Thursday 26th April 2018
The privatization of cash….
Cast your mind back to the 80s and the conservative administration of Margaret Thatcher….
It’s a long time ago. And I know that it might be painful to recall a time when we all had more hair and trimmer waistlines – a time when much of what is now behind us still lay ahead, full of promise and potential….
But there is purpose in my request….
I want to briefly revisit the era that saw the Iron Lady – in cahoots with her long-time Trade Secretary, Keith Joseph – dispose of more than 50 nationalized British industries into the private sector….
- From public to private….
You might recall that the process began with the privatization of British Petroleum in October 1979. The privatization of British Aerospace followed in February 1981….
Then British Telecomm in 1984. British Gas – via the ‘Tell Sid’ television campaign – in 1986. Rolls Royce in 1987. Then British Airways and the water utilities in 1989. The electricity boards were the next domino to fall in 1990….
The privatization of British Rail began in 1994 – with track and infrastructure passing to the private sector. Passenger services headed the same way later….
There were many more examples. We don’t need to mention them all….
And the trend toward of privatization has continued ever since. The Tote and the Royal Mail are more recent examples of state-owned businesses sent into the hands of private capital….
The privatization boom raised more than £50 billion for the exchequer….
And by the end of the 1980s – according to a paper published by the Institute of Economic Affairs – the privatization process had increased the percentage of British adults holding shares from 7% to 25%….
In political and economic circles at least, privatization was the engine that heralded a new era in economic freedom. It was a policy adopted by developed economies worldwide….
- The reasons why….
Today’s column is not concerned with how privatization has worked out for investors and consumers in the intervening years….
Agree or disagree with privatization, like or loathe the results and effects, what I’m most interested in are the reasons why those nationalized industries and businesses were privatized in the first place….
From what I can recall there were multiple reasons they were sent packing into the private sector. Among them….
Policymakers argued that those businesses would operate more efficiently in private hands than they had done under public ownership….
It was said that privatization would reduce unnecessary government interference in the operations of those businesses….
And privatization would introduce and expose those businesses and industries to the concept of competition – which would, in turn, lead to improved services and an expansion of choice for customers who had previously had to make-do with a one-size-must-fit-all model….
- A different kind of privatization….
Right now, we are witnessing the green shoots of another privatization – the privatization of cash….
The difference this time around is that this privatization is being driven by technological innovation rather than by central government policy….
For generation upon generation the state has held a monopoly on the means with which consumers pay for goods and services. Where in Britain have you ever been able to buy a pint with anything other than pound sterling?
The state has pretty much had a monopoly on the medium used by savers to store value….
The state has enjoyed a monopoly on the nature and the character of capital investors allocate into bonds, stocks, commodities and other assets and investments.
For sure, as a British citizen it has been perfectly permissible to hold a bank account denominated in dollars. As a British tourist, you might carry euros in Europe or yen in Japan, for example….
But, ultimately, for decade-upon-decade, we have been restricted to one fiat currency or another distributed by the central bank of one nation state or another….
And that is what is changing today….
Technology – driven by innovators, programmers and developers – is producing networks and systems that enable digital currency to exist and to be exchanged, transmitted, stored or spent outside of central government control….
These ‘private’ currencies are bringng competition to what had been a monopoly. And it is consumers, savers, businesses and investors that benefit – with more currency choices available to them than ever before….
Cryptocurrencies – like Bitcoin, Bitcoin Cash, Ethereum, Ripple, Litecoin, Monero and many other smaller coins coming to market – represent a new alternative to the previous `state’ monopoly….
- A vision of the future….
Here at Money Truths we see the future as one where consumers will not just depend on the fiat currency of a single nation state – like before….
Instead consumers will float between multiple digital currencies. Choosing the one that best suits the individual situation….
We see a time not too far ahead when mobile phones store digital wallets containing multiple cryptocurrencies….
And when you pay for your burger at McDonalds, or your coffee at Costa or even your weekly shop at Tesco, technology will enable you to pay with the currency that offers most bang for your buck at that specific moment in time….
Your digital wallet will optimize to whichever of your cryptos has most value right now….
The old-World fiat currencies might quickly lose their power – and even become obsolete – in that kind of environment….
- Here to stay….
Is it any wonder that central government and central banks have stood back from endorsing cryptocurrencies like Bitcoin?
Is it any wonder they have been keen to go public with doubts, concerns and criticism?
It was only last March that the Bank of England governor, Mark Carney, labelled cryptocurrencies a ‘lottery’….
Recent drops in the value of Bitcoin and other digital coins may have served to take some of the shine off the cryptocurrency revolution. But the popping of a speculation bubble doesn’t mean that cryptos have gone away or will be going away any time soon….
I take the view that cryptocurrencies are here to stay. And I believe government and central bankers privately acknowledge that fact….
I also believe that they acknowledge that domestic fiat currencies are at serious risk of losing traction and power as cryptocurrencies grow in popularity and usage….
That’s why so many governments and central banks are working hard on developing cryptocurrencies of their own….
They want to retain control….
- Government getting in on the act….
The thing with the blockchain technology that underpins cryptocurrencies is that it doesn’t preclude centralization….
Governments and central banks can put the tech to work in much the same way a private network can….
And digital currency would deliver big benefits for government – no doubt about that….
Regulating money supply via interest rates would be more direct, effective and cost-efficient. And with every digital transaction fully traceable, tax evasion would swiftly die off….
Planners are taking note. Just this week I’ve read about central banks and financial agencies in Russia, Brazil, China, India, Sweden, Japan, Singapore and Indonesia all investigating the creation and potential of state-driven cryptocurrencies….
Back in January, the Bank of England said that it had ‘no current plans’ to launch its own cryptocurrency but that it would continue to research the topic….
But things are developing fast. In March, the Bank announced a plan to launch a cryptocurrency called RSCoin that will function on Blockchain – just like other cryptos….
The rise of the cryptocurrencies isn’t going to lead to the immediate annexation of central government and central banks from the money system. That much is clear….
But it’s also clear that you and I are set to have more choice in what we spend and how we spend it than ever before….
All hail the privatization of cash. I wonder what Mrs. Thatcher would make of it?
That’s how it looks from here….
All the best,