Our relationship with money is strange. The onslaught of technology has ensured that money is just a number on a dashboard provided to us by the bank. Currency is about to go digital and in the process change the value of money and not only our relationship with it as individuals but also as economies.
Currency
In ancient Sumer, coinage represented a certain amount of grains stored in the granary. For most of ancient history, most civilisations have used coinage to represent money. Banknotes were first introduced in China in the 7th or 8th century during the Tang Dynasty.
Given the Sharia law, you might find it surprising, but it was the medieval Islamic world that gave rise to instruments of credit, including the promissory note, cheques, transaction accounts, trusts, exchanges and banking institutions.
Paper money reached Europe in 1661 when Sweden first introduced it.
Now, as global trade evolved and need to pay in different currencies arose, the question of what that paper was worth came up. Hence, the Gold Standard emerged. The gold standard ensured that every government and nation could provide the gold equivalent to the value of the currency if submitted to the government. The paper that you carry in your hand is essentially a promise to pay, and if you read it, it would say so.
When the great depression set in during the 1930s, there was a run on the banks to convert the currencies into gold. Seeing the run on the gold reserves in America, Franklin Roosevelt prohibited hoarding of gold and outlawed redeeming dollars for gold.
In the aftermath of the Second World War as a part of the Bretton Woods Agreement, all the western countries set an exchange value of each currency in gold. The US had the highest gold reserve and hence most countries simply pegged their currencies against the dollar.
Ultimately, it was not possible for the economy to grow, if the amount of gold that a country possessed determined if the growth of the economy and the value of the currency. This was the first time the finite nature of the planet and its resources confronted the world. Instead of reconsidering capitalism, Richard Nixon, in the 1970s, abolished the gold standard.
Almost all the currencies in circulation around the world today are ‘Fiat Currencies’, without the backing by any underlying asset. What ascribes values to the currencies is an assurance from the government to provide the equivalent value. This is part of the reason countries that undergo economic distress find their currency loses all value. Zimbabwe most recently underwent hyperinflation and people carried money in sacs to buy a loaf of bread.
Digital Currency is a currency that has no equivalent physical form. So you cannot go to a bank and withdraw digital currency. It would be like going to Facebook and trying to withdraw your data.
Unlike Crypto Currencies like Bitcoin, Digital Currencies get issued and regulated by a country and they are ultimately their property. They are much like the Fiat Currency, only in digital form.
Cash is dying a slow death. Governments can track money movement a lot more easily and also know what is being done with the money if the transactions are all digital. Further, it ensures better compliance and the ability to collect taxes by the government. Also, the government can monitor the same. COVID has hastened the shift to a cashless economy with people not really wishing to exchange cash, which may have passed through several hands!
Germany’s top-selling bakery chain, Kamps, made headlines nationwide in June, when it offered a 3% “innovation discount” for customers willing to pay by card. Payment via card or smartphone is faster and more hygienic, according to Kamps.
Even before the coronavirus pandemic, companies were encouraging their customers to pay without using cash. In 2018, people in Germany spent more money using cards as payment than cash for the first time. In 2020, stores made about 56% of sales via contactless payments. In EU countries such as Luxembourg, France and Estonia, people go contactless even more frequently. Across Scandinavia, many hotels, bars and stores even refuse to accept coins and bills. In Sweden, 82% of people now make their purchases without cash.
Germans love cash. It is one of the last holdouts in Europe. Paying by card is innovation! In 2017, Cash still represented 74% of all consumer transactions in Germany. By 2018, cash and card transactions had almost reached parity in Germany. COVID has only sped up the shift.
In the meantime, RBI is hoping to track digital payments in India.
To boost the adoption of digital payments across the country and map the penetration of the cashless economy, the Reserve Bank of India (RBI) recently announced the launch of a Digital Payments Index (DPI) with the start of the new year.
Accordingly, RBI will be capturing the penetration of digital payments, which includes payment enablers, payment infrastructure — demand-supply aspects, alongside payment performance and consumer centricity. Furthermore, the RBI has set the base year for DPI at 100 as of March 2018. Since the adoption and use of digital payments have increased significantly in the recent past, the RBI’s DPI as of March 2020 DPI has reached a score of 207.84, compared to 153.47, a year ago.
The Reserve Bank of India (RBI), on Tuesday (January 5), announced operational guidelines for the payments infrastructure development fund (PIDF) scheme to create digital payments acceptance infrastructure across Tier III to Tier VI regions in India, with a special focus on the northeastern states.
The fund will be operational for three years from January 1, 2021, to subsidise banks and non-banks for the deployment of payments after achieving a specific target. The fund may also be extended for two more years based on the progress. It has a corpus of INR 345 Cr, of which INR 250 Cr was contributed by RBI and the rest INR 95 Cr by authorised card networks operating in India.
While one set of countries are looking at only taking their transactions online, another set of countries are moving towards digital currency to make their currencies borderless. China has been making a big push for the Digital Yuan. Last year the Chinese government put a few million Digital Yuans in the pockets of citizens for them to spend.
This month, authorities in the eastern Chinese city of Suzhou handed out 20 million digital yuan, equivalent to $3.1 million, to local residents via a lottery. Each of the 100,000 winners received 200 yuan in the new digital currency, which could be spent on online or offline purchases.
The Suzhou pilot included twice as many residents and three times as many merchants as one conducted in October in the southern Chinese city of Shenzhen, the first such trial of the government-backed digital currency.
The trial in Suzhou also expanded the scope of the pilot program by testing the digital yuan on online stores and by introducing an electronic-payment method that doesn’t require an internet connection.
The existing digital infrastructure would not be required, and the banks will regulate the flow of Digital Yuan. For an authoritarian state, this will provide unforeseen access to what is happening with money. Not only China, but Japan also has a currency in the works, but they seem to have a novel approach to it.
Japan is gearing up its preparation for the issuance of digital currency in both the public and private sectors, following swift moves by China and other countries to do the same.
Virtual money issued by central banks around the world is called “central bank digital currency” or CBDC, and is used for cashless payments via smartphones or electronic cards. Some private companies, including one established by Facebook Inc., also plan to introduce their own digital currencies.
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He is also pushing to issue a private-sector driven digital currency, currently chairing the “Digital Currency Forum” in Japan, which started a joint study for developments with around 30 major companies including Japan’s three megabanks of MUFG Bank, Sumitomo Mitsui Banking Corp. and Mizuho Bank.
Europe is not sitting still, but it is not the countries that you would think, which are working on a digital currency. Sweden the original banknote innovator is developing its own digital currency, which is causing much consternation amongst bankers.
A new way to pay is causing existential angst among Swedish bankers who worry that the e-krona, an electronic equivalent of Sweden’s currency, could cost them their deposit base.
Sweden launched a review into the e-krona’s feasibility in December after a pilot programme at the central bank, making the Nordic country a litmus test for digital currencies.
The Riksbank wants making payments in e-krona to be “as easy as sending a text”, but bankers in Stockholm say this would radically change the dynamic of the banking system.
Like a banknote or coin, the holder of an e-krona has a direct claim on the central bank, effectively bypassing commercial banks, where most state-backed money is held.
Apart from Sweden, Turkey is running an experiment.
Turkey will embark on the pilot phase of a sovereign-backed digital currency next year, according to a statement made by Central Bank President Naci Agbal in parliament on Friday.
“There is an R&D project initiated on digital money. Currently the conceptual phase of this project has been completed,” Agbal said while answering questions on the activities of the Central Bank at the TBMM Plan and Budget Committee.
Now, if there are so many countries having their own digital currencies, there would be a need to exchange one for the other! One of the smallest countries in Europe is going to work on that.
Liechtenstein Cryptoassets Exchange (LCX) announced on Tuesday the launch of its regulated and compliant digital currency exchange. LCX reported it secured approvals of eight licenses under the new blockchain laws in Liechtenstein last week.
The LCX Exchange describes itself as a regulated trading venue offering a range of digital currencies. The platform notably has been built from the ground up, leveraging the proficiency of our progressive crypto portfolio desk, LCX Terminal, LCX Defi Terminal, and crypto compliance suite.
A wave of digital currencies is about to be unleashed. They will know no border and would be very useful from the perspective of rapid transactions. This will be a race for financial dominance that countries will be forced into. Eventually, regional strongholds will emerge much like Euro for the whole of Europe. China wants to make the Yuan the front runner for Asia, given the volume of exports that they deal with.
Also, this will introduce a whole new paradigm of fraud and represents an opportunity for startups to study the system and build tools to protect users. Eventually, I suppose they will open up the digital currency platform for other applications to develop on top of them. Exciting and disruptive times ahead.
Payday Loans
Many in the western economy are not strangers to payday loans. Take someone who earns a tiny amount of money, say Rs. 10,000. They might run out of money towards the end of the month and would need Rs. 1000/2000 to get through the month. Say, I will make a loan of Rs. 1000 at 6% per month interest rate. The rider is that I will give the loan only for 10 days, so effectively you will cough up 2% interest on a transaction. For a loan of Rs. 1000 you will pay back Rs. 1020.
Fair, one would say.
Until I say; admin, processing fee and other fee put together comes up to Rs. 150. On its own, this does not sound like an enormous sum. But when you compute as a percentage of the Rs. 1000 that one is borrowing, they are effectively paying 17% interest for 10 days. If you were to borrow for an entire year at this rate, it would amount to an interest of 612%.
Instant loans without any official documentation might sound like a boon to some. But what would you do when the lenders turn out to be fraud?
Multiple such incidents have been reported from across the country in the past few days. Borrowers have complained about app-based lenders using coercive methods for recovery.
India is getting a taste of payday loans and there are thousands of apps on the play store engaged in this business. The entity saving these individuals seems to Google!
“We have reviewed hundreds of personal loan apps in India, based on flags submitted by users and government agencies,” Suzanne Frey, Vice President, Product, Android Security and Privacy said in the post.
A recent investigation by Reuters found at least 10 lending apps on Play Store breached Google’s rules on loan repayment lengths aimed at protecting vulnerable borrowers. It also found that a number of the lending apps also flouted central bank regulations designed to protect borrowers..
The RBI said that the recent spurt and popularity of online lending platforms and digital loan apps has raised certain serious concerns which have wider systemic implications. Last month, the Reserve Bank had cautioned the public against falling prey to the growing number of unauthorised digital lending platforms and mobile apps. The working group will be chaired by RBI executive director Jayant Kumar Dash and will consist of both internal and external members, who will submit their report within three months.
A policy initiative will take time for certain. A substantial portion of businesses that we have started calling FinTech today, deal with lending and removing friction from lending. In India, the friction has existed because it is not so easy to recover capital. Ultimately, the solution to this problem is systemic. Lending unscrupulously and then going to any extent to recover is not the solution to the problem and will certainly not deliver a scalable business.
Crackpots
The moon landings never happened. The government of the USA created a very elaborate set in LA and shot the video. Since the Cold War at the peak and the USA had lost every space achievement - first satellite in space, first animal in space, the first man in space - they needed this elaborate hoax to project power.
Obviously, this is all rubbish and you can see the Lunar Module through a telescope sitting on the moon.
These are conspiracy theories from the pre-internet age and they still have a life of their own.
But imagine if the Gerald Ford or Jimmy Carter were giving interviews that the landing was fake. What life these theories would have taken?
Precisely what Trump had been doing regarding the elections. Last time I wrote about the amplification that companies like Twitter and Facebook provided to that nonsense. The proof that things could have been better had it not been for them has already emerged!
Online misinformation about election fraud plunged 73 percent after several social media sites suspended President Trump and key allies last week, research firm Zignal Labs has found, underscoring the power of tech companies to limit the falsehoods poisoning public debate when they act aggressively.
The new research by the San Francisco-based analytics firm reported that conversations about election fraud dropped from 2.5 million mentions to 688,000 mentions across several social media sites in the week after Trump was banned from Twitter.
If the people at the helm are spouting nonsense, it will gather more widespread adoption and acceptance.
AIDS Vaccine
It was in 1990 that a Hungarian scientist began work on mRNA. The messenger RNA instructs the body to produce a type of protein by providing one half of an RNA. It has been a technology that has never proved itself - that is - till COVID needed a rapid response.
Now that the mRNA platform has proof, scientists are taking the same technology and turning their attention to other viral diseases. The most well known and the deadliest - AIDS.
Vaccines using mRNA have potential uses far beyond immunization—to treat cancer, for instance, or addiction, Lynda Stuart, deputy director for vaccines at the Bill and Melinda Gates Foundation, told Quartz. But as new applications for mRNA vaccines are explored, one seems more immediate: other infectious diseases.
A glimpse of what that might look like was provided today by Moderna, the 10-year-old Cambridge, Massachusetts-based company that supplied the technology undergirding Pfizer’s vaccine. The company announced a program to develop vaccines for the seasonal flu, the Nipah virus (a virus that can cause various conditions, including encephalitis), and HIV.
Moderna has already started work on the AIDS vaccine. Also, given the timelines that we have seen with COVID, we should expect a rapid timeline for the development of this vaccine as well!
K is K
Globally, the recovery that is being witnessed is a K shape. The rich are getting richer and their trajectory is upwards. Stock markets and all other indicators point towards this. The India BSE hit an all-time high of 50,000 this week!
The poor are getting poorer and the rich now have the excuse of the pandemic to offer them zero salary increase and make them feel grateful that they even have a job! China is no exception here. The growth rebound has resulted from ‘revenge spending’ by the rich!
On the other side of the spectrum are China’s rich, who appear to be engaging in ”revenge spending,” a trending phrase on the Chinese internet earlier last year which captured the government’s hope that post-pandemic consumption would help reboot the economy. Exports of Swiss watches to mainland China, for example, increased 17% between January and November last year, while the other top 20 markets for watchmakers saw a decline during the period, according to the Federation of the Swiss Watch Industry.
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Traces of discontent about widening inequality have started to appear. On Weibo, a post by the state-owned People’s Daily celebrating economic growth today sparked complaints about the rising price of goods and stagnating salary levels. “The rich are becoming richer, while the poor getting poorer,” said one user in a now-deleted post. “The ‘V-shaped’ line doesn’t carry much meaning for us.”
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