RE: “Inside the new dystopian world of global finance” (The New Times, December 6).
Mwene Kalinda, the point you make is good for thought, however, I don’t agree to a degree—this is why.
1. I don’t agree that there is a big currency collapse ahead. You mentioned that years of Quantitative Easing (QE) and negative interest rates will lead to collapse of major currencies since they are pushing people out of them.
However, QE and NIRP was adopted by central banks in the wake of the financial crisis to help support economic stabilization (rates were at the zero lower bound but deflationary pressures persisted thus unconventional policies).
Now, we are experiencing synchronised global growth and have seen that in some countries like the US, there is an exit from QE, a move that is expected in other countries like the Euro area, as growth continues. Same for a reversal of NIRP.
The flight of many investors from currencies to other safe haven assets/investments was therefore not a result of QE per se, but because returns in advanced countries were very low in light of the crisis—this made EM assets and other exotic investments more attractive.
Now, with positive growth, investments are flowing back; this is evident if you look at the trend of investments flowing back to the Euro area because it’s seeing best economic growth in a decade.
2. The fact that people prefer to invest in different asset classes is not a problem. You mention that even high net worth individuals don’t hold all money in western banks. (I cannot comment on whether they hold them in which banks since I have no figures on composition of who holds what where) but diversification is a crucial point in portfolio management. When a portfolio is diversified, it has less risk and promises good returns—so it shouldn’t be a bad sign if everyone doesn’t invest in dollars or euros.
Indeed, currently, stock valuations are very high, there is very low volatility in financial markets and even some stocks have outperformed Bitcoin to offer more returns this year than Bitcoin (the stocks are China Investment Fund, HEG, Indiabulls Ventures and Pepper Food service among others). Such market performance doesn’t signal fears for an impending global currency collapse.
3. I don’t think global central banks will lose authority over to private cryptocurrencies such as Bitcoin because beyond having regulatory authority that can be used to clamp down private cryptocurrencies, central banks also have the ability to issue their own, public cryptocurrencies that would be easily regulated and controlled.
China for example has banned private cryptocurrencies but is open to exploring with a central bank issued crypto-currency. The Dutch central bank has its own internally issued crypto-currency, etc. As such, private cryptocurrencies cannot succeed in taking monetary control away from central banks.