The end of fiat money?
Prior to the early 1970s (when the Gold Standard was dropped) money was always backed by some type of commodity. In the last 50 years, however, money has been solely backed by trust. Today, the fiat currency system looks more endangered than ever, according to Reid.
“The forces that have held the current fiat system together now look fragile and they could unravel in the 2020s. If so, that will start to lead to a backlash against fiat money and demand for alternative currencies, such as gold or crypto could soar,” he wrote.
Reid suggests that we could witness inflation levels on a global scale, which could lead to a surge in demand for alternative currencies.
In the next 40 years, China’s rise as a global economic superpower and, thus, its integration into the global economy contributed strongly to the suppression of inflation levels as global labor supply received a massive boost. As a result, throughout the last four decades, wages, prices, and, thus, inflation, were under pressure. This has helped to keep high inflation levels at bay and has helped the fiat currency-based monetary system continue to function.
However, as we have moved passed a peak in the “working-age population” in developed countries as well as in China, the supply of labor in key global regions will start to decline. As a result, wages are poised to increase, which would lead to an increase in inflation.
“The demand for alternative currencies will therefore likely be significantly higher by the time 2030 rolls around. Will fiat currencies survive the policy dilemma that authorities will experience as they try to balance higher yields with record levels of debt? That’s the multi-trillion-dollar question for the decade ahead,” he concludes, hinting at bitcoin’s potential as an alternative currency.
Crypto could replace cash
Senior Economist Marion Laboure believes that once a regulatory framework is in place in key regions across the globe and the government-backed move towards cashless societies continues, cryptocurrencies have the potential to replace cash by 2030.
The two most pivotal markets will be China and India, which have both taken a stringent stance on cryptocurrency trading. However, India is keen to move towards a cashless society to combat its black economy and China is planning to introduce a “blockchain based” version of the Yuan.
Moreover, consumers (and businesses) are increasingly preferring digital over cash-based payments, which bodes well for crypto adoption as they do not come with high transaction fees (like bank cards) and provide a higher level of privacy than other digital payment methods.
For cryptocurrencies to replace cash, three hurdles will need to be overcome, according to Laboure. These include gaining legitimacy in the eyes of governments, building alliances with the broader payments industry, and requiring a robust digital financial system that can stem cyberattacks and other potential risks to a purely digital payments market.
If these hurdles can be overcome in the next decade, there may not be much in the way of people across the globe taking out their phones to pay with their mobile crypto wallets instead of grabbing a bunch of notes from their pockets.
Laboure also suggests that bitcoin may not become the go-to cryptocurrency of the future. Instead, a yet-to-be-launched coin could become the new cash alternative. “As we look to the decade ahead, it would not be surprising if a new and mainstream cryptocurrency were to unexpectedly emerge,” she wrote.
“The question is which country will take advantage of being the first to obtain licenses and build alliances. When that occurs, the line between cryptocurrencies, financial institutions, and public & private sectors may become blurred,” Laboure concludes.
In light of the banking industry’s often contentious attitude towards crypto, it’s surprising that one of the largest banks in the world appears bullish towards cryptocurrency adoption. It goes to show that whether anyone likes it or not, crypto is here to stay and appears poised to become an integral part of the future of the global financial system.