Consumers want to take more control over how they spend and save their money; with interest rates at minuscule levels, they are also searching for value and to increase, or at least maintain, their purchasing power. This has led to consumers and savers increasingly flocking towards cryptocurrencies and gold.
Jason Cozens is the Founder and CEO of Glint, the global, gold-based payments system that is allowing clients to instantly and securely save, send and spend real gold. Glint has launched a dual UK and US crowdfunding round – the first time that Seedrs and Republic have partnered on a co-raise.
Here Cozens gives his views on what will the global currency of the future – crypto, gold, or something else:
The age of inflation is upon us. Whilst the UK figures may still sit well below the record levels of the early 1990s, inflation is one of the main driving forces that has created the current perfect storm that is eroding the value of our cash and our savings.
Over the last few weeks, we’ve had consumer price inflation figures released from China, the US and the UK – hitting 0.9%, 4.2% and 1.5% respectively. A closer look at each country indicates the stark realities of each rise. In China, inflation remains some way off the 3% target but there is potential for a huge far-reaching global impact if the 6.8% rise in producer prices – the fastest jump since October 2017 – is passed onto consumers, especially as China remains the world’s largest producer by some distance.
In the US, inflation leapt to 4.2% in April, from 2.6% in March, the biggest jump since the last financial crisis. Estimates suggest that consumer price inflation could even hit 6% by the end of the year. Treasury Secretary, Janet Yellen recently announced that there wasn’t “an inflationary problem”; unfortunately, the numbers and rising costs on the street don’t bear this out.
And in the UK, inflation continues to rise much more quickly than expected. Forecasts suggest that the rate could surpass the Bank of England’s 2% target in the next couple of months and will even hit 2.5% this year.
In the current climate of record low interest rates – 0.1% in the UK – rising inflation is disastrous for our personal finances. The current situation ensures that our cash loses its value every day that it sits in a bank account, which clearly has severe implications for our long-term purchasing power. This is worsened by the record levels of government borrowing (£300billion over the last year) and the continuation of quantitative easing – which has now hit almost £900billion since the financial crisis. Truly staggering sums.
With all this in mind, it’s no wonder that consumers and savers are increasingly flocking towards alternatives such as cryptocurrencies and gold. Consumers want to take more control over how they spend and save their money; with interest rates at minuscule levels, they are also searching for value and to increase, or at least maintain, their purchasing power. Whilst the value of cryptos and gold can decline, which could inevitably mean that their purchasing power too, could decline, the short-term returns on some cryptos are increasingly attractive. In the case of gold, it has proven its long-term reliability as a store of value over centuries.
Cryptocurrencies have dominated headlines in recent months with staggering growth followed by enormous losses. Anyone unaware of the volatility of cryptos merely needs to take a quick look at Elon Musk’s Twitter feed and the subsequent performance of these assets – from Bitcoin hitting an all-time high after it emerged that Tesla had purchased $1.5billion of the coin to its subsequent collapse when Musk later announced that Bitcoin payments wouldn’t be accepted and drew renewed attention to its environmental impact. Bitcoin’s crash was particularly stark falling from over £47,000 on 14th April to just £20,000 on 19th May.
What does this mean for cryptos as a global currency or an everyday payments option? Unfortunately, it is likely that the same volatility that offers spectacular short-term growth also means that it is not a viable everyday currency. If a currency can lose 10% of its value in merely a few hours, as many cryptos did in the latest market crash, then consumers cannot trust or rely on that currency. As an extreme example, if you could use Bitcoin to pay for a meal, the cost may have jumped 10% or more by the time you receive your bill. In addition, processing speeds remain slow; Bitcoin can only process seven transactions per second (compared to up to 50,000 for Visa) – plus, many crypto investors were unable to trade during the recent market upheaval as many crypto exchanges were unable to cope with demand and collapsed under pressure. No currency can enjoy mainstream use as an everyday option under such conditions.
In terms of regulation, cryptos are coming under increasing scrutiny. Currently, crypto wallets can remain anonymous if the holder chooses to remain so. As a result, payments are anonymous, untraceable and crucially, outside of government control and taxation. This is a threat to governments and central banks and the major reason why increased regulation and state intervention is likely to either control or curtail cryptos. Currently, the crypto payments arena is akin to the Wild West; this won’t remain the case for long.
We’ve already seen traditional financial institutions starting to fight back against the perceived threat of cryptos, with NatWest announcing that it will refuse to serve corporate customers who accept payment in cryptos. Similarly, HSBC has recently announced that it would not be moving into the cryptocurrency market due to concerns over volatility. The bank has also prevented investors from purchasing MicroStrategy stocks as the company owns a large Bitcoin portfolio. An HSBC spokesperson has previously claimed that bank had “no appetite for direct exposure to virtual currencies.” These institutions are trying their hardest to discourage consumers and businesses from entering the crypto market for fear of losing control.
Central banks have of course joined the fight too. China has once again been a vocal critic prohibiting financial institutions and payments companies from providing services around crypto transactions – of course, this sent crypto prices collapsing once again.
However, this doesn’t mean that central banks are not embracing digital currencies. In fact, they’re looking to launch their own. China is leading the charge with trials of a Central Bank Digital Currency (CBDC) already successfully underway in several cities and a wider roll-out increasing likely. In the UK, the Bank of England and HM Treasury has announced the creation of a CBDC taskforce, the surest sign yet that we can expect a digital pound at some point. According to the Bank for International Settlements (BIS), 86% of central banks are investigating the launch of a CBDC.
Is this good for consumers? I would suggest not. After all, these CBDCs are tied to fiat currencies so are prone to the exact same factors that destroy our purchasing power. If the value of GBP or USD erodes over time then you can expect the same from a digital version of that currency. It appears as though the creation of CBDCs is an attempted power grab by central banks and governments to wrest control back from consumers and to push cryptos back out of mainstream use.
If consumers can’t rely on either fiat currencies or cryptos, then hard assets such as gold, digitised for ease and convenience, offer a solution. In my view, gold has stood the test of time, retained its value over centuries and, now, through Glint, has now been made liquid, so it can once again be used as an everyday global currency.