Are cryptocurrencies solving the right problems?
The proponents of cryptocurrencies (or crypto assets, as the intergovernmental fintech working group calls them) say they open the way for solving transactional issues that regular fiats have not dealt with well.
They say cryptos can reduce transaction costs, make cross-border payments easier, cut out intermediaries and be used by people who do not have access to the banking system.
The sceptics argue that many of the advantages cryptocurrencies offer can already be achieved through fiat. They also point out that aside from the steep rise in the value of bitcoin, cryptocurrencies are generally not a particularly good or stable store of value.
In fact, when it comes to acting as a currency, its use has so far been limited because it is not widely accepted as a medium of exchange or used as a unit of accounting.
But maybe we should look at cryptocurrency differently. Instead of seeing it as replacing notes and coins, we should see it as a way to improve on them, by doing something they can’t do – expire.
Rusts like iron
Hear me out.
If someone is given a certain amount of cash that has an expiry date, they know they can’t hoard it and will be forced to spend it before the due date is reached.
This is the thinking of Silvio Gesell, a 19th Century German-Argentine entrepreneur and theoretical economist who wanted money to “rot like potatoes” and “rust like iron”.
Gesell argued that using money to store wealth was a problem. This was especially true in a financial crisis when instead of people sitting on their cash, exacerbating the crisis, they could be forced to keep spending, which would, in turn, keep the economy going.
From his view, money should be seen more like blood, in that it passes energy throughout the body, rather than like gold, which backed legal tender at the time. Looked at this way, it would be better for blood to be circulating through the body than pooling in some organ.
Gesell’s idea was only ever adopted in the Austrian village of Wörgl in 1932, when it was looking for ways to deal with the fallout of the Great Depression. Despite some early success, it was shut down by the Austrian National Bank.
When Gesell died in Argentina at the age of 67 in 1930, his idea of ‘free money’ or Freigold had seemingly passed with him.
But then in the age of cryptocurrencies, policy wonks rediscovered him. They liked the idea that money could expire, as it meant it could be used for a specific purpose.
Having an expiry date built into a crypto asset is probably one of the few reasons sceptical central banks will consider adopting a ‘programmable’ tender.
Seeing this kind of digital money adopted in SA is not a farfetched idea. Having programmable money could neatly tie in to the South African Reserve Bank’s pilot card payment platform, which is meant to provide a cheaper alternative to Visa and Mastercard.
If this card is widely introduced, it’s not beyond the imagination for the state to not only make direct payments to citizens but also to incentivise how and where this money is spent.
This brings us back to whether cryptocurrencies solve the right problems.
For me, the answer is no.
Cryptos, when it comes to real-world needs, are not only falling short when it comes to addressing their utility as a currency – i.e. as a store of wealth, medium of exchange, unit of accounting – but also in imagining what money can be.
My sense is that we will one day look back at the ‘Crypto rush’ and recognise it as a lost opportunity in coming up with new ways to transact and wonder why we did not see it as the Tulip Bubble it really is.