Simon Angelo worked for the world’s first regulated Bitcoin fund in 2016. He currently works at a trading desk for Wholesale Investors. His work in offshore finance and global banking gives him some insights on the future of money.

When Bitcoin was a special opportunity

In October 2016, when I started working with the Bitcoin fund, a Bitcoin cost around NZD $900. Today it sits at around NZD $62,000.

Back then, the principals of the fund saw Bitcoin rather like the oil futures they had traded in the 1980s.

These were the early days of deregulation in the oil industry. Oil reserves were depleted. Demand from China was coming on stream. More oil production would be needed. The price could only go up.

It was a market with plenty of volatility, illiquidity, and scant regulation. It was all pretty chaotic. Yet there were global forces at play. These would give rise to an oil and commodity bull market, bursting a dam of money.

In 2016, they saw similar potential for Bitcoin, just as they’d seen for oil back in 1987.

There was a long runway ahead. A destination where the technology becomes widely adopted. And the potential for Bitcoin to change money as we know it.

Were they right?

Yes, there’s been an overall Bitcoin bull market. The price has grown almost 7,000% since 2016 — though there’s been plenty of volatility.

Yet much of the wider mainstream adoption they predicted hasn’t happened. Like other cryptocurrencies, Bitcoin remains a mainly speculative instrument.

Does this mean Bitcoin and other cryptocurrencies still have a bigger part to play in the future of money? What about the alternatives?

Banking and currency

Modern banking has come a long way.

With the click of a mouse and a confirmation on your phone, you can send funds around the world. This can be to other bank accounts, to brokerage accounts, or even to global smart-card services and digital wallets.

But for those seeking privacy or protection of their wealth, banking alone can fall short.

On the privacy front, okay, the ordinary punter doesn’t typically expect Swiss-style bank secrecy. Though even that is limited these days for requests made under CRS and FATCA rules.

Most alarming was the freezing of accounts for protest groups during the Canadian trucker convoy protests in 2022. This crossed the line from tax-related access to access for political purposes.

To my way of thinking, this tarnished the reputation of both the Canadian dollar and the Canadian banking system.

Increasing and invasive bureaucracy can actually limit trust in the banking system. It risks driving more people into ‘offgrid’ instruments like cryptocurrency.

A robust financial system should retain strong property rights separate from the state. Where access is limited only to tax enforcement via transparent court orders.

Unfortunately, the creep of bureaucracy has been a theme of our time.

What about CBDCs or other digital currencies?

According to a 2021 survey, central bank digital currencies were currently being looked at by 86% of central banks around the world.

60% were experimenting with the technology.

14% were deploying pilot projects.

The RBNZ has embarked on a 4-stage process and is currently at stage 2: ‘exploring high level design options for the CBDC, and their costs and benefits.’

The primary objectives of CBDCs are to help maintain trust in local currency, maintain price stability, and ensure safe and resilient payment systems.

Some analysts have pointed out that CBDCs could actually reduce trust in currencies, since they could be open to more government manipulation.

The Canadian trucker convoy protests saw about 280 bank accounts frozen without court orders under the Emergencies Act.

For people using CBDCs, the question is then what checks and balances would be in place to prevent bureaucrats simply turning them off?

Perhaps, for instance, you’ve been found mobilising a protest they deem political wrongthink. Even dangerous. Could your CBDCs be frozen or penalised at the click of a bureaucrat’s mouse?

Again, we come back to the most crucial aspect of money: It needs to be trusted.

If people have doubts about their government, or their public service, they might be unlikely to trust a CBDC. Willingness to embrace and accept it may be low.

It’s the same situation with the plethora of digital currencies out there. Who backs them? How can you trust them?

That’s the beauty a cryptocurrency like Bitcoin has (as opposed to a digital currency). It is backed by the incontrovertible verification system of the blockchain.

Which brings us to the other essential quality of money… 

Will it hold its value?

In Argentina, lack of trust in the government’s fiat currency — the peso — is entwined with another key problem.

Last week, inflation topped 140%. That means much of what you go to buy now costs more than double compared to just a year ago.

People give up buying new things and head to the second-hand or thrift market for items as simple as a pair of jeans.

An Argentinean friend of mine told me about his local hardware store with no pricing on the shelves. ‘You have to take everything up to the cashier to get the latest price.’

Well, trust is so low in the peso it may now face its demise.

The country’s presidential front-runner, former financial analyst Javier Milei, has pledged to scrap the central bank and dollarise the economy.

As we were going to press,  it was announced that Milei had won the presidential elections in provisional results.

If he goes ahead with his pledge on the currency, this could be a game changer. No country Argentina’s size has previously shed their currency for the US dollar and conceded their monetary policy to Washington.

A switch to the US dollar would be a radical step, no doubt. Yet already locals try to get their hands on as much USD as they can buy.

Property prices are listed in USD to protect against inflation.

Clearly, if a currency is to be trusted and accepted, it also needs to be stable.

This is the flipside with cryptocurrency. Values are volatile. If you were to settle on a house purchase with Bitcoin — then Bitcoin suddenly drops 10% — you’d find that house now costs 10% more when paying that way.

Which is why these cryptocurrencies have upside for trading and investment, as opposed to being a reliable medium of exchange.

Furthermore, there are thousands of cryptocurrencies. Most need significant processing power and some time to transact. So they have intrinsic limitations when it comes to becoming the real future of money.

Inflation and the future

Today, although interest rates are higher on savings, after tax, the greasy pole of inflation makes it hard to keep pace.

By definition, protecting your wealth means you may want to put longer-term funds into productive assets like stocks or property. The lesson from crises throughout history, including the Second World War, is that quality businesses can still produce, sell, and grow their value over time.

Bitcoin and cryptocurrencies do not fit into the category of productive assets. This is because their main use today is as a speculative investment and alternative store of value.

That store of value, like gold, is based on limited supply. But unlike gold, the cryptocurrencies themselves could be subject to competition and regulation. Not to mention the inherent volatility.

So, would Bitcoin interest me as much today as it did in 2016?

Well, back then, at $900, a 7,000% return was possible in five years.

But at ~$62,000, it is hard to even see $100,000 over the next five years. Holding coins over this time would also carry risk and, unless lent out, usually no yield.

Meanwhile, trust in fiat currency comes down to its ability to store value and act as a reliable medium of exchange around the world.

This is the reason why the US dollar continues to reign supreme as the world’s reserve currency. Some say it is under threat by a potential BRICS dollar that could be backed by gold.

It is hard to see the reality of this threat. The BRICS countries have divergent interests. The US dollar is backed by the world’s largest single base of taxpayers.

Thus far, the Federal Reserve has been amongst the more successful in tackling inflation. It is currently down to 3.2% in the US, gradually nearing the target of 2%.

Yes, the proportion of US dollar reserves held globally has reduced. The main reason for this appears to be the emergence of another large and reliable currency in the euro.

If our local currency weakened or looked to be threatened by out-of-control inflation, unfair manipulations of a potential CBDC, or a manifestly corrupt government, I would probably be looking for a more reliable currency such as the US dollar or euro to transact and hold wealth.

Further, holding listed assets in these currencies can help investors to diversify.

The future of money comes down to faith and trust. Like so much else does in life.

We cannot prove that our close family members love us absolutely. But we have faith that they do. Spouses promise as much at the wedding altar.

As the US dollar declares: ‘In God We Trust’. Adopted as the official motto of the United States in 1956, it denotes that ‘the political and economic prosperity of the nation is in God’s hands.’

Long may that remain, for when too much is placed in the hands of man and bureaucracy, all trust can soon erode.

For now, the real future for money is likely in the expansion of financial products that offer access to quality currencies and quality assets denominated in them.

For example, smart cards that allow you to transact offshore currencies in a cost-effective way. Brokerage accounts that allow you to hold offshore assets for growth and income. And the ability to access various currencies via lending margin on the assets you hold.

Of course, many of these sort of products will be suitable for more sophisticated investors only. Any leverage adds risk. And most people should always have a suitable level of emergency funds available at all times.

Perhaps the future for Bitcoin and oil will intersect again.

Supply of both appears limited. Appetite is strong yet uncertain. But prices are currently high, making it hard to foresee the sort of breakout we saw in 1987 or 2016.

Simon Angelo, Editor, Wealth Morning – www.WealthMorning.com

(This article is the author’s personal opinion and commentary. It is general in nature and should not be construed as any financial or investment advice. Readers should seek independent advice from a licensed Financial Advice Provider for their own situation.)

This chart shows the anomalous economy which is Ireland. In tradingeconomics.com, Ireland and New Zealand are shown as having exactly the same population (5.15m). Yet Ireland has a GDP of $US529 billion, whereas New Zealand has a GDP of $US247 billion, less than half. (Even Sweden, with double Ireland’s population, has a GDP only 11% higher than Ireland.) GDP is a measure of the market output/income of a nation state, with all paid services being included.

As I noted two weeks ago, the reason for the big difference in living standards today between Australia and New Zealand lies in the greater economic growth in Australia in the late 1980s. Yet, in today’s chart the difference between New Zealand and Ireland is vastly greater than the difference between New Zealand and Australia. Yet nobody has noticed. Ireland does not brag about this.

(Indeed I am currently watching the TV drama Redemption, set in Dublin featuring a Liverpool detective and her deceased daughter. In the programme, the underclass in Dublin looks much like the underclass in allegedly poorer Liverpool, and in poorer Aotearoa New Zealand.)

This indicates one particular problem with GDP data which is not usually highlighted by GDP critics. Within the European Union, too much income of the EU is attributed to Ireland. It’s because of Ireland’s ‘race to the bottom’ company tax rates, and about Ireland’s strategic geography as an English language gateway to Europe.

Strictly, GDP is meant to be a measure of production (gross domestic product); in an ancillary sense, GDP is also taken to be a measure of income earned in a sovereign territory. But in large parts of the service sector, it is almost impossible to measure output; so ‘income’ is taken as a proxy measure of output, of production. In other words, the many ‘servants’ who produce very little but get paid very much are taken to produce as much as their salary indicates. Thus, a consultant receiving €100,000 per year is assumed to produce twice as much as a school-teacher earning €50,000.

(Conundrum. One team of servants produces €1,000,000 worth of policy plans, and another team provides a €1,000,000 analysis that leads to the abandonment of those plans. Is the total output €2,000,000. Or is it zero? Certainly, the national accounts will say that it’s €2,000,000.)

Ireland has an underlying economy similar to New Zealand, but a top-twenty percent of the population earning significantly more than New Zealand’s affluent top twenty percent.

It will be, though, that much of the income (and hence output) attributed to the Irish economy is in fact the income of Irish non-residents. Meaning that the Irish GDP is to some extent a statistical artefact; as was the super growth of the ‘celtic-tiger’ era (1990, late-1990s and mid-2000s), the post GFC era (2015 and 2017), and the Covid-era (2021).

One point of interest, this week, will be just how much of Ireland’s financial windfall will have been invested in Irish rugby. Rugby is an elite sport in Ireland, as it is in England and Australia. Will money talk? As I understand it the bookmakers say, ‘yes’, that Ireland will defeat the New Zealand All Blacks!

______________

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

A recent webinar hosted by the Pacific Network on Globalisation (PANG) brought together minds from across the region to delve into the intricate issues of the digital economy and data value.

The webinar’s focus was clear — shed light on who was shaping the rules of the digital landscape and how these rules were taking form.

At the forefront of the discussion was the delicate matter of valuing and protecting indigenous knowledge.

PANG’s deputy coordinator, Adam Wolfenden, emphasised the need for open conversations spanning various sectors.

“It is a call to understand and safeguard the wisdom embedded in Pacific worldviews and indigenous knowledge systems as we venture into the digital world,” he said.

But amid the promise of the digital age, challenges persisted.

Wolfenden said the Pacific’s scattered islands faced the formidable obstacle of connectivity.

“Communities yearn to tap into online technologies, yet structural barriers stand tall. The connectivity challenges and structural barriers that are faced by the Pacific region are substantial and there is no easy, cheap fix,” he said.

He underscored the necessity of regional partnerships, even beyond the Pacific.

“As they sought to build advanced digital infrastructures, they realised that strength lay in unity. The journey towards progress means joining hands with fellow developing nations.

“It is a testament to the shared dream of progress that transcends geographical boundaries.”

The first step, Wolfenden believed, was awareness.

He said the Pacific region needed to be fully informed about ongoing negotiations, what rules were being carved, and how these might affect the region’s autonomy and data sovereignty.

“Often, these negotiations remain hidden from public view, shrouded in secrecy until agreements were reached. This has to change; transparency is vital,” Wolfenden said.

Beyond this, there was a call for broader discussions during the webinar. The digital economy was not just about buyers and sellers in a virtual marketplace.

It was about preserving culture, empowering communities, and ensuring that indigenous knowledge was never left vulnerable to the whims of the digital age.

Ema Ganivatu and Brittany Nawaqatabu are final year journalism students at The University of the South Pacific. They are also senior editors for Wansolwara, USP Journalism’s student training newspaper and online publications. Republished in a collaborative partnership with Asia Pacific Report.

Article by AsiaPacificReport.nz

Asia and the Pacific is the most digitally divided region of the world, and South-East Asia is the most divided subregion. The Covid-19 pandemic detonated a “digital big bang” that spurred people, governments and businesses to become “digital by default;” a sea change that generated vast digital dividends. These benefits that have not been distributed equally, however. New development gaps have emerged as digital transformation reinforces a vicious cycle of socioeconomic inequalities, within and across countries.

Bridging these divides and ensuring advances in technology can benefit everyone will be a key challenge as the region seeks to achieve a more inclusive and sustainable post-pandemic recovery. A new ESCAP report, Asia-Pacific Digital Transformation Report 2022: Shaping our digital future, identifies five key “digital divides;” fault lines that separate those who can readily take advantage of new technology from those more likely to be left behind. These divides are related to age, gender, education, disability and geography. 

Typically, those most comfortable with technological innovation are younger and better educated people who have grown up with the Internet as ”digital natives”. Older persons may be more distrustful, or slower to acquire the necessary skills or suffer declines in aptitude. But at any age, poor communities – especially those in rural areas – are most at risk as they may be unable to afford electricity or digital connections or lack the relevant skills, even if the necessary infrastructure and connectivity are there.  

The most significant driver of digital transformation is business research and its development and adoption of frontier technologies. Another major component is e-government; the delivery of public information and services via the Internet or through other digital means. This has the potential for more efficient and inclusive operations; especially when linked to national digital ID systems. However, because e-government services often evolve in complex regulatory environments, providing appropriate levels of accessibility for older generations, the disabled, or those with limited education has become more challenging. 

It is clear that digital technologies are enabling the delivery of previously unimagined services while enhancing productivity and optimizing resource use that helped reduce emissions of greenhouse gases and pollutants. These technologies also helped track and contain pandemic spread. Social networks are fostering and diversifying communications among people of all ages sharing common interests, irrespective of location. This helps them stay in touch, broaden their experiences, continue education or deepen subject knowledge. This provided a veritable lifeline that has continued as we enter the post-pandemic era. 

At the same time, the risks have also proliferated. Social networks also created social ”echo chambers” and generated torrents of misinformation and hate speech. New cryptocurrencies have opened the way to speculative financial bubbles, while cybercrime increased alarmingly as it assumed prolific variations. In addition, digital gadgets and the Internet are thought to contribute to more than 2 per cent of the global carbon footprint. The manufacture of electronic hardware can also exhaust supplies of natural resources such as rare-earth elements and precious metals like cobalt and lithium. 

Moreover, digital transformation has led to the creation of an immense amount of digital data which become an essential resource to understand digital transformation. However, it raises concerns about the ethical and responsible use of data for privacy protection. A common understanding among countries on the operationalization of such principles has yet to evolve. 

The Asia-Pacific Digital Transformation Report 2022 highlights the importance of digital connectivity infrastructure as “meta-infrastructure.” 5G and other high-speed networks can make all other infrastructure – such as transport and power grid distribution – much smarter, optimizing resource use for sustainable development. To contribute to these needs, the Report recommends three pathways for action, which are not mutually exclusive and are aligned with the ESCAP Action Plan of the Asia-Pacific Information Superhighway initiative for 2022-2026. 

The first pathway focuses on the supply side and provides relevant policy practices for the development of cost-effective network infrastructure. The second addresses the demand side and recommends capacity-building programmes and policies to promote uptake at scale, of new, more affordable and accessible digital products and services. The third involves improving systems and institutions that are related to collecting, aggregating and analysing data in a way that builds public trust and deepens policymakers’ understanding of the drivers of digital transformations. 

Finally, in a world where digital data can flash around the globe in an instant, the report highlights the importance of regional and global cooperation. Only by working together can countries ensure that these technological breakthroughs will benefit everyone; their peoples, economies and societies, as well as for the natural environment, in our new “digital by default” normal. 

*******

Armida Salsiah Alisjahbana is an Under-Secretary-General of the United Nations and Executive Secretary of the Economic and Social Commission for Asia and the Pacific (ESCAP)