Not all bankers think the current financial system is unbreakable and cryptocurrencies are just another worthless footnote in the grand scheme of things. In fact, there is one who takes cryptocurrencies very seriously and sees in them the potential to become a worthy competitor of Fiat money.
His name? Deutsche Bank’s credit analyst Jim Reid. According to several media sources, Business Insider and ZeroHedge included, Reid has recently published a report titled The Start of the End of Fiat Money? In this report, the banker tackles a taboo topic for the financial world warning everybody of a likely financial crash and monetary collapse.
The report busts the myth “that we live in times of extremely low inflation,” with data that and graphs that show us otherwise. In fact, in the 20th century, the inflation exploded relative to long-term history.
The 1971 Bretton Woods collapse and the birth of Fiat money caused a major shock in the financial world that could have ended badly for every single national central bank. However, two major factors kept the system afloat to the point one can see in fact a disinflationary trend in the last 35 years. The two factors are China’s spectacular economic emergence and a worldwide demographic explosion of the working-age population.
Although the current speculative interest in cryptocurrencies is more to do with blockchain technology than a loss of faith in paper money, at some point there will likely be some median of exchange that becomes more universal and a competitor of paper money.
“(This) has allowed governments and central banks the luxury of responding to every crisis and shock with more leverage, loose policy and latterly more and more money printing. It’s not usually this easy as inflation would have normally increased with such stimulus and credit creation,” Reid explains in the report.
In the last decade however, the trend has slowed down considerably. An aging population and a decrease in working force demand usually leads to higher wages thus, higher inflation. And the central banks won’t be able to stop the process.
“Eventually, it’s possible that inflation becomes more and more uncontrollable and the era of fiat currencies looks vulnerable as people lose faith in paper money. Once the value of debt has been eroded, the debate would likely be live as to what replaces fiat currencies as, surely, the backlash would be severe against the system that allowed us to get to such a situation. Although the current speculative interest in cryptocurrencies is more to do with blockchain technology than a loss of faith in paper money, at some point there will likely be some median of exchange that becomes more universal and a competitor of paper money,” Reid says.
The conclusion leads to the multi-trillion-dollar question: “Given we know that demographics are now slowly turning, it’s possible that a new era is slowly emerging towards higher wages, which will perhaps be encouraged by the rise in populism. As such, will fiat currencies survive the policy dilemma that the authorities will experience as they try to balance higher yields with record levels of debt?”