What does a digital currency mean for you?
The move towards a digital currency is something you would have heard a lot about in recent years.
Tap and go transactions, digital transfers and payment via devices has become the norm, while ATMs are fewer and far between and cold, hard, cash is nowhere to be seen (except in the wallets of tradies). They are even starting to talk about microchips being embedded in people’s fingers to make it “easier” to pay (if that idea makes you shudder, you’re certainly not alone).
When most of us hear about digital currency, we simply think of the same old Aussie dollars and cents, but just represented as rising and falling numbers in our bank accounts. We’re already well and truly used to that concept.
But have you imagined what it might look like if we changed currencies altogether? No? Well brace yourself because it might be closer to reality than you think.
Currency is current, not permanent
In the very old days, coins made of gold and silver were used. They eventually were coins that were coloured gold or silver to represent the higher or lower value of the coins.
Everything changed dramatically between 1960 and ’70 when the US Dollar became the base currency of the world as we know it and the Saudis began to trade oil in US Dollars. But many countries changed their own currencies years earlier than that shift.
In fact, currencies have come and gone regularly over the years, even in Australia. Just ask the countries in the European Union. Depending on your age, someone in your family has probably told you about pounds, pennies, pence and so on.
What would a new currency look like?
During the GFC, we saw companies going bankrupt. This time around, as a global financial depression looms large, we’re actually seeing countries going bankrupt. Recently we talked about the possibility of hyperinflation, due to stimulus propping up the economy- the modern version of ‘printing more money’.
And as history tells us, when hyperinflation rolls through an economy, the way out of it is a reset, where the original currency is replaced by a new one.
It could be that we will soon go from a cash dollar to a digital dollar. It might still be called “a dollar”. The Aussie government may entice people to use an RBA-issued digital wallet, through sign-on incentives like cashbacks, grocery credits, or free money. As people start using it, it will potentially replace currency and all transactions would be traceable.
Is this like Bitcoin?
In the sense that it is digital, yes. But that’s the extent of it. In essence, it couldn’t be more different. Existing digital currency like Bitcoin is about as pure a form of currency as you can get. It’s decentralised, which means it can’t be manipulated by central banks or governments.
Decentralised ledger technology is something that no one can change or manipulate. You might know ‘ledger’ technology as the blockchain.
Whereas, if there was a cryptocurrency issued by a government or central bank, it would be centralised and therefore able to be controlled or manipulated.
So what should I do to prepare?
It’s good to have access to alternative forms of wealth, especially physical, even with debt on them. If you have properties, maybe some access to gold or silver, even Bitcoin, these are things that have value and can be traded outside of a centralised system.
Obviously you don’t want high interest debt on things like credit cards, but assets like investment properties will be worth their weight in gold (or virtual gold) if we do go through a currency reset and come out the other side.