Cryptocurrency .v. dollars .v. ReMoneta
People are losing a fortune by holding crypto and cash. ReMoneta is different.
Currency has three well known basic functions — as a medium of exchange, a unit of account and a store of value. We have discussed the first two functions quite extensively in our articles on www.Medium.com/ReMoneta. Now we focus on the third one — the store of value.
If currency retains its value, then a person should be able to buy the same goods and services in the future that he or she can buy today. However, reality has been different.
Certain structural changes happened at the beginning of 20th century. This can be seen from the value (purchasing power) of the British pound. (The British pound is selected because of good quality of available historical data, but dollars can also be used).
Since 1750, prices have risen 126 times. One penny in 1750 would have had greater purchasing power than a pound in 2001. However, a steady and permanent increase in price levels (decreasing value for money holders) started after 1945 with annual inflation levels peaking at 24% in 1975.
Value of the pound (1750–2001)
Something radical happened after World War II — mainly a change in monetary policy. This change happened not only in Britain but in most developed countries. Central Banks gradually unpegged from the gold standard and started to target inflation. Inflation targeting is at the core of all major central banks. As central banks “target” inflation, the value of the currency falls in proportion to the size of inflation. Thus, most modern currencies, by definition, do not serve as good stores of value. Governments benefit from inflation since their debts fall.
Most developed modern central banks typically target inflation levels that are close to 2%, however, there have been numerous well-known cases when inflation levels exceeded 1000% per year and more — the Weimar Republic (Germany), Zimbabwe, Venezuela, the Former Soviet Union and others. And even 24% annual inflation observed in Britain in 1975 is a huge reduction of purchasing power.
With hyperinflation it is quite obvious — it is always and everywhere a monetary phenomenon caused by central banks printing too much money to cover growing government expenses (a nice and easy way to tax the population).
ENDLESS MONEY
As long as the debt of a country is issued and held in local currency and the central bank is ready to print as much currency as required, then a country cannot default on its debt obligations. It would simply print more currency to buy back the debt. It requires a huge trust in the system and its institutions to believe that such conflicting interests would not lead to inflation over time. Conflicts are larger in countries where governments have larger control over central bank’s goals and independence and where economy and tax collections are struggling. Issuing debt and printing currency becomes very tempting.
CURRENCY AS A STORE OF VALUE
Should currency serve as a store of value? Are modern currencies good stores of value? In short, it is all about time. If cash is held over a short period of time, for instance a month, and inflation is moderate (2–3% a year), people would hardly feel erosion of the value of currency. However, if cash or cash equivalents like savings accounts that pay no interest, are held for a period longer than few months, value of the currency falls and people should choose other financial instruments as their investments. As we see below people actually hold on average a lot of cash over a long period, even though this is money going in and out of their account. It means they are losing a lot of money.
In theory, people should hold only small amounts in liquid currency (cash, savings account). The rest should be invested in financial instruments. In practice, however, situation is very much different.
Household financial assets (currency and deposits, % of total financial assets, 2016)
From the chart above, one can see that holding currency is a large part of household financial assets, in most OECD counties exceeding 30%, in some even 50% of all financial assets. Moreover, as interest rates in many economies are close to zero or below inflation (Eurozone, Japan, U.S. for instance), the real value of savings falls. People hold more cash than they need.
Holding of cash is also related to financial literacy, development of financial markets, wealth levels and not least the habits of the society.
People would be better off if they choose currency that is good store of value. Moreover, people would be better off by reducing their reliance on pure TRUST in the system and institutions and by choosing a currency that is not exposed to conflicting interests of governments and central banks.
That means choosing a currency that is truly stable, perhaps one backed by real existing value today, of which the most stable, value-adding and long term is land. It is no coincidence this is how we created ReMoneta.
MACRO TALK
If currency preserves its real value it eventually becomes Deflationary. And if there is one word that central banks fear, it is definitely a D word — Deflation. Under deflation, government debt INCREASES.
However, we would argue the conclusions about other negative impacts of deflation are not so obvious as it may seem. First of all, in a lot of cases we are mixing up association and causality. Deflation is often a result of low or negative economic growth and larger problems in the economic structure. We do not have an economic depression due to deflation but rather deflation is a result of poor economic performance.
Secondly, deflation discouraging consumption and over-consumption could actually be good and provide long term benefits to the sustainability of economic growth and the environment. Government debt issues? Have you heard of Estonia that has strong and sustainable economic growth beyond many other countries in Europe and the lowest government debt in the EU? Perhaps preserving real value of the currency would encourage better behavior by the governments and other numerous long term benefits.
Innovation is often deflationary. Higher efficiency and lower transaction costs are often deflationary. Higher cross border trading and globalization is deflationary. And how do we capture increased product quality in inflation? And what if our basket of goods is different from the “average” used in the inflation calculation? And why rent levels and mortgage payments are not part of the inflation calculation? Inflation measurement has so many problems on its own that one could spend several PhD theses to describe it.
Currently, currency systems are built around the countries and their respective central banks. However, if currency systems such as ReMoneta become global, they may be built around functions instead of countries. So, imagine, you have one currency to pay taxes, to use for purchases, to use as a store of value, to hold it for the long term. ReMoneta may offer us opportunities far beyond our imagination today.
REMONETA AS STORE OF VALUE
ReMoneta is unique because it is medium of exchange, unit of account and store of value by design. The Remoneta group is backed by a physical commodity — a globally diversified land portfolio. Historically, productive land value has grown, on average, 5–6% a year, exceeding the levels of average inflation. Thus, land value not only helps to preserve the real value of assets but also increases them. This unique feature makes ReMoneta special by turning it into what we have been missing in the world according to the dictionary definition, a REAL currency.
ReMoneta is a uniquely stable, zero cost, reward-based and land-backed currency, taking Crypto to the mainstream.
ReMoneta is a strongly-capitalised ReFinTech company based in the EU combining real estate, finance and technology. At the centre of ReMoneta is our community. Together we have designed a frictionless hub connecting Crypto to Commerce — the safest and most stable integrated online currency system in the market. www.ReMoneta.com t.me/ReMoneta
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