CHANGE IS IN THE POCKET

If you remember the decade of the ‘Swinging Sixties’ you weren’t really there.

In other words, you missed the excitement of those years when so much changed; such as the long hair, short skirts and great music. Well, if you were ‘there’, you will have wanted the world to stop right where it was. And, of course, it didn’t stop. Much was to change in the subsequent half century. Among the new arrivals were the personal computer and laptop, heart and other organ transplants, a trip to the moon, the internet, smartphone, electric car, RAP music, black empowerment, new continental political unions and Lionel Messi. That’s the good news. Unfortunately, we also had AIDS, 9/11, COVID-19 and now the barbaric behaviour of Russia.

Money

There is one very interesting – and even a little mind-boggling – area where change happened slowly over the centuries, and is now accelerating. I’m referring to what used to clatter inside the pocket or purse; yes, money. You know, the item most human beings have never got enough of. It is arguably – and there are many arguments about money (lol) – one of the most remarkable inventions of mankind. For some however, as the saying goes, ‘money is the root of all evil’. Or perhaps more accurately, ‘money is the root of much evil’. But on this occasion let’s look at what the football players and managers like to call – ‘the positives’. Money enabled trade in goods and services over enormous geographical distances, and between people and organisations that had no knowledge about each other. Beads and stones preceded the invention of paper money that itself was introduced in China 1500 years ago, and issued by private as well as public institutions. Needless to say, in the absence of control over the issue of notes, inflation put that one to bed.

Value

Over time, central bank institutions emerged and took over globally, the first being in Sweden in the 1600s. Money issued by central banks was often tied to minerals, hence the Gold Standard which was a monetary system where a country’s currency or paper money had a value directly linked to gold. The Gold Standard was completely replaced by fiat (not mercedes (lol) money. This was currency used because of a government’s order, or fiat, which the currency issued institutionally, must be accepted as a means of payment. In France the fiat money is the Euro, and in South Africa the Rand. Not for long was cash the only means of transferring money. In came the cheque book, though there was no fiat involved there. A payee would generally need first of all to trust the payer before accepting a cheque. In 10 years from now the youngsters will think a ‘cheque’ is that guy from Eastern Europe. Today, in 2022, we stand on the threshold of another era of upheaval. Cash is on its way out, giving way to digital technologies that could change the very nature and capabilities of money.

The time saved by the advent of internet banking for payment for goods and services has enabled more fiddling around with smartphones! But I’ve skipped a beat. The first big transitional step towards the emergence of digital currency, was the credit card, supplemented by the introduction of the debit card, the latter for those who don’t like being in debt. Change continues. Money issued by a country’s central bank serves as a unit of account, a medium of exchange, and a store of value. But digital technologies could give rise to those functions separating. Private digital money, including crypto currencies, is emerging and gaining support. That could weaken the dominance of central bank money. The crypto currencies have shaken long-held precepts about money and finance. Bitcoin started this new wave in 2009 during the global financial crisis when confidence in the banking systems had declined substantially. But the ability of Bitcoin and other similar crypto currencies for anonymity has diminished and the wild price swings have reduced them to the status of speculative financial assets.

Crypto

Today, another generation of crypto currencies is emerging. These are the ‘stablecoins’ with a stable value derived from being backed by reserves of reputable fiat currencies such as US Dollars. Their transactions have to be validated by the issuing institution which could be a bank, corporation or just an online entity. At present, however, ‘the jury is out’ on the ‘stablecoin’ since regulators currently don’t require independent verification of the legitimacy of transactions and the holding of adequate reserves. In the meantime, faced with the increasing irrelevance of paper currencies, many central banks around the world – including those of China, Japan and Sweden – are experimenting with issuing central ­bank digital currencies (CBDCs), which are just digital versions of the currencies they now issue as notes and coins. A faster and less expensive international payments system would certainly follow. The digital currency revolution is underway.

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