The future of currencies?

By Filipe R. Costa

Since the advent of Bitcoin, numerous other “alternative” electronic currencies have sprung up, such as Litecoin, Peercoin and Namecoin. Responding to market demand, these new introductions to the world of global exchange are a direct challenge to the hegemony of governments and banks in the control of money.

Modern money is a product of rules and regulations. As such, it relies on trust. While in the hands of central planners, Fiat money will always serve the interests of one group over another. However, the proliferation of cryptographic currencies could mark the beginning of a sea change in the way we barter for goods and services. Perhaps they are a reflection of growing global unease at the current system, but whatever the case the long-term advantages of the new generation of currencies are clear. They are not politicised, cannot be controlled and do not lead to hyperinflation.

There have been past attempts at introducing alternatives to Fiat money, but for one reason or another they have vanished without trace. Unfortunately, certain examples fell into the hands of criminal organisations and were used for money laundering. E-gold was possibly the most famous example of this, which was shut down by the FBI and resulted in the prosecution of Douglas Jackson.

However, Mr Jackson has since made a return and is now a consultant for Coeptis, a company that is trying to launch a new digital currency. This project is called the “Global Currency Standard” and will be backed by gold held in a trust. It looks like Mr Jackson’s experience is being used to create an alternative not only to Bitcoin and its ilk but even to rival currencies such as the dollar. There are many challenges facing this venture, not least if the gold could be confiscated the whole project would fail.

This could prove to be an extremely difficult obstacle to overcome and the risks this poses shouldn’t be underestimated. If Bitcoin, the Global Currency Standard or any of the other digital currencies gain significant ground on the dollar it is hard to see the Federal Government not responding to this threat to its dominance. After all, without the power to monetise its debts through money printing, how can it survive?!

To finish, I’d like to consider how well digital currencies could cope with deflation. I agree that they are well designed to counter inflation, but too tight a money supply can create significant deflationary forces. The growth of a monetary base should be dependent on economic growth and the demand for money. It should not be controlled by external bodies as this can lead to deflation, due to a lack of currency and, therefore, the means of conducting transactions. A strong currency prevents deflation and inflation. This way, changes in prices reflect changes in the real world economics. Food for thought at least…