Deutsche Bank, one of the largest banks in the world, comes forward with forecasts for the next decade (although it starts only on 1 January 2021) and points to the increase in indebtedness worldwide. Yes, the most troubled bank whose stock value is gradually approaching zero and which would not have survived this long, if it would not have been for the support of central banks and states.
The bank’s management is not only focusing on economic developments, but also on the expected trends in many other areas, ranging from artificial intelligence and electric vehicles to reestablishing interest in academic doctorates in philosophy. It also notes trends in digital money and sees the future in cryptocurrencies. Although, of course, only in those rather state-bank regulated digital tokens. It is good to capture changes in the industry from the beginning. And there are also changes in the financial area. Banks are losing their monopoly on financial services, that they have build and reinforced for decades. Above all, they are losing their monopoly in mediating electronic payments. However, you will not find any information on this in the DB.
Shaky fiat system
“End of fiat money? The forces holding the fiat money system together are fragile. Some of them may start to fall apart in the next decade, and the demand for alternative currencies, from gold to cryptocurrencies, may rise.” The authors of the document openly admit (although this is not the bank’s official statement) that the fiat money system is inevitably unstable and prone to high inflation while maintaining other parameters. “It is too tempting for politicians to create money when they are not backed by anything (e.g. precious metals). The fact that the current fiat system lasted so long required a lucky interplay of global forces for many decades, which created considerable counterbalance of anti-inflationary forces. ”
However, the forces that hold the system together are currently fragile and may begin to disintegrate in the 2020s. “If this happens, it will lead to strong resistance to fiat money and increased demand for alternative currencies such as gold or cryptocurrencies.”
If central banks maintain the current monetary policy mandate of “keeping inflation around 2%” and after labor costs reverse the current 40-year downward trend, they will have to tighten monetary policy, regardless of external factors, according to DB. However, such developments are unlikely to be realistic given the magnitude of debt at global level. Certainly, countries will first change the mandate of central banks to allow for higher inflation or to weaken their independence. Not to allow interest rates to rise and thus make the debt situation even more difficult. It is possible that inflation will increasingly become a fixed part of the system, which will raise growing doubts about the sustainability of fiat money. Therefore, the demand for alternative currencies is likely to increase by 2030. ”Will fiat currencies survive the political dilemma of balancing higher bond yields and record debt levels? This is a multi-trillion (or bitcoin) question for the next decade, ”says the bank.
Cryptocurrency – cash of the 21st century
“Many predict the end of cash, but there are several reasons why banknotes and coins will continue to be here in 2030. On the contrary, plastic cards may become obsolete because smartphones and other electronic devices can substitute them.”
Deutsche Bank analysts admit the possibility of cryptocurrencies becoming the cash of the 21st century. Although they certainly have in mind some kind of bank token. Some central banks and “blockchain advisory teams” are already working eagerly on those tokens. “Until now, cryptocurrencies were only a supplement, not a substitute for global money. This may change
over the next decade. Their attractiveness can increase after overcoming regulatory barriers and increasing their potential for cash substitution. ”
The question whether the next decade will bring the extinction of cash is, according to DB, incorrect. Cash will stay here to a greater or lesser extent. The correct question would be whether the plastic payment cards will disappear.
Forecasts of cash regression usually notice a decline in the use of cash. It is true that cash loses its momentum in favor of non-physical payments (without cash, check). In developing countries, this decline will also be accelerated by the transition of people, who do not use banks, directly to payment systems on their smartphones.
Nevertheless, cash is an integral part of more developed economies, including Japan, Europe and the US. According to a DB survey, a third of people in these countries consider cash as a popular form of payment, and more than half thinks that it will always be there. The Germans probably have the most positive relation to cash, where almost 60% of payments in shops are made by cash. The average German is planning to use even more cash in the next six months than before.
“People pay with cash because they can track their expenses more easily, transactions are fast and convenient, there is no problem with acceptance, and payments are anonymous.” DB says cash will not disappear, but the bank plastic payment cards can. Here the mobile payments are a big threat. Even in Europe. Although only 8% of Europeans use a mobile phone to pay, this is expected to change significantly over the next five years. The reason is the convenience, the speed of payment without fees, or sellers responding to customer demand.
It won’t work without the helicopter money
There is the largest debt volume in history of the world. While at the beginning of this millennium it was at 229% of GDP, the total debt is currently at 319% of GDP. This growth is mainly due to developed economies.
How will governments respond to these developments? According to DB, there is no other option than to further increase indebtedness. “Monetary politics in Europe is almost exhausted. Very low growth and inflation suggest that the next decade will require more budget spending in the EU, ”says Jim Reid.
The fate of rising state debt by 2030 and beyond is not absolutely necessary. However, the alternative scenario requires another strong decade of money-printing and aggressive financial repression. “It seems inevitable that the world of helicopter money is going to places where central banks will finance state spending to support growth.”
The easy financing of debt and the considerable populism of politicians will not be a problem in adopting helicopter money policies and even in greater debt growth. It won’t be important, whether this will be due to the unfavorable demographic structure of the population, financially unsecured state obligations, governments unable to spend less than they collect in taxes, or poor productivity and economic growth. What does this mean for a man/woman trying to minimize the impact of expanding ‘state tentacles’ on his life? Surely you already know the answer and this is also what Deutsche Bank suggests. Given the inevitable scenario of printing new money and increasing financial repression, it will shift to something that not only holds its value, but increases it even more because of its scarcity against the ever-increasing digital ‘euro-coins’. Moreover, it cannot be confiscated and does not require anyone’s consent. In this degree, it’s not bank or other fin-tech token, it is bitcoin (or other real cryptocurrencies).