“Imagine 2030 without Fiat Money” – Deutsche Bank
Today’s Futures Friday will focus on Konzept – a research magazine by Deutsche Bank, which came out recently with “The end of fiat money?” by Jim Reid opening article.
According to the research, by 2030, the demand for alternative currencies will rise, with digital currencies eventually replacing cash. Jim Reid challenges the existing financial system in “The end of fiat money” – his work published in a fresh Konzept by Deutsche Bank.
Before 1970 money was backed by a commodity, like gold or silver. Today we live in the fiat era when the value of money depends on trust in governments only, or their abilities to regulate this value. The author predicts that the end of this financial era is coming very soon.
And the first reason for these changes is inflation: “Politically it is always too tempting to create money when nothing is backing it.” The system became too fragile and can easily crash in 2020’s, thinks Reid.
In the late 70’s, at the peak of global inflation, China became a savior for fiat currencies by suddenly integrating into the global economy. “Chinese demographics were arguably the biggest suppressors of global inflation over the last four decades.”
But today we witness the turning point of the global financial flow. Will the US dollar lose its dominant position? How will governments respond to national debt growth? And “will fiat currencies survive if labor’s share of GDP reverses?”, asks the author.
Eventually, it is possible that inflation will become more and more embedded in our system and doubts will rise about the sustainability of fiat money. That’s the multi-trillion dollar (or Bitcoin) question for the decade ahead.
At the same time, Reid pointed out that the adoption of new technologies will meet challenges as well. Innovations, like Bitcoin and blockchain, are not easy. Among major threats to the purported digital currency-based financial system, the author named dependence on electricity, cyberattacks and a digital war. “As that occurs, the line between cryptocurrencies, financial institutions, and public and private sectors may become blurred,” Reid wrote.