Over the past year I’ve observed many people including myself developing a near obsession with Macro Economics. Countless articles, news programs and podcasts trying to predict the economic impact various stimulus packages particularly their impacts on inflation.
One particular pseudo macro economic topic that many found interest was trading crypto currencies. The media extensively covered the rise and fall and rise of bitcoin, and the plethora of other digital currencies creating a FOMO effect. I wasn’t paying attention because I wanted to invest, but rather because I wanted to understand why so many other people wanted to invest, or rather bet on these beanie babies. While digging into this, I was also paying attention to how COVID impacted banking services and how many more banks were allowing online wire transfers. I do a lot of wire and ACH transfers and they always seem archaic, inefficient, and susceptible to fraud. Other payment facilitators like Apple Pay, Venmo, PayPal, and Square, are trying to rival the various credit card monopolies but still have high transaction fees and are difficult to setup with one off payments, it’s a big inefficient mess with massive potential for disruption.
This is why the article “The rise of Govcoins” recently published in the Economist peaked my interest. These are government backed digital currency that have the potential to dramatically change the banking system. For example, instead of having a bank account with a local bank you would have an account directly with the Fed. Instead of writing a check or paying with a card that charges the vendor a 3% fee you could use the Fed’s fast and inexpensive financial network to move money. Also, your money would be guaranteed by the full faith of the state, not a fallible bank. It’s a bitcoin that acts like a regular dollar. There will be arbitrage, but it will be old boring arbitrage over pennies, not bets on the tone of Elon Musk’s next tweet.
There are certainly potential down sides such as the government imposing and collecting fines directly from your account or taking complete control of the financial system such that the banks won’t have collateral to secure loans. This may sound futuristic, or unrealistic, but it’s happening now. The Bahamas have issued a digital currency, while China and the US are in various test stages of establishing a digital currency not to mention, the EU has declared they will have a virtual currency by 2025.
Regardless of whether this change is positive, it is coming, and it will have a major impact on the world economy in ways that no one can foresee. You can now add this to the list of things that you didn’t know about last year, next to your intimate knowledge of the local take out options.