In this age of quantitative easing and wanton currency
printing, citizens are repeatedly forced to invest in all kinds of things—from gold
and paintings to rare coins—just so they insulate themselves against the negative
effects of too much money in the economy—inflation.
Gold is one stable commodity that has consistently shown its
resistance to inflation yet it is a controlled metal in many countries, you
need a permission from government to be able to buy and store it. Even if you
were to get the permission to own gold, you still have to find ways of storing
it safely and this comes with costs.
Others seek solace in stock markets, which have a reputation
for maintaining value, just ask billionaire investor Warren Buffet. However,
this applies to efficient stock markets and you can only get these in North
America, Europe and in Asia. For the rest of the developing world, that is not
the case, liquidity is often a challenge as many stocks remain undervalued.
In any case, stock markets are still seen as a preserve for
the elite, there are barriers to individuals who may want to participate. There
are intermediaries and thresholds one has to contend with for those who wish to
buy stocks. After all, transactions are conducted via the banking system, thus
there is no possibility for the unbanked to participate.
Fallacy of central
banks monopoly
There are really a few other options that shield value from
the ravages of inflation or currency devaluation. Even fewer people have access
to these leaving the majority totally exposed to the shenanigans of some central
banks.
This situation exposes the fallacy of maintaining central
banks’ monopoly over money creation. It
is a gross injustice that people are systematically denied an alternative
escape route, when central banks engage in debasement of currency!
When the US Federal Reserve and the European Central Bank
engaged in quantitative easing, at the height of the global financial crisis,
everyone holding the respective institutions’ currencies lost out.
This affected China, the biggest holder of US financial
instruments outside United States itself, this affected Russia, another holder
of large quantities of these so-called reserve currencies. In fact, almost
every other central bank in the world, which has stocks of the US dollar and
Euro as reserves to back their own currencies, lost out as well.
Many emerging and developing economies peg their currencies
against the US dollars and the Euro, so when these reserve currencies are
debased, it means all pegged currencies get debased too.
China’s Yuan currency, which logically should have
appreciated in value against the US dollar, especially after 2009, but that has
not happened. Apparently, Chinese authorities still perceive the dollar to be stronger,
but privately, there is a growing disquiet about this perception.
Therefore, the currency of the world second largest economy,
notwithstanding these concerns, has remained pegged at the same exchange rate
of just below US$1:7 Yuan since 2008.
Japan, the third biggest in the world, has also maintained
an exchange rate of just under 1:100 for decades. Apparently, maintaining an artificially
low exchange rate helps the cause of its exporters.
Yet, this pegging of
national currencies against the ‘stronger’ US dollar also imply, that when the
US prints money or engages in quantitative easing, the rest of the world shares
the burden of inflation that comes with such an exercise. In the end, the inflation
affects everyone including the same exporters.
Gold stocking
Countries like Russia and India seem to have understood this
and since 2009, they have been buying large quantities of gold instead of increasing
their US dollar stocks. Such is proof that the world yearns for an alternative
to the present fiat currency system principally when it comes to preserving
value.
This is where crypto-currencies come in since they offer that
alternative, a way out, not only for governments but ordinary people as well.
So at first, it would seem rather unexpected that the same countries, which are
supposedly yearning for alternatives, are leading the charge in resisting or
even blocking the mass adoption of crypto-currencies.
Nevertheless, if we understand the extent of power and
control that comes with the monopoly to issue currency, then we can appreciate
why many countries are waging campaigns against Bitcoin and other privately
issued digital currencies.
These nations simply want to replace the US dollar’s
position as the world’s reserve currency with their own currencies. The
motivation is not to reform or to end central bank monopoly but to perpetuate
the same system except under a different name.
The relief brought by
crypto-currencies
That would leave ordinary people, the biggest victims of
inflation and devaluation, in the same situation that has existed for close to
50 years now. Therefore, it is such a relief when technology gives ordinary people
a way out of the predicament through crypto-currencies.
Nonetheless, as one would expect, privately issued crypto-currencies
have faced a hostile reception from regulators who are eager to control the
decentralized currencies. Some opponents of crypto-currencies have gone as far
as predicting their demise. Yet after some ten years and still counting, they are
hopeful the price of Bitcoin will drop to zero.
However, such opponents conveniently forget that the
circumstances that led to the rise and popularity of privately issued
currencies, remain unresolved. Quantitative easing and excessive printing of banknotes
are some of the continuing central bank acts that destroy value. Therefore, it
is not reasonable to expect the Bitcoin to just die without something else
springing up to replace it.
In fact, the kind of competition that exists in the
crypto-currency markets today, points not to an end but a continued growth of these
innovations. Entrepreneurs driven by the desire to produce flawless and
efficient alternatives to Bitcoin and earlier innovations, are busy at work
doing just that.
Gold backed currency
For instance, a Dutch based start up, Aurus, plans to launch
a fully gold backed crypto-currency, which the company believes will stand out
in a highly competitive market.
Gold backed currency the once efficient and widely used
currency system, was abandoned in 1971 in favour of fiat currency and the rest
is now history.
By creating this innovation, the start up hopes to attract,
not only early adopters of crypto-currencies in general, but those who have
stayed on the fence this entire time. Those worried by the current volatility
of digital currencies will be interested in this token as it apparently tracks the
price of gold.
In addition, Aurus says its AurusGOLD (AWG) token will stand
out because of the way it is structured. Aurus itself will not own any gold, it
will simply work on the system while its partners will provide the precious
metal as well as vaults for storing gold. The partners will deal with the
supply and distribution of the gold token. The entire system is built on simple
economic principles that allow the price of the tokenized gold to stick to the
spot price of gold.
Furthermore, Aurus states the token subscribes to the
Blockchain technology principles of decentralization and transparency. The
start-up says it has created a protocol on top of Ethereum that allows existing
gold players to step in and take different roles.
A partner has already come on board after pledging to
deposit the first $25 million in gold to issue the first allotment of AWG. Aurus
adds there is a commitment of up to $250 million just from this one entity,
based on demand.
Aurus also states it wants to make the use of AWG as simple
as possible hence the plan to make it a fee-less transaction system. To illustrate, Aurus
says any token on Ethereum requires the holder to also own ETH if he/she wants
to spend that token and this is something that slows the adoption of these
tokens.
To remedy this, Aurus says it has developed a means of transacting with AWG,
which is not only decentralized but does not require the user to hold ETH,
making it much easier to use. Any wallet application can integrate this
feature.
There is no doubt this latest innovation will attract new
crypto-currency users because of the assurance that holding gold offers. Those residing
in countries that impose restrictions on gold holding will find this AWG is
worthy alternative. Also, small nations that want to support their fiat
currencies with stable money will find AWG useful.
Ten years after the financial meltdown, ordinary people now
have not just one but several alternatives to volatile national currencies. For
those looking for ways to preserve their savings in ways that are permanent and
transparent, there is a wide array of digital currencies to choose from.
More are in the works. This disruption momentum cannot be
stopped because it is addressing a real problem. Solutions should not be cast
away, instead we must embrace and encourage those creating technologies that
uplift societies.
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