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Which Currency Will You be Using Next Year?
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With the advent of digital currencies that control is likely to become draconian. But it so happens that these new digital currencies are structured on blockchains, and blockchains can be either closed or open systems. The Chinese blockchain that supports the digital yuan is closed, and controlled by the Chinese Communist Party. Bitcoin, on the other hand, is founded on a blockchain that has no owner or controlling party. The network is not centralised but distributed. In other words Bitcoin cannot be controlled by a government unless that government takes over a significant number of the nodes on the network, something which would be rather difficult to achieve.
So we have a situation where we currently have currencies controlled by governments, and a few digital currencies that are run by their users. So far the two types of system have been running side by side. But what happens when a new currency is created which sits on a closed blockchain, a blockchain controlled by a commercial operation such as Amazon or Apple?
That is a different matter altogether. This is likely to cause a certain amount of friction between governments and companies. A currency that is not controlled by any one party is not anywhere near such a threat as one that is. So what happens when Amazon or Apple start to deploy their own currencies?
Well, that is just what is about to happen.
A couple of years ago Mark Zuckerberg set up his own currency for use with Facebook. It was called Libra. We were all ready to see this new financial rollout, but something went wrong, and the rollout was delayed.
It seems the name of the currency has been changed to Diem, and the rollout of this revised version of the Facebook-owned stable coin is planned for sometime during the next few months. In fact we are told this new currency will be released this year.
What we'll have is a separate, competing financial system. And this new currency may well start off innocuously enough. After all, what is there to stop Facebook charging their own currency for their own goods and services?
But when Facebook has 2.7 billion customers, well over a quarter of the people on the planet, and they can get by using a different currency for transactions, that is going to pose a serious threat to the current financial status quo. It may be the case that one has to start off by using the official currency of a country to buy Diems, but once the transactions take place using the new currency, any government control is diminished.
Amazon is not far behind. And then there's Google, which is partnering with Coinbase to integrate crypto into the Google Wallet.
Apple, of course, is keeping its cards close, as usual, but the company is bound to be contemplating building on Apple Pay. Apple Pay is a mobile payment and digital wallet service by Apple Inc. that allows users to make payments in person, in iOS apps, and on the web using Safari. It is supported on the iPhone, Apple Watch, iPad, and Mac. It is not available on any client device that is not made and sold by Apple. How long before that is modified to be used anywhere? And then how much longer before Apple Pay starts to use the MacCoin?
What this means is, that cash as we know it is set to disappear, and we will soon be able to choose which currency we use in our transactions. It also means there is going to be a struggle with competing financial systems. Which faction is going to win? Governments or the tech giants?
There are several stable coins out there already, some tied to currencies, or to gold. They have many of the same advantages of a cryptocurrency in terms of privacy, speed, and ease of use. But most importantly, they cut out the middleman.
There's very little you cant do with the new stable coins. You can even earn some decent interest by offering to place your currency into a lending pool (we're talking returns of anything from 2% to 20%, and sometimes more).
And because you don’t need a bank account to access this new money, that means it’s instantly available to anyone in the world with an internet connection.
Unlike Bitcoin or even gold and silver – which pose no immediate threat to governments – these new currencies are controlled by some of the most powerful names in the tech world. With millions, and in some cases billions, of members and customers.
With the flip of a switch, any one of them could serve as a new global currency, right alongside the U.S. dollar.
Since January 1, 2021, the size of this new market has more than TRIPLED!
And the Bank of England just released a plan that assumes 20% of all bank deposits will flood into stablecoins, and Facebook’s new stablecoin, Diem is just moments away from rolling out.
All told, Mark Zuckerberg plans to release a few variants, pegged to major global currencies, plus another linked to a basket of currencies from the Euro to the Pound to the Dollar.
To get the job done, he’s partnered with a California firm, Silvergate Bank, which will issue Facebook’s dollar-pegged digital currency this year.
Facebook isn't alone by any means. Popular crypto exchange Coinbase has partnered with Visa on its own stablecoin known as USD Coin. In fact, any company that can feasibly get into this market is likely to try. What is the best way to make money? By investing in money.
There are huge profits to be made in disrupting the world of money. Take an example we’re all familiar with: credit card companies. Apparently they earn well over a hundred billion dollars in fees and interest income every year.
More recently, we’ve seen the rise of so-called FinTech companies like PayPal and Square. At the same time, world governments and central banks are racing ahead with plans for their own stable coins. And here we have the scene set for a struggle as it is very likely that the new stable coins will attract a lot of attention and use. That may well be to the detriment of the official nation-based currencies. It looks as though there will be some interesting developments ahead.
Over 100 million Amazon Prime members are ready to start using an Amazon Coin right away. Billions of Facebook members around the world will be able to transact in Facebook’s stable coin, Diem. And countless more could soon be exposed to private currencies from Apple to Google and beyond.
The interesting point for me in all this is a confluence of two ideas. The first is Gresham's Law which states that Good Money Drives Out Bad. For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will gradually disappear from circulation.
What that means in plain language is that people will tend to use the bad money (get rid of it) while hoarding the good money, because the bad money will be losing value while the good money effectively gains in value precisely because it is not debased.
Set that idea against the profligate use of state-sponsored money which we are seeing today, and you can assume that the better managed currencies will eventually become stores of wealth while the state-run currencies will become second-class, and the next thing we'll find is that private currencies may well adopt a strategy of trading out of depreciating currencies and into appreciating ones, or start to de-couple entirely from fiat currencies.
Such a move might well act as the next break upon such profligate spending by governments. Who knows? But I am now venturing well in to the unknown, but these moves are going to usher in a new way of using and evaluating currencies.
Bring it on, say I.
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