Flying kites in a storm.
The link between the Public Protector and crypto-currencies.
When a politically inspired lawyer, Public Protector Busisiwe Mkhwebane, makes a ruling (see here) that can punch nearly 1½% off the value of the Rand, one can only have a wide-eyed “what the …” response. It’s like flying a kite in gale force winds and on a very thin string.
It was out of line at so many levels (including legally according to SARB), that the word “bizarre” used by Corruption Watch’s David Lewis was putting it mildly. Which points to just one of the worrying factors – the country’s biggest anti-corruption activist group being at odds with the head of the state’s anti-graft institution. In turn that’s a reflection of rapidly and validly waning trust in the new Public Protector. There’s more than a good chance that her directives on the Reserve bank’s independence and on Absa will be turned down on review, and as a seasoned lawyer she must know that losing cases will destroy her reputation much faster than public opinion can.
The role of a central bank in protecting the integrity of a nation’s currency cannot be facilely diluted by the need for economic growth. It’s a complex issue on which Nobel economic laureates don’t even agree. Kow-towing to populism by a powerful constitutional player is reckless at best. What should be clear to someone with even a remote understanding of economics is that the value of a nation’s means of exchange is perhaps the most important price in the system; that economic growth itself is threatened by an unstable currency and a weak one boosts inflation.
Ultimately, the very people the Public Protector is supposed to champion – the poor and disadvantaged – may suffer the most. At a more sophisticated level, any reliance on monetary policy to encourage growth, gives it a warped status and detracts from the real essence of the need to create tangible value through the production of competitive goods and services; in response to the needs and wants of others. That is what creates jobs. The over-reliance on monetary policy to drive domestic economies has led to the global mess we are in. Those sceptics who champion growth through monetary machinations seem to ignore the dismal performances of even developed economies, such as Japan, under low interest rate regimes.
It is small wonder that most people in the world today, apart from speculators and financial predators, want to experience what I did as a young adult -- a stable means of exchange and fixed interest rates. Those days are long gone, and for the very reason we now witness courtesy of the PP: incoherence in government interference. On the other hand, despite all the arguments at a macro level for free moving exchange rates, speculation and derivatives, they play havoc at a micro-level. It is that insecurity that inspired the creation of BitCoin about 8 years ago, and not so obscurely connects the dots between Mkhwebane’s moment of monetary madness and crypto-currencies.
Two primary forces that impact on investment markets are fear and greed. In one sense at least, all investments are underpinned by fear -- a desire to preserve wealth, or “keep it safe”. Greed, on the other hand, implies a greater active force related to an assessment of rapid growth and substantial gain.
One could unpack this a lot further, but an important implication of fear as a driver of a market price, is that it is an escape from other similar assets and likely to be more considered and stable. Greed has no such restraints, and will blindly chase a price until short term gains, or the prospect of more, dissipates. It will then most likely jump to another with more promising prospects.
Paradoxically, a greed driven market detracts from the primary motive of stability. It’s an issue that has plagued the visionaries within the BitCoin community who want to see the crypto-currency become more widely used as a means of exchange, rather than as a speculative instrument. A steady growth in value would be assured with wider use in transactions, and the slowing down of mining new coins until a cap of 21 million is reached some decades ahead.
The speculative price surge and volatility we saw these past few weeks, must have caused some anguish amongst them, and the valid concerns raised by Moneyweb’s Patrick Cairns in this article that crypto-currencies have become a scammer’s paradise. While it is still a long way off from being used to buy a sandwich, the crypto currency is maturing, according to this article in the reputable BitCoin Website, Coindesk. An important point made by a clearly informed comment on my first and perhaps satirical look at gold and BitCoin a year ago (see here) was: “what people overlook about BitCoin is that they get caught up in the currency instead of the underlying blockchain. Like thinking of a website instead of the internet.”
The real revolutionary breakthrough has been blockchain technology, whose use in BitCoin mitigates against the currency being a Ponzi-scheme. (Note: It could be argued that the biggest Ponzi-scheme in the world is debt created Fiat currencies.) But the BitCoin security may not apply to the plethora of emerging alternatives and tokens that are a “scammer’s paradise”. Fortunately, there are many reliable websites, experts and published articles that can be consulted. Apart from Coindesk linked earlier, a seasoned crypto-currency investor/friend referred me to this site which lists and ranks crypto-currencies. Another that gives some insights into the visionary dimension of BitCoin is this one of Andreas M. Antonopoulos.
One certainly has to do some research to be comfortable in exchanging a Fiat currency for a crypto-currency. But can one afford not to when an ill-informed lawyer can play havoc with what you have?