Welcome to Finance and Fury, the Furious Friday Edition
Welcome to FF FF – Hasn’t been a FF in a while – but last was running through Crypto markets in relation to the BIS and powers that be
Today – Want to cover the potential of what central banks using crypto and by extension, all of us looks like
This is a potential scenario for us – when – who knows? Maybe 2 years – 5 years – 15 or never happen – but Recent examples in the news – The Bank of England-authored Green New Deal (in 2008) and Synthetic Hegemonic Currency (takeover of Central Banking Crypto)
- In this, they outline what the Bank of England’s Crypto might look like
Another example – in BVI – Blockchain startup LifeLabs announced that it is developing a digital currency dubbed BVI~LIFE in partnership with the British Virgin Islands (BVI).
- The coin will be a stablecoin pegged 1:1 to the U.S. dollar — which the BVI have used since 1959 – pegging their fiat currency against the USD — and its use is expected to reduce transactional fees, increase transaction speed and be accessible to outsiders such as tourists
- What is a stablecoin?
Stablecoins are cryptocurrencies designed to minimise the volatility of the price compared to non-backed cryptos – like BTC
- How? – relative to some “stable” asset or basket of assets. A stablecoin can be pegged to a number of different things – can be cryptocurrency, fiat money, or to exchange-traded commodities (such as precious metals or industrial metals – like gold
- Similar to countries pegging their own currency to another – increase or decrease supply of your money base in response to maintain a peg –
- Compared to say BTC – perceived Advantages of asset-backed cryptocurrencies are that coins are stabilised by assets that fluctuate outside of the cryptocurrency space (unless pegged to another crypto) – reduces correlation risks –
- Bitcoin and altcoins are highly correlated – But even Backed stablecoins are subject to the same volatility and risk associated with the backing asset.
- A “stablecoin” which is neither stable or a coin – it is exactly a fiat derivative in the hands of Governments or Central Banks – a fiat derivative, it is not a move away from the dollar rather an extension of the dollar carried over crypto blockchains.
Why not BTC?
– Stable coin will be required by the financial system – along with ability to regulate and control the backing of the currency (Gold or Fiat) – can’t allow other currencies to continue if not backed by something that can be controlled – options to legislate to destroy confidence in any competing cryptocurrency – Will attack the Practicality of BTC first –
- Situation one – BTC is accepted by vendors using fiat currency – like currently –
- It can’t have a base – to be accepted as a new type of financial system – just a derivative of the current through the pricing mechanics – we value it in AUD, USD or whatever you use day today
- Another currency could replace
- Businesses do currently accept BTC in exchange for AUD – But companies don’t want to get screwed through the floating exchange system – prices still in Fiat currency and the exchange is made for the equivalent value of BTC almost straight away
- Situation two – BTC is the valuation and companies have fixed exchange of goods to for BTC
- A basic car would cost 2 BTC – Would it be more profitable/secure to switch to accepting another currency?
- Also – BTC has a capped supply – So, alternative currencies would be adopted by people seeking the demand and profit from being early adopters – Currently thousands of coins –
- Viability – Unregulated and easily manipulated – Security in a cryptocurrency is everything – but the control by the monetary authorities is essential – excuse here will be that crypto like BTC is too risky for consumers due to the hacking/theft in the system – so will be banned as it is too risky to use
- Breaches have always been against currency exchanges and other ‘services’ that have grown up around Bitcoin – not the distributed ledger – so Gov’s/CB’s can ensure the security of their own coins as the weak link of the wallets won’t exist
What do the options look like?
– two viable options – between Fiat and Crypto
Fiat-backed – issued and controlled by the state – the promise will be to secure and guarantee the distributed ledger
- Cryptocurrencies backed by fiat money are the most common and were the first type of stablecoins on the market. Their characteristics are:
- Their value is pegged to one or more currencies (most commonly the US dollar, also the Euro and the Swiss franc) in a fixed ratio,
- The tether is realised off-chain, through banks or other types of regulated financial institutions which serve as depositaries of the currency used to back the stablecoin,
- The amount of the currency used for backing of the stablecoin has to reflect the circulating supply of the stablecoin – Examples: TrueUSD (TUSD) USD Tether (USDT) Libra.
- Fiat-backed stablecoins can be traded on exchanges and are redeemable from the issuer. The cost of maintaining the stability of the stablecoin is equivalent to the cost of maintaining the backing reserve and the cost of legal compliance, maintaining licenses, auditors and the business infrastructure required by the regulator – not expensive to just push a button to issue more or less
- The value of stablecoins of this type is based on the value of the backing currency, which is held by a third-party regulated financial entity
- The trust in the custodian of the backing asset is crucial for the stability of price of the stablecoin – so the Fiat system will still need to be viable –
- Also other option – is SDR – basket of currencies backing the digital currency – like IMF are looking into
- Already being tested out in the financial system for proof of concept – but the real issue is the future of Fiat – amount printed and the lack of confidence in the USD spreading
I think there is another option which is in the works – Commodity-backed
- Stablecoins backed by commodities such as precious metals (gold, silver etc.) are much less likely to be inflated than fiat backed stablecoins. It is harder to mine gold or silver than it is to “create money out of thin air.” The main characteristics of backed stablecoins are:
- Their value is fixed to one or more commodities and redeemable for such (more or less) on demand,
- There is a promise to pay, by unregulated individuals, agorist firms, or even regulated financial institutions,
- The amount of commodity used to back the stablecoin has to reflect the circulating supply of the stablecoin.
- Holders of commodity-backed stablecoins can redeem their stablecoins at the conversion rate to take possession of real assets. The cost of maintaining the stability of the stablecoin is the cost of storing and protecting the commodity backing. Examples: Digix Gold Tokens (DGX) and others.
- A lot of central banks around the world and trying to buy up on gold – hence why gold and miner demand has spiked
Real issues – example of what has occurred in the stablecoin market –
- The company/coin – Tether, the largest stablecoin by market capitalisation – faced accusations of being unable to provide audits for their reserves while continually printing millions of coins – who knows what the backing is?
- Reserves from Gov could be Fiat backing (M0) or Gold in their reserves
- So if these companies are likely able to easily do it – the gov is very likely to as well
What does this create for the future?
– Remember – not saying it is a guarantee – but evolution of money does occur – helps to pay attention to potential future options
But the monetary system has been used as a method of control
- A Fiat backed cryptocurrency system look like – These are merely central bankers’ wet dreams for depopulation and fascism “with a democratic face” which their 1933 conference failed to achieve
- These can only be imposed if people remain blind to their own recent history
- Sir Mosely – British Fascists Union – noble elite always want control over the population
- Talked about the attempted coup on the US government –
- But what commodities are other options – as Fiat is likely to not provide a good long term backing for crypto – gold as well – may not be the best backing due to the same issues of Brenton Woods –
- Gov may issue too much of the currency without adjusting the price of gold to give the currency a backing value
- Example – under fiat system – gold could be a backing if to go to gold standard – supply isn’t the issue – price is the issue – Gov could increase gold price to $10k USD, or $14.5k AUD to match the required pricing
- But they historically have not responded well to this – due to self-interested policies -beggar thy neighbour situations – gain a competitive advantage in export prices – so gold can and had fallen apart as a monetary supply
- I’m not a fan of either option –
When it comes to depictions of events in the future – Art imitating life – or life imitating art
- Look at movie Intime – haven’t fully watched it – got bored 15m in – but concept is that time is used as a currency –
- This a form of cryptocurrency that your life is backing
- Seems crazy – carbon instead seems less crazy? Again – not saying that I think it will happen – but hear me out
- What is after gold? – the backing of this may break down again – like it did in the past many times as nations broke treaties or rulers debased the supply of currency versus gold/silver content – the next traded resource is carbon
- Might sound crazy – but the carbon trading scheme mechanism can create the bedrock of the laws needed to continue to create this system
- Rather than trading time – you trading your breathing
- Not saying that it is going to happen – but the legislation provides enough of a framework to implement – as it creates president on application to carbon emitters – which we are through breathing
- 3bn tons of CO2 a year – estimate for us breathing – a lot of CO2 if the goal by 2050 is to get to 0 CO2 emissions
- May take 100+ years to materialise – if it ever does –
- But ask someone over 100 years ago – that their money will not have gold backing it – that a Central bank controls their money and can increase the supply and control the cost of money through the interest rate – and be creating policies to control the inflation rate – or price increase of the economy –
- They would look at you like a loonie person
Central bankers and nations are researching and working on crypto-backed currencies – need nations to adopt as currency –
May ban Fiat ownership and replace with crypto first –
Then have to move onto gold
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