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Sunday, May 29, 2022
HomeNewsCash days are counted, fast concentration of wealth in the hands of...

Cash days are counted, fast concentration of wealth in the hands of a few is coming, warns renown Cornell University Economist, Professor Eswar s. Prasad

Its undeniable that a wave of digital disruption is sweeping the world’s monetary systems. With the rise of popularity of cryptocurrencies and the advent of CBDCs, not even money will be saved from the digital revolution, the future of which Professor Eswar S. Prasad paints a dramatic picture of.

The time for cash is soon over, and wealth is even more concentrated in the hands of a few and the chosen. This is what Eswar S. Prasad, a professor of economics at Cornell University, warns

Cornell is a respected macroeconomist whose two previous books dealt with the position of the U.S. dollar and the Chinese yuan in the global economy. Now he has bitten an even bigger piece.

Prasad also wrote the recently published book The Future of Money – How the Digital Revolution Changes Currencies and Finance. It goes through how our perception of money changes when cash runs out.

It is already clear that digital money is displacing cash, says Prasad.

In Sweden, it is estimated that the last banknote denominated in Swedish kronor will be returned to the central bank in 2030. After that, cash will no longer be used in Sweden.

Finland is also one of the leading countries in mobile payments. An increasing proportion of payment transactions are handled electronically, often with the help of Smartphone Fingerprint Authentication.

At the same time, competition will increase as the monetary system becomes more diversified according to its intended use.

One form of money can be handy precisely as a medium of exchange, another in international trade, and a third in terms of preserving value.

At the same time, different cryptocurrencies challenge the so-called fiat money created by central banks. There are many creative solutions in these financial products based on blockchain technology that can pave the way for an increasingly efficient and fair way to enter into a variety of financial agreements, but their ability to retain their value is largely based solely on the faith of their owners.

Prasad, for example, takes cryptocurrency bitcoin , which he sees as a significant innovation in many ways. Bitcoin , introduced in 2009, is one of the pioneers of a revolutionary change in finance, according to Prasad.

Bitcoin was designed as a decentralized payment system not administered by any government agency or financial institution. As international capital markets plunged into the global financial crisis in 2008-2009 and central banks had to start blaming new money on the market, for many, cryptocurrencies like bitcoin might seem even the most reliable in terms of preserving the value of assets.

However, it doesn’t become a switching tool because its value throws so much and it can only do 6-7 transactions per second, while Visa and Mastercard can do millions of transactions every second, Prasad says in a Zoom video meeting.

The use of various stable currencies or cryptocurrencies linked to the value of currency baskets, or stablecoin , will increase, Prasad says. These payment instruments can be a combination of large technology companies’ own payment instruments and the development of cryptotechnology.

For example, another more functional and faster protocol is coming from Ethereum.

Distributed blockchain technology After bitcoin , Ethereum is the second most valuable cryptocurrency on the market in terms of ether.

Alongside the cryptocurrency, large platform companies such as Meta or Amazon are also developing their own means of payment, such as diem and Amazon coin, which may rise alongside or even overtake central bank money.

Central banks will continue to play an important role in the monetary systems, Prasad said. It is enough that people need monetary systems that they can trust.

Central banks are planning a Digital Central Bank (CBDC ) , which, if implemented, could bring all consumption and exchange of citizens under control, at least in autocratic countries such as China.

On the other hand, the introduction of a digital central bank currency can reduce fraud and increase efficiency.

According to Prasad, the spread of central banks’ own digital currencies offers a wide range of efficiency gains.

In developing countries, for example, finance can be made more accessible to the poor without the large margins taken by banks .

It brings economic activity.

In countries with tight state control, the transition of economic activity to digital and largely state-controlled digital currency raises concerns that consumers will lose their privacy when all spending can be controlled.

These concerns already exist in China.

Prasad says he understands the concern but recalls that in China’s plans, the privacy of economic transactions is divided into five different categories depending on the need for privacy.

One of the most significant features of cryptocurrencies is that their operations and the changes in ownership and other agreements that take place in their exchange are logged in computers around the world.

It could, in principle, lead to the democratization of banking.

Banking is needed, but not banks, Prasad quotes Microsoft founder Bill Gates in his book

Block chain technology and cryptocurrencies have also been of interest to many Silicon Valley billionaires in recent years.

The decentralized monetary system is expected to cause a similar transformation in the economy as the Internet.

At the same time, it means that those who are the first to acquire that technology can become significantly more prosperous.

Even if the system is decentralized, it could end up in concentration, Prasad warns.

He compares the enthusiasm of technology billionaires to master cryptotechnology to how the ownership and extraction of bitcoin , intended for a distributed system, seems to be concentrated on quite a few.

It is very dangerous to rely too much on technology, Prasad says, and stresses the importance of adequate regulation.

Fabio Paneta, a member of the Governing Council of the European Central Bank, warned in late April that the market value of cryptocurrencies was already higher than the US subprime housing stock at the time.

Loose subprime loans were worth about $ 1,300 billion 15 years ago. The collapse of the loan portfolio plunged the world into a financial crisis in 2008-2009. The total market value of cryptocurrencies is now about $ 1.5 trillion, according to the cryptocurrency website Coinmarketcap.

In his writing, Paneta estimates that cryptocurrencies have created little added value.

Prasad says in polite terms that he disagrees slightly with Paneta that bitcoins , for example, would have no value.

Bitcoin has at least a value due to their scarcity.

More than 19 million bitcoins have now been mined. According to the algorithm , no more than 21 million of them can be mined, and this scarcity is likely to guarantee value for the currency, Prasad explains.

The combined market value of the bitcoins in use today is over $ 700 billion

As the debate shifts to the amounts of money creation by central banks and commercial banks, or how different fintech innovations or cryptocurrency structures work, even the grip of an economic journalist begins to slip.

Fortunately, Prasad is like the most student-friendly professor in the university who seems to be able to explain even complex things clearly and unambiguously. In a zoom video meeting, he convincingly explains how our perception of money will change in the near future.

Prasad gives a long but precise answer to the question of what politicians and citizens should focus on in the debate on monetary systems.

I think we are seeing a change in how the nature of money is beginning to be understood separately, both as a medium of exchange and as a store of value. And this will have fundamental implications for both monetary policy and the financial system.

Prasad predicts that as international remittances become more efficient, it could lead to a more concentrated economy.

Then a few major currencies like the US dollar, the euro and perhaps the Chinese yuan will become more important currencies.

Similarly, the importance of cryptocurrencies pegged to these currencies may increase, Prasad says.

But many small country currencies that don’t have a credible central bank can be wiped out because their own currency may no longer be trusted, even domestically.

According to Prasad, public debate and politicians should focus seriously on whether technological advances will lead to an increasing concentration of economic and financial power both within and between countries.

According to Prasad, this major change, which is already visible, must be prepared for by both national and supranational regulations.

We may end up in a world where economic power is hugely concentrated on big companies and big countries. And so is financial power.

It is a very worrying future. It is therefore important to ensure that new technology brings more competition, innovation and increasingly decentralized systems.

According to Prasad, regulation and politics are also needed to ensure that the economic and social elite do not get too strong of the world.

Billionaires and multi-billionaires often say they want to make the world a better place and solve problems, but their solutions can make our problems worse, he says.

Prasad says the development of new technologies, especially information technology, often even exacerbates many problems.

Differentiation of different groups is increasing and there is significant concentration at the top level. These changes will have a significant impact on our future.

Chris Crespo
Chris Crespohttp://nordicfintechmagazine.com
Chris is the Co-founder of Nordic Fintech Magazine and Fast Forward Banking. He uncomplicates finance through jargon-free financial media content in plain and simple language. Chris is also a guest lecturer at Stanford University and Singularity University where he speaks regularly on the Future of Financial Services, the Future of Money Disruption and Entrepreneurship.
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