A trans­par­ent open-ac­cess reg­istry of mon­e­tary flows makes the in­ter­me­di­a­tion of bank­ing au­thor­i­ties un­nec­es­sary

African Independent - - BUSINESS -

Bit­Coin is cur­rently equiv­a­lent in value to two ounces of gold. Other ris­ing stars in­clude Ethereum, Lite­coin and Rip­ple.

Tak­ing the world by storm Many of th­ese cur­ren­cies re­main quite volatile in the short term. Their up­ward and down­ward swings reach over 10% of the value on a weekly ba­sis. But the long-term trend is im­pres­sive. States are warm­ing up to them.

In April, Ja­pan ac­cepted Bit­Coin as a le­gal pay­ment method for re­tail mar­kets. Af­ter threat­en­ing dig­i­tal cur­ren­cies last year, the Rus­sian gov­ern­ment took a U-turn.

Pres­i­dent Vladimir Putin met the de­vel­op­ers of Ethereum and com­mit­ted to recog­nis­ing cryp­tocur­ren­cies next year.

Fol­low­ing an ini­tial freeze, the Peo­ple’s Bank of China read­mit­ted with­drawals in Bit­Coin last month, cat­a­pult­ing the cur­rency to new heights. In the US, cryp­tocur­ren­cies are be­com­ing in­creas­ingly ac­cepted as both a method of pay­ment and store of value.

The Australian gov­ern­ment will soon make it eas­ier for new in­no­va­tive dig­i­tal cur­rency busi­nesses to op­er­ate, ex­empt­ing traders and in­vestors from goods and ser­vices tax.

It’s clear that cryp­tocur­ren­cies will in the near fu­ture be­come much more com­mon as meth­ods of pay­ment for a wide range of pur­chases, from on­line shop­ping to the lo­cal su­per­mar­ket. De­vel­op­ing economies, too, are open­ing up to cryp­tocur­ren­cies. In Venezuela, Bit­Coin has be­come the lead­ing par­al­lel cur­rency. It pro­vides mil­lions of cit­i­zens with an op­por­tu­nity to per­form trans­ac­tions and gen­er­ate liveli­hoods, in­clud­ing buy­ing food and other ba­sic ne­ces­si­ties in a coun­try where of­fi­cial money is worth al­most zero. It also al­lows them to pur­chase goods from over­seas, over­com­ing ever-stricter cap­i­tal con­trols.

In East Africa, lo­cal in­no­va­tors have in­tro­duced cryp­tocur­rency sys­tems to sup­port cross-border trans­ac­tions, as ex­em­pli­fied by ini­tia­tives like BitPesa.

In South Africa, cryp­tocur­ren­cies are be­com­ing par­tic­u­larly pop­u­lar. In Nige­ria, lo­cal traders and ac­tivists be­lieve this new money presents an op­por­tu­nity to democra­tise the econ­omy.

This is pro­pelled by the fact that peo­ple in Nige­ria have been failed by con­ven­tional money.

Ac­cord­ing to my col­league Veren­gai Mabika, founder of BitFi­nance in Zim­babwe, the col­lapse of his coun­try’s for­mal fi­nan­cial sys­tem has made Bit­Coin an at­trac­tive al­ter­na­tive.

This is es­pe­cially the case for on­line pay­ments, which are re­stricted by banks, and for remit­tances, which con­sti­tute the back­bone of the econ­omy.

A grow­ing num­ber of Zim­bab­weans are also us­ing cryp­tocur­ren­cies as a sav­ing mech­a­nism (37% of all Bitfi­nance cus­tomers use it for that pur­pose), Veren­gai tells me.

This is af­ter the mas­sive loss of per­sonal sav­ings dur­ing the hy­per­in­fla­tion pe­riod of 2008, which led to the col­lapse of the coun­try’s banks.

De­cen­tral­i­sa­tion and lo­cal eco­nomic de­vel­op­ment The de­cen­tral­i­sa­tion of money is at the core of this new trend, with po­ten­tial reper­cus­sions in other fields. For in­stance, Ethereum is de­signed as a smart con­tract plat­form, that is a trad­ing sys­tem com­pletely based on peer-to-peer prop­erty rights. FairCoin was de­vel­oped as the pref­er­en­tial cur­rency for co­op­er­a­tives, so­cial economies and fair trade net­works around the world.

Cryp­tocur­ren­cies are the tip of an ice­berg.

Ac­cord­ing to re­cent es­ti­mates, there are over 6 000 com­ple­men­tary cur­ren­cies in the world, over 50 times the num­ber of con­ven­tional money sys­tems.

Most of th­ese are user­con­trol­lled and are in­ter­est-free.

One can­not make money by sim­ply trad­ing in them.

Hoard­ing makes no sense in this new world. This is be­cause value is not in the ac­cu­mu­la­tion but in the ex­change.

The scope is of­ten lim­ited to cer­tain ter­ri­to­ries or types of trans­ac­tions (for ex­am­ple, per­sonal care, sus­tain­able mo­bil­ity and lo­cal trade).

This cre­ates an in­cen­tive to sup­port lo­cal eco­nomic de­vel­op­ment and forms of ex­change that are val­ued by com­mu­ni­ties of users.

Re­gio­geld, a net­work of lo­cal cur­ren­cies which I stud­ied when I was a re­searcher in Ger­many, has pro­lif­er­ated through­out the coun­try.

It has be­come the world’s largest sys­tem of lo­cal cur­ren­cies, sup­port­ing small busi­nesses and em­pow­er­ing com­mu­ni­ties.

In the near fu­ture, we will have a va­ri­ety of money with dif­fer­ent qual­i­ties and dif­fer­ent pur­poses. This will make economies more re­silient against shocks and will sup­port more equitable and sus­tain­able de­vel­op­ment, by putting users in the driver seat and re­in­forc­ing lo­cal eco­nomic de­vel­op­ment.

As my re­search demon­strates, a com­bi­na­tion of re­gional, na­tional and lo­cal cur­ren­cies could also be the best way for­ward for the Euro­pean Union, en­gulfed by its mono­lithic and un­sus­tain­able euro, and for any other process of re­gional in­te­gra­tion, from Africa to other con­ti­nents. – The Con­ver­sa­tion

A grow­ing num­ber of Zim­bab­weans are also us­ing cryp­tocur­ren­cies as a sav­ing mech­a­nism

Lorenzo Fio­ra­monti is full Pro­fes­sor of Po­lit­i­cal Econ­omy, Univer­sity of Pre­to­ria

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