During the last couple of months, the price surges of digital currencies like Bitcoin and Ethereum have attracted the attention of numerous banks, governments and other financial institutions. The Deutsche Bank, through its lead strategist Jim Reid, is the latest to express its opinion on the future of the financial market.
In a recently written paper, Jim Reid discusses what he refers to as ‘the start of the end of fiat money’. According to Reid, the dominance of the world’s current fiat-based currency system that is no longer based on gold is both unstable, and prone to deal with aspects such as high inflation. It has only managed to come this far due to the disinflationary shock that it suffered back in 1980, yet which is now reversing and bound to affect all of the world’s traditional currencies.
It is believed that the disinflation shock mentioned above has managed to save fiat currencies, yet due to the means of controlling inflation, such as loose policies, extensive leverage and continuous money-printing may actually bring its doom. According to Reid, if inflation becomes uncontrollable, than this will likely bring onwards the end of paper money, as people throughout the world will lose faith in it as it currencies continue to lose their value.
In order to help mitigate the risks of a financial collapse, the single alternative available to us at this moment would be the use of digital currencies. Due to their decentralized nature, they are no longer controlled by the governments, but rather via the organic laws of the economy: supply and demand.
Reid also mentioned that: “Although the current speculative interest in cryptocurrencies is more to do with blockchain technology than a loss of faith in paper money, at some point there will likely be some median of exchange that becomes more universal and a competitor of paper money.”
At this moment in time, banks, governments and financial institutions are in the middle of a debate capable of either making or breaking our financial system. Some choose to be supportive of digital currencies and their increasing popularity, whereas others believe that they mere tools for money laundering, bound to disturb the financial market.
Not long ago, the president of the Turkish Central Bank also made a statement in this regards. He warned of potential risks associated with cryptocurrencies, yet also stated that he has a positive view on their future. According to him, they can ‘contribute to financial stability’. Not only this, but the Turkish Central Bank has also reportedly set up a research group meant to further study the evolution and potential of digital currencies.