A senior Deutsche Bank executive said that the fiduciary money cycle may be about to come to an end, as the economic system based on it has become unstable, and has recommended that global finance turns to cryptocurrencies, leaving behind the control schemes, regulation and printed money that do so much damage to economies.
According to Jim Reid, we could be facing the beginning of the end of fiat money. One of the most significant elements within the position of the Deutsche Bank strategist is that the fiduciary money (supported by gold or silver) always has external control of its inflation, something that allows governments to manage this element at will.
The printing of more money, the facilities for bank debt and the opening of new lines of credits, increase a debt bubble after operations of this type, causing distrust among the citizens and important imbalances in the internal economy of many countries. Inflation can get out of control, a real danger to the current monetary system.
According to the analyst, until now the fiduciary system has relied on abrupt population growth at the global level, and if the trend changes, the system could be seriously affected. “Central banks and governments that have ‘eaten’ off the 35-year system cannot prevent inflation from increasing, since raising interest rates to adequate levels would put them at risk of serious economic contraction given the huge debt that they face in their economies“, Reid added.
For Mr. Reid, the Central Banks are forced to prioritize low-interest rates and nominal growth before the control of inflation, which could precipitate the end of the fiduciary system, since inflation would exceed the ability to sustain the value of printed money, causing more and more mistrust in the citizens.
“It is possible that inflation will become more and more uncontrollable, and the era of fiat currencies will be vulnerable while people lose faith in printed money“, Reid emphasized. An example of this can be seen in the wave of adoption of countries such as Zimbabwe or Venezuela, where citizens have greater problems of liquidity when dealing with their own fiat currencies, this comes as a result of uncontrolled growth of the inflation rates. Due to this situation in those specific economies, any other financial instrument has more value than their own printed money.
“Although the current speculative interest in cryptocurrencies has more to do with blockchain technology than a loss of confidence in printed money, it is expected that at some point there could be a medium exchange that becomes more universal and a competitor to printed money”.
Strategist, Deutsche Bank.
The decentralized characteristics of cryptographic financial instruments can overcome the current shortcomings of the fiduciary system, but adoption will only be possible in a progressive manner, since the current system works, according to Reid’s words, at least since 1971, when the former President of the United States, Richard Nixon, decoupled the gold of the dollar, something that Reid valued as “intrinsically unstable and prone to high inflation“, compared to the current potential of cryptocurrencies.