There is a three-way battle looming over the future of money and the stakes could scarcely be higher. Conventional money, mainly debt created by banks — the ‘folding stuff’ is only a tiny proportion of the total — is in trouble. Total global debt is now so large relative to the world economy it cannot be serviced, which is why monetary authorities have resorted to dropping interest rates. When they almost hit zero, the next step was quantitative easing (QE): printing money by getting the central bank to buy back government and corporate bonds and putting them on its ‘balance sheet’. QE was a strategy invented by Japan and we only have to look at that country’s dismal economic performance over the last three decades to see how effective it is likely to be.
Quantitative easing is only postponing the reckoning, which will most likely come in the form of massive inflation — or rather consumer price inflation rather than the asset inflation we have already experienced (especially houses in Australia).
It is a dire situation but not new. For thousands of years societies have seen their debt get out of control. The usual response is periodic debt forgiveness of some sort, but when the banks are private, as they are in most developed economies, you cannot do that without causing the whole system to collapse (it may be more viable in China where banks are state owned).
The out of control debt problem is why two other forms of money have emerged. One is cryptocurrency, decentralised, cross border digital coinage that purports to offer a different way of transacting. They are intended to be an alternative to money dependent on fiat (government edict). It is claimed fiat currencies have been debauched — irrefutably the case, although mainly by banks rather than governments — and something else needs to take their place.
So far cryptocurrencies such as Bitcoin have not been effective as a new form of transaction. Instead, they have become another type of financial asset investors in the big financial institutions use to diversify. Those institutions have the biggest pool of ‘fiat’ money and are presumably hedging their bets. They know well enough that the system is in trouble.
The third type of money superficially seems like a way out of the looming disaster, but the implications could hardly be more sinister. It is central bank digital currency (CBDC), money issued, controlled and surveilled by the central bank. The central banks aspire to work