Flying kites in a storm
LINK BETWEEN PUBLIC PROTECTOR’S ACTION AND CRYPTO-CURRENCIES Most people, apart from speculators, want stable means of exchange and fixed interest rates.
Public Protector Busisiwe Mkhwebane’s ruling, which punched nearly 1.5% off the value of the rand, is like flying a kite in galeforce winds on a very thin string. For Corruption Watch’s David Lewis to call it “bizarre” was putting it mildly. There’s rapidly waning trust in the new public protector and more than a good chance that her directives on the SA Reserve Bank’s independence and on Absa will be turned down on review.
The role of a central bank in protecting the integrity of a nation’s currency can’t be diluted by the need for economic growth. It’s a complex issue. Kow-towing to populism by a powerful constitutional player is reckless at best. It should be clear the value of a nation’s means of exchange is perhaps the most important price in the system; that economic growth is threatened by an unstable currency and that a weak one boosts inflation.
Any reliance on monetary policy to encourage growth detracts from the need to create tangible value through producing competitive goods and services. That creates jobs. It’s small wonder that most people, apart from speculators and financial predators, want a stable means of exchange and fixed interest rates.
On the other hand, despite arguments at a macro level for free-moving exchange rates, speculation and derivatives, they play havoc at a micro-level. This insecurity inspired Bitcoin’s creation.
Two primary forces that impact on investment markets are fear and greed. In one sense, all investments are underpinned by fear – a desire to preserve/safeguard wealth. Greed implies a greater active force related assessing rapid growth and substantial gain. Fear as a driver of a market price, is an escape from other similar assets and likely to be more considered and stable. Greed will blindly chase a price until short term gains, or the prospect of more, dissipates. It then most likely jumps to another with more promising prospects.
A greed-driven market detracts from the primary motive of stability. It’s an issue that’s plagued the Bitcoin visionaries who want to see the crypto-currency become more widely used as a means of exchange, rather than a speculative instrument. A steady growth in value would be assured with wider use in transactions, and slowing down mining new coins until a cap of 21 million is reached.
The speculative price surge and volatility over the past few weeks, must have caused some anguish among them, and the valid concerns raised that crypto-currencies have become a scammer’s paradise. While it’s a long way off from being used to buy a sandwich, the crypto-currency is maturing, according to Coindesk. An important point made in a comment on my first, satirical look at gold and Bitcoin a year ago was that people “get caught up in the currency instead of the underlying blockchain. Like thinking of a website instead of the internet”.
The real revolutionary breakthrough has been blockchain technology, whose use in Bitcoin mitigates against the currency being a Ponzi scheme. But the Bitcoin security may not apply to the plethora of emerging alternatives and tokens that are a “scammer’s paradise”.
Fortunately, there are many reliable websites, experts and articles to consult. One has to do research to be comfortable in exchanging a Fiat currency for a crypto-currency. But can one afford not to?