7? Like water and the sun!
The African continent is full of capable scientists and mechanical engineers. One could build special solar-powered energy centers to power Bitcoin-mining.
And without the expertise, governments or private companies could alternatively just invite Crypto companies with abundant financial resources to mine (cleanly) for a special tax/fee while creating jobs for the locals.
4. Elections
In addition to the financial side of things, Blockchain technology could help eliminate some forms of corruption. For example, many African countries’ elections are incredibly vulnerable to the social scourge. In some extreme cases, some officials change or forge written ballot votes to rig elections.
To combat this, Blockchain databases could record votes. This makes it nearly impossible to tamper with using Smart Contract technology. Having fair elections improves infrastructure, which then increases development and economic dependability.
While some might see Africa’s economy as underdeveloped, others might see it as a blank canvas well-suited for a large-scale implementation of Blockchain. Economic and governmental systems are shifting and slightly shaky in many Sub-Saharan African nations.
The challenge is to foster a rigid economic system to implement Blockchain.
Don’t just take our word for it—African nations have often implemented new, practical technologies before the Western world. Let’s look at the example of M-Pesa. Back in 2014, Americans and Europeans were amazed by Apple Pay’s launch.
However, this mobile payment system wasn’t exactly “new.” By that time, Kenyans had used M-Pesa, a very similar technology, for years.
“There’s a lot of opportunity to leapfrog the way the West developed and have these more unique African solutions, but it needs to come from within,” said Webster.
“It needs to come from entrepreneurs in the continent who want to implement these solutions. It’s important to engage people very early on. Systems incubated in the West don’t stand as great of a chance to work as African ones do.”
Concluding remarks
With the possibility of an experimental, large-scale takeover of Blockchain technology to improve African infrastructure, the nations there could leapfrog in development and growth.
This must begin internally. According to Olorunfemi, “Education—of policymakers and other stakeholders—which is often ignored has to be a critical factor in paving the way for the acceptance and adoption of new technologies and the accompanying investment.”
The results in Sub-Saharan African countries could help eliminate much of the world’s poverty. It would also remove remnants of mistrust and corruption left behind by the days of colonial exploitation.
While there are some obstacles to large-scale Blockchain implementation, we can’t think of a better benefactor than there. The possibilities for business using the Blockchain are endless!
To learn more about how to get started with Cryptocurrency mining or purchasing, visit our resources page for useful links and guides.
Additional input by Bobby Quarshie (BQ).
Citations: Christopher Lee and Jackson Mueller.
Swan, Melanie. “Anticipating the Economic Benefits of Blockchain.” Technology Innovation Management Review 7.10. Oct. 2017.
Bitcoin Lessons from Venezuela, Where Hyperinflation Reigns. Online Source: https://www.lathropgage.com/newsletter-237.html
What does a small-scale farm-holding, two presidents, some tech companies, and their respective local currencies all have in common?
The answer might be obvious if you have been paying attention to the so-called trade war between China and the US in the news lately. But why is it of concern and what are the far-reaching implications for the rest of the world?
Active involvement in international trade is a vital sign of your country’s financial health and boosts its Gross Domestic Product (GDP).
GDP measures the value of all goods and services produced in a country. From raw materials (input costs) to value-added (assembly and skilled labour costs) to come up with final goods or services.
And though “domestic” implies that this refers to your country’s internal economy, the contributions can be extended from a services perspective.
This occurs when your country places emphasis on or relies on income from Foreign Direct Investment (FDI) to help boost its economy via its GNP. GNP is a similar measurement but slightly different from GDP as it incorporates.
Importance of trade
Fact is, all our goods and services come from unit price or costs that arise from the initial extraction of raw materials.
These then undergo production leading to the product or service of intrinsic value for both local and international (via exports) consumption.
An ideal situation for your country is to export more than it imports to maintain a positive balance of trade. So basically more money flowing in than out.
The trade surplus is then plowed into your economy via the fiscal budget. It can supplement a shortage of funds raised from domestic taxes. The opposite, which isn’t always a bad thing, (trade deficit) would have to be managed and nursed like any other loan.
The US has often criticized Germany for exporting a lot (cars, trains, and machinery) but not importing much. This is deemed not being ‘fair’ in trade practice. But trade itself arises from market forces, priorities, and consumer demand.
We all love a BMW, Audi, and Mercedes Benz. So these German-made products will always be in demand compared to US car makes. Who you chose to trade with gives rise to favourable balance of trade if you are engaged in a trade agreement or a trading bloc.
Why this is also a big deal
The demand for your country’s goods and services will directly impact the strength of its local currency. More trade means more of your currency is required to pay for goods and so its value goes up.
A strong local currency leads to stronger purchasing power for its citizens and residents. Comes in handy when you plan things like holidays, purchase goods online, invest or just send cash abroad as gifts.
So, you can see why a strong Dollar or Euro is always favoured and why sometimes drastic measures are taken to keep it that way.
“A higher demand for your country’s products has a direct positive impact on its currency and exchange rate”
A quick glimpse of the world in terms of the input costs for goods and services gives it a competitive edge when it comes to trade.
US – intellectual property, services, weaponry.
Germany – steel and engineering machinery giving rise to high performing automobiles.
Many African countries – mineral resources such as oil, tobacco cocoa, and precious stones.
Israel – military intelligence.
South America – agricultural produce.
India – IT and customer services.
China – agriculture, building/(manual) labour, and of late technology.
The beef with China
The technology that China (no.2 on the list) offers the rest of the world is the subject of hot debate. The alleged theft of US intellectual property for tech gadgets and software by China.
This is one of several unfair trade practises and motives for why the US recently decided to start imposing heavier (punitive) tax-like increases on multiple goods imported by China.
China then reciprocated by hitting the US with tariffs (on agricultural produce) causing the trade war that drives each country to protect its own economy.
The higher input costs naturally, lead to the price of your product going up and reducing its competitive advantage and demand. Higher input costs can also affect your local labour force for the worse too.
Factories, multinational corporations, and industries such as farms (both commercial and subsistence) will have to cut the cost of labour. In worse cases which we have seen, workers are laid-off in a heartbeat to stop or prevent accounting losses.
These factors would have hopefully been taken into consideration by the respective leaders before pulling the tariff triggers. Acting with emotions rather than looking at the far-reaching implications is irresponsible.
Have the talks of the trade war impacted productivity and the global trade economy? So far it’s just the stock markets (securities and commodities) reacting. Only time will tell.
We spoke about globalization in an earlier post on some general terms – citing that it has taken a different shape or evolved. This article below however, delves deeper and highlights on nine reasons why this evolution will be forced to happen.
It is so well written, it covers all salient points and asks all the right questions – such as what we have pondered on the validity of GDP as a measure of success. The Intelligence Quotient (IQ) has of late been questioned as the main determinant of intelligence in the advent of Emotional Intelligence (EQ) and soon Artificial Intelligence (AI). Likewise, we must question the accuracy in the way the success (or disguised failures) of a nation is presented, and what we are told is required for this success to materialize.
We especially loved this analogy of the current world situation and if anything is to be taken from this article, this is it:
Again kudos to the author Gail Tverberg for this in-depth piece (featured on her website on 31 Jan 2018). In it, Gail touches on issues such as a population growth, a growing wage-disparity, heavy energy consumption, and the demand for cheaper alternative energy:
At times, we can all become frustrated by political agendas, misfortunes, and perceived lack of planning by various governments around the world. As a result, not quite often see the bigger picture – or the economics of how countries work.
Naturally, the political fracases provide fuel for media companies who in turn bombard us with their 24-hour news cycles. But we need to understand that politicians are only temporary custodians of the country and its economy. Each economic model is built on the same premise that started many hundreds of years ago – that of bartering.
Two pillars of government
There are two main mandates or rather tasks that a ruling party is assigned by the electorate when it comes to governing. These are: controlling the country’s fiscal and monetary policy.
Fiscal policy is the internal running of the country and basically deals with tax and how it is allocated. The fiscal budget is then awarded to the various sectors of any economy.
These include education, transport, healthcare, finance, trade and industry, defense, agriculture, and many other building blocks of your country. How the government prioritizes the spending on each of these sectors will determine its policy priorities.
It will also be a signal of its wider political intentions. And this not only to voters but also to its neighbouring countries in regard to international trade and security.
A nation concerned with information and its human capital will prioritize education in its budget. There are however other approaches to budgetary allocation such as funding trade and industrial activities. This leads to job creation that will, in turn, drive a need for tradesmen and women to diversify and obtain the new skills required.
This also provides an incentive for state-run schools, privately funded schools, and institutions to develop new skill sets. Doing both is ideal – as governments must foster innovation by promoting and funding higher learning institutions where top talent can be nurtured and developed.
Fiscal policy forms the larger mandate as this budget is derived from the collective taxation of income, capital gains, trading and customs, sin taxes, corporate, and simple public services. That way allocation of the fiscal budget to finance will pave the way for monetary policy to function.
International trade is the key to generating further income as a government cannot rely on an internally driven economy to sustain wealth. The same applies to business so an agreed trade policy would need to accommodate all aspects of the country’s economy.
National specialization
Every thriving nation has been built on either skilfully utilizing internal resources or have created global demand for a service or industry. The UK has strong financial and corporate offerings plus its geo-positioning (GMT) allows it to be a central commercial trading point for the world. Germany has always had a rich source of steel enabling the production of cars, rail brands, and manufacturing.
In addition, it continues to be a market leader in developing technologies to complement those industries thus allowing the country to thrive as a major European power.
The Nordic countries are rich in mineral resources of which they have converted the revenues into national trust funds. These are used to aid its citizens; many of whom develop skills in trade, innovation, and finance (and now Fintech).
Though Japan is geographically smaller and is made up of two islands it continues to prosper by becoming a global leader. This comes from its exports of tech innovation, artificial intelligence(robotics), and fishing stocks. It even ‘exports’ financial aid (loans) to other countries due to its strong and disciplined monetary policy.
The US has invested heavily in services, human capital, and innovation – to large extent immigration has played a major role in these areas of growth.
The emerging economies
Russia is mineral-rich and has outsourced its intelligence gathering skills, military technology, and training for years.
China continues to grow and subsidizes its agriculture and manufacturing industries fully utilizing the abundance of manual labour at its disposal.
China even exports this labour thus gaining influence and soft power enabling Chinese goods and services to be exported more freely to other economies.
The ability to offer the global economy a form of expertise or goods/service can attribute hugely to each country’s economic wealth. Israel – military and intelligence; Brazil agriculture and tourism not to mention countries in the Far East – oil and fossil fuels.
Most African countries obtain their sources of income (though not as much as they should) from natural minerals, agriculture, and tourism.
Ghana has gold and cocoa; Nigeria – oil; South Africa – gold and many mineral resources; Kenya and Tanzania – tourism. Even a poor country like Zambia has survived because of its coal and coffee reserves.
Any country without resources or the ability to offer goods and services would have to be more subsistence-like. This usually means having to rely on aid or import goods and services.
That, however, comes at a price and leads to the country functioning with an unsustainable debt burden.
Application of policies
Interesting food for thought by Dr. Jagdish Bhagwati, a famous Indian-born economist in the US:
Americans spend, save little. Also US imports more than it exports.
Has an annual trade deficit of over $400 billion. Yet, the American economy is considered strong and trusted to get stronger.
The Japanese on a contrary, save a lot. They do not spend much. Also, Japan exports far more than it imports, has an annual trade surplus of over 100 billion. Yet Japanese economy is considered weak, even collapsing.
Modern economists complain that Japanese do not spend, so they do not grow. To force the Japanese to spend, the Japanese government exerted itself, reduced the savings rates, even charged the savers. Even then the Japanese did not spend (habits don’t change, even with taxes, do they?). Their traditional postal savings alone is over $1.2 trillion.
Thus, savings, far from being the strength of Japan, has become its pain.
International trade
This then gives way to various trading blocs, which over time have been built, broken, or renegotiated when it was not suiting either of the participants.
The strength of a country’s currency is primarily determined by supply and demand for its sovereign currency. This demand can only be fostered by trade.
The more the demand for a countries commodity the greater the demand for its currency. This is the medium we use to compensate for transactions. In terms of a country’s monetary policy, it is more of a singular relationship between a government and its banks.
The banking system
Banking is the system to which you can place your disposable income (gross income after-tax) in a digital repository. The central (reserve) bank regulates the money supply into the economy ensuring that locally, inflation does not corrode the value of its currency. The central bank controls how much it lends to local banks and at which payable interest rate.
The central bank is independent of the government. They have their policies shaped by fiscal influences and are under obligation to impact the strength of the economy through its interest rates and exchange rates. So, the central bank sets the mandate by which banks offer security interest, loans, and building deposits to help you benefit from their hard-earned cash.
Banks, however, have a wide range of consumer charges so transacting doesn’t offer much protection against inflation. In some cases, banks offer you zero interest on savings deposited!
You can therefore understand the frustration of citizens who would like to see increased corporate taxes, especially for banks. This especially as they reward executives with excessive remuneration packages even in a failing economy.
Financial governance and regulations
The new wave of Cryptocurrency aims to shake-up these long-standing benefits banks have enjoyed. Benefits such as the bailouts from taxpayers’ money from risk-taking behaviour that nearly brought the global economy to its knees.
Banks behave like a petulant child knowing well that their ‘parents’ will only mildly reprimand them. This ultimately enables the continuation of behaviour with as they get away with only a slap on the wrist.
Governments tolerate bank’s excessive salary packages and risk-taking because they play a strategic role in the stability and growth of an economy.
This is just the tip of the iceberg and paints a big picture of how a country is managed – or indeed can be mismanaged.
History has taught us that a fully centrally controlled government system fails completely – well, in the long run.
The idea of a communistic system has its merits and could still work in some sectors of our economies. It, however, omits the very thing that was provided to us as human beings – choice.
Knowledge is empowering – but the power to do the things you would like to do effortlessly without fear of error.
This shared knowledge emanates from scientific, biological, or financially proven theories and tests.
They can help you make the right investments. Such as saving money on the best deals, obtaining rights to social benefits, travel to great destinations. Or simply just helping other people achieve their personal and spiritual goals.
Monopolistic behaviour
Those that cling onto knowledge though, serve their interests alone and should not be revered but rather shunned for power-hogging.
Sadly, some governments monopolize access to information, basic services, resources, and even education to create an artificial demand for ´their services’.
This forms the basis of a centrally controlled or outright communistic state. In business, this is a common practice of a monopoly to control the price of their good or service as they are the only ones providing it.
The quality of that good or service, however, can and will be determined by them and them alone!
Can you imagine then, based on the previous sentence, a situation that only governments have this power to dictate a basic service such as healthcare or education for you?
Scary thought and if you look at most developing countries, the evidence of this is overwhelmingly sad.
But we are not here to talk about the governments as there would be several cases to point out and this is not a political platform. Case in point, the concept of a centrally controlled system nevertheless is less efficient and prone to failure to disseminate the very items it sets out to provide.
Deploying software by a global firm like IBM, via a centrally stored-located server would be absurd because the infrastructure of the recipient regions or end-users might not be well equipped to handle it. So one begs to question, why would you do it for social services for instance?
Decentralized systems
Decentralizing a system can improve efficiency because it gives options to get the best quality possible. It also removes power from one or a few providers and shares it equally amongst other stakeholders.
This way all will stand to mutually benefit from a working system indirectly rather than just the state collecting monetary compensation or tax and deciding what to do with it alone.
Centralized systems can learn from the blockchain to efficiently provide services.
Let’s take the now “illegal” peer-to-peer file-sharing and downloading software such as eDonkey/eMule(developed by Microsoft). Or take BitTorrent for example you could with them, build together any file by downloading “bits” of the file by many connected servers or PCs (peers).
This system leads to faster downloads and allows one to source from the best quality of the available digital bits to get the data to form the e-book, music track, or movie that you were after.
Leaving your download running would enable others to get the files you have already amassed (you reciprocally upload the files). The cycle continues until everyone acquires the same great quality file from the best ‘seeds’.
Downloading from a sole server for the same product, on the contrary, could crash the server.
Let’s not forget the delays due to operational differences in time-zones, or complete failure to download if the file source is corrupted or the file quality is bad.
Application of decentralized systems
Naturally, the entertainment industry put a stop to this because it meant that people could attain their copyrighted material.
Many fines and warnings were dished out to individuals as well as companies hosting the sharing servers.
You can, however, still access them via carefully planned entry gateways to hide your IP address using VPNs. Those of you who are IT experts can use (old-school) backend protocols likeFTP.
BitTorrent -> Bitcoin…Torrent -> Tor ..anyone seeing a pattern here?
Decentralizing services such as money transfers in the advent of Cryptomania removes power from regulated financial institutions. They tend to charge high fees for sometimes slow and error-prone services because they can.
Conclusion
So, swiftness and security are a prime reason for the adoption the Blockchain technology. Everything else such as the price of digital alternative coins or ‘altcoins’ boils down to basic supply and demand for it.
Governments and other institutional service providers can take a leaf out of the blockchain technology tree and its true intention.
The aim is to decentralize the provision of a service to give everyone access to it. This will reduce associated costs of using it and improve efficiency!
The implementation of globalization has not been without its major flaws. Abolishing it, however, is paramount to anti-socialist behaviour or looking inwards. This concept is against the tendencies of human nature.
If you read up on any definition of globalization, you will see that the intention was always genuine. The need to integrate and collaborate for the mutual benefit of nations.
It can, however, like any product (like knowledge), be exploited out of selfish desires and lead to exploitation.
Of course, it also doesn’t mean that globalization must apply to every sector of your economy. Some inward investment is always healthy. It should, however, not lead to extreme nationalism for a fear of loss of national identity.
Trust issues
The problem, like many others, lies in the hands of politicians who are controlled and dictated to by a handful of large corporations. These ‘corps’ have one and only self-interest – profit, power, and control.
The main concern for sovereign governments is that ‘giving up’ or sharing one’s technological, innovative, or manufacturing secrets to other countries. The premise is that this would make them ‘vulnerable’.
The real issue lies in a lack of trust – leading to the notion: “I will not let you know how I do it because you may use it against me – in trade or war”.
Despite the existence of supposedly ‘compartmentalized’ trading blocs and free trade areas like NAFTA, EU, ECOWAS, SADC,etc, the rate of globalization has sped up significantly in the past decade.
This is due to boundless advances in information technology as accurately predicted by Neoclassical Growth Theory.
Information technology has now given us valuable new tools to identify and engage in economic activity.
Tech provides access to and faster, more informed analysis of information, transfers of assets, and collaboration.
The impact on finance
A globalized world means that with the aid of technology, you can buy and sell shares of an Italian firm from a desktop in Namibia!
You would then only have to deal with the commissions and transaction fees (capital gains tax) locally pertaining to your online trades.
And think about it, on a micro-level. If globalization is entirely a bad concept then no-one should be using Amazon, eating MacDonalds, or watching Netflix in protest. Hard to imagine, isn’t it?
We must praise its positive outcomes and work hard against the negative impacts. The negative ones are also giving rise to a new era of extreme nationalism or populism.
You can only do your bit by promoting and backing policy-makers who can enforce good trade laws. This would force both local and international competitors to play by the same rules.
Penalties for financial misconduct should be a lot greater to deter exploitation. Rather, perpetrators still get the proverbial slap on the wrist.
The creative destruction of the financial system will be brought about by cryptocurrency and its underlying blockchain technology.
Depending on its uptake, and whether the authorities can legitimize its legality, we may see individuals and governments using decentralized currencies.
The Venezuelan president is investigating the concept of a national cryptocurrency dubbed ´Petro´. They would use it to alleviate dependency on (heavily interest-ridden) loans.
We can change our dependence on certain goods and services so that we don’t take too high a knock when their prices fluctuate.
Life is about making choices. As rational beings, we tend to make choices that benefit our wealth and well-being.
But some choices have to be made on our behalf — especially when it comes to the provision of commonly used goods and services.
What is elsaticity?
The prices of government-regulated products such as fuel, alcohol, and cigarettes are examples. How we react to the price change (whether an increase or decrease) is referred to in economics as elasticity.
It is a general term for a ratio of change and scientifically attempts to capture your sensitivity to price movements. It is the percentage change in the quantity demanded (or supplied) of something brought about by a percentage change in its price.
A 10% increase in the price of bread, resulting in a decrease in the quantity demanded by 8%, means your price elasticity of demand for bread is 0,8.
The ratio is expressed as a number between negative infinity and infinity, with one being the midpoint. The number has no unit — it is not expressed in centimetres, litres or as a percentage.
But that number tells us a great deal. If it is higher than one, the product is said to be elastic. This means the quantity you demand responds strongly to price changes.
Anything under one is inelastic. This means a price change doesn’t affect your demand for it much.
When a product is said to be unit elastic, it means the change in quantity demanded is equal to the change in price.
Practical examples
On the commercial side, the concept becomes more useful when formulating and studying consumer trends. It is especially beneficial to brand managers who need to set prices for their products while paying attention to sales.
Income elasticity of demand measures the responsiveness of the quantity of a good to changes to your disposable income.
Generally, the more inelastic the product, the easier it is for firms to maximize profit by increasing their price.
Taking advantage of addictions
If you’ve ever wondered why the prices of your alcohol and cigarettes — commonly referred to as “sin taxes” — always rise, it is because they are inelastic.
If you were addicted to nicotine, for instance, you would rather cut down on movie tickets to still afford a box of smokes. This makes you inelastic to the increase in cigarette prices.
Likewise, we industrialize, we become heavily reliant on oil. Our dependence on oil was reiterated in the latest Organisation of Petroleum Exporting Countries (Opec) oil outlook, which paints a gloomy picture. The West’s demand for oil is predicted to surpass the available supply in the coming years.
Globally, over the decade of 1994-2004, about five times more passenger cars appeared on our roads than commercial vehicles. In South Africa, alone, commercial vehicle sales for July were up 13% in the same period. Concurrently, increases in lorry volumes worldwide have been observed.
The more inelastic your product is, the easier it is for you to slap your consumers with high price increases.
At the time of writing in 2007, the oil price once hovered around $73/barrel and threatened to reach a record high of $80*
Concluding remarks
By using other means of energy (oil substitutes, wind, electricity, and solar) we could reduce our reliance on oil. this would make it less inelastic.
In South Africa, for example, using trains for cargo transport would ease our dependence on petrol and diesel-powered commercial vehicles.
Carmaker Tesla recently launched its future truck and alleged fastest production car in a big to reduce our reliance on fossil fuels. Tesla is gaining steady ground to introduce its electric cars to the world and has surpassed the net worth of Ford.
We exist not to exist. Now, what does that really mean? Well, in simple terms, it means we are born to die. As grim as this unwanted reality sounds, it is the basis of why people do what they do and behave the way they do.
Some live to enjoy that short moment and blissfully hope it doesn’t come sooner than later. Others strive and prepare for that day with the hope they make an impact and leave a lasting impression.
That lasting impression, in turn, can be for good or bad reasons – often confused by the individual.
Martyrs and suicide committers, for example, tend to feel that their unpleasant actions are doing a great cause to society.
Though their loved ones would beg to differ, it is the individual who decides whether that impact they leave behind is a good or terrible one.
The irrational human mind
One thing one learned in earlier days as undergraduates studying economics was that as individuals, we are mostly self-consumed and irrational.
Some refer to it as being emotional – but all irrational traits to what ideal? After all, that is what separates us from machines and robots!
Living for the present is an inherent human attribute that is hard to change or condition.
We have so quickly moved on to adopt artificial intelligence without mastering our own level of intellect and compassion.
We are certainly not advocating for a utopian state where everyone gets to the level of Albert Einstein. Emotional intelligence, however, unlike the more numerically rigid intelligence quotient, is inherent but can be honed or learned if one is willing.
Difficulty implementing
The problem with its adoption is that it takes effort. This is something not everyone is enthusiastic about – like math, chemistry, or gym class in high school.
One must ponder why significantly less than 10 percent of the world owns all the riches. Meanwhile, we currently still must deal with world hunger, disease, and abject poverty.
We must revisit the above notion of emotional intelligence. This is because one of its inherent traits is compassion – something most of those individuals don’t have or consciously try to avoid. Though this should be one of the obvious attributes that separate us from so-called beasts. Animals only have instincts to help with their decision-making processes. We, on the other hand, still struggle to use them.
Sociopaths, psychopaths, dictators, and oppressors are, therefore, not far from beasts. They lack the compassion that would even amaze the most ruthless animal predator if they had the consciousness to see what was going on in our world. These people also lack what we basically have mythologically termed – a soul.
A greater role to play
This piece is however not to criticize or state the obvious about such people but to try to explain why they behave as they do. Psychologists and sociologists alike perhaps need to revisit their curricula and amend them to focus more on this very important but often ignored concept.
This should be added in both subject areas but must begin the analysis from the grassroots level – from childhood. The stigma of seeing a psychologist (clinical, child, or industrial) would first need to be eradicated somehow for this to happen.
These professions play a much larger role in shaping the world that we live in. A lot more than they may realize.
It is when we learn to be compassionate and more emotionally conscious, that the concept of sustainability, conservation of any resource for future generations becomes a reality.
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