The corona pandemic is an extreme challenge for medicine, politics and business, but also for the global currency system. The various national, but almost global shutdowns brought the global economy to a standstill in large parts. The current easing is leading to shops reopening, but people’s enthusiasm for buying is low. And so, as the German finance minister put it, the states reach for “the bazooka” and throw money among the people. The helicopter money with the signature of the American president or the state economic aid as in France or Germany mean enormous national debts.
John Mainard Keynes, the father of the monetary policy idea of state investment in times of crisis, is likely to turn in his grave in view of the almost unrestrained increase in money in Covid-19 countries. After all, in 1944 he had fought for global financial stability, as finally agreed in Bretton Woods by 44 states. Keynes had dreamed of a virtual world currency that all other currencies should be based on; but the dollar as the reserve currency based on a fixed gold price seemed just as safe at the time. As is well known, that went well for almost three decades. But then the expansive US monetary policy had gone too far, the proverbial safe gold in Fort Knox no longer corresponded to the printed dollar amounts. The “Nixon shock” followed,
Even after the financial crisis in 2009 there were considerable doubts about the reliability of the state collateral. The euro, the common currency of countries with a wide range of economic strengths, came under pressure. The discussion about corona bonds now is just a new edition of the quarrels and quarrels about euro bonds at the time, just not quite as emotional. Somehow, despite all the doubts, the ECB’s monetary policy has led to – for some surprising – stability.
The remaining foundation of the state currencies is crumbling
The real economic conditions have changed significantly in the last few decades. No form of money, no currency system as an abstraction of the real economy can withstand this in the long term. The situation is becoming more fragile and fragile, and at some point the exhaustion of “quantitative easing ” , an expansive monetary policy as a stimulus for a paralyzing economy, is no longer able to close the chasm between what money represents and what actually exists in value bridge. In short: the remaining foundation of the national currencies is crumbling.
Since 1973 the dollar had served its purpose as a reserve currency, the D-Mark and Yen, later the Euro and, more recently, the Chinese Yuan established themselves as equals. This is also what is at stake in the trade wars of the last few years, when the USA and China fought over the heads of Europe for supremacy under the model of national egoisms.
Covid-19, the virus that started in China and is currently experiencing its peak in the USA, not only reveals the weaknesses of human health and state health systems, but also the weaknesses of the financial markets. Who can you rely on? The two adversaries in East and West are similarly over-indebted, similarly implausible in their communication, similarly unstable in their politics. Whom can we still trust?
Now the European Union, with its 500 million inhabitants and four of the seven strongest industrialized nations, could emerge as a laughing third party if national rivalries did not creep down the monetary union from within. The national stimulus injections can only with great difficulty cover up the cracks.
A currency system, unmanipulable, predictable and globally available
The former independence of the central banks has long since been compromised in almost all countries. They are a mutually dependent part of the system and, with their balances more than doubled, they are now more of a risk candidate than a guarantee of security. The national governments are caught between the federal and supranational levels, international institutions, markets of institutional donors and their own national debts as well as the attacks of populists.
What to do if the states can no longer fulfill their sovereign monopoly of offering and securing money? What is needed – and Keynes is likely to perk up his ears on the other side – a new currency system, unmanipulable, predictable and globally available, which could restore reliability and stability in the competition of unbridled national currencies.
Because while industry and finance have long arrived globally and digitally in the 21st century, the currency system is still stuck in the thinking of the post-war economic miracle. However, unlike 50 years ago, we are no longer faced with the geopolitical challenges of the Cold War and in the struggle for the distribution of fossil resources, but as a digitally and medially connected global village community before a pandemic that unites everything and everyone and an equally threatening climate change.
See crypto currencies as an opportunity
The little saver, who had to scoop out the low-interest soup of the expansionary monetary policy in recent years, sees little light and takes to the streets as an angry citizen. In a panic, the powerful pour out the cornucopia of government grants even more generously. A vicious circle.
In contrast to the financial crisis ten years ago, we have a technology that can save us today: blockchain. Crypto currencies such as Bitcoin or Ethereum give us the opportunity to think fundamentally about money again.
Blockchain technology enables currencies to compete without a cold war – grassroots, liberal, transparent. It is the systematically guaranteed equal opportunity and intergenerational equity. The rules of the game, once defined, cannot be changed by the powerful just because it is populist or opportunistically convenient. The amount offered is fixed. The principle of a fixed number of coins fulfills a very central function of preserving the value of each individual coin. Each user retains his or her privacy, but rights and obligations can still be effectively enforced on the basis of pseudonyms.
Our generation has the opportunity and the privilege to create something groundbreaking, something that creates peace and prosperity, something fundamental.
The digital yuan is coming
Canada and Singapore – while still in competition with the state – have set out to use their stable currencies and their openness to technology to research the topic of “digital central bank money”. But China is pushing ahead, not only doing research, but is already rolling out a digital currency: The digital yuan is legal tender that is currently being tested in Shanghai and three other cities with a million inhabitants. The nationwide roll-out is planned for the summer.
Then 1.4 billion citizens can buy and sell on a blockchain basis, for example on the WeChat-integrated offer from Tencent, China’s Amazon counterpart. The offer is enriched by a multitude of practical features – automated invoicing , tax returns and accounting. Micro-entrepreneurs, who are prevented from entrepreneurship in this country by bureaucratic, opaque entry barriers with complicated responsibilities, can now operate digital trading in China at the push of a button, including a secure financial system with a stable exchange rate.
The Libra Association wants to enter the currency competition without any state guarantee or influence. The announcements by the first parent company Facebook last year caused a stir. Because of course the national monetary authorities feel attacked in their innermost field of power. The concept has been revised and now provides a digital counterpart to the respective national currency as a kind of peace offer: the “Libra dollar” or the “Libra euro”. The big difference: The currency can be transferred to the other Libra variants and the Libra Meta-Coin, giving everyone the opportunity to choose and switch faster and more freely between different nation states or a “mixed basket” of assets . Whether on Facebook,
Democratic Europe should proactively intervene in the debate, research and experimentation. The discussion about the future of money is in full swing. The search for the best and most sustainable solution takes all of our knowledge, skills and commitment. A digital currency of its own could be the European answer to the challenging rule of three of globalization, digitization and currency stability. It could become the foundation of economic success for the post-corona era. We shouldn’t just sit in the stands.
