The Role of Digital Assets in a Post-COVID World
Ripple CTO David Schwartz continues to discover the broader world of blockchain and digital belongings on the Block Stars podcast. In the most recent episode, he talks with Professor of Economics and Political Science on the University of California, Berkeley, Barry Eichengreen, in regards to the present state of the worldwide economic system and the place digital belongings slot in a post-COVID local weather.
As an financial historian, Barry often appears to be like to the previous as a information for understanding right this moment’s financial issues. However, he admits that the affect of 2020’s world pandemic has few parallels from the previous.
“We’ve never really had a crisis before that was precipitated by the need to shut down the economy,” he explains. “Typically, what you have is demand collapsing because of a financial crisis or bank failures or something. [It’s] very fast moving. This one is kind of going to be a slow-motion crisis. I don’t think there are really good historical analogies for what we’re about to go through.”
While he believes that governments have been proper to offer funding to save lots of companies and protect jobs, Barry acknowledges that right this moment’s stimulus will seemingly result in tomorrow’s issues.
“This pandemic is tantamount to fighting a war,” he states. “I think [governments have] to do what it takes to keep financial markets functioning…by buying everything that moves. There will be a bill to pay down the road.”
Some people consider elevated liquidity out there will result in hyper-inflation and are searching for funding alternatives that may preserve worth if greenback costs soar. Gold is historically thought of a secure guess, whereas digital belongings are more and more seen as a brand new inflation hedge.
“Gold doesn’t really have any intrinsic value,” says Barry. “People [believe] it will hold its value because other people value it. There is, from that point-of-view, a parallel with cryptocurrencies. There isn’t an industrial use for Bitcoin any more than there is for gold. People pay actual U.S. dollars for it because they think other people will value it and pay actual U.S. dollars for it.”
Given Bitcoin’s historical past of worth volatility, some traders are exploring stablecoins as a extra dependable retailer of worth. Yet Barry notes that the majority of those cash are stabilized by being pegged to the U.S. greenback and if the greenback loses its buying energy attributable to excessive inflation, the identical will occur to the stablecoin. Yet he stays optimistic that some digital belongings will show their worth over the long run.
“I don’t think that thinking about crypto as speculative investments is really a long-term viable business model,” predicts Barry. “Speculative investments have come and gone throughout history. Tulips came as a speculative investment and they went. [Digital assets] that provide actual tangible services like cross-border payments are the ones that are likely to have legs.”
Barry factors to a really latest instance of the place blockchain-based funds may have offered a more practical means for the U.S. authorities to get stimulus funds to hundreds of thousands of people across the nation. The debate about whether or not to create a central financial institution digital foreign money (CBDC) or different blockchain resolution will proceed, particularly given the continued world uncertainty brought on by COVID. When David requested him for an financial outlook for the approaching yr, Barry replied:
“Better to ask an epidemiologist than an economist. The virus is still out there and as long as that’s the case, states and countries that open up will have to close down periodically. That will be a bumpy ride.”
Check out the most recent episode of Block Stars for David’s full dialog with Barry Eichengreen, which additionally consists of his ideas on digital asset regulation, why hyper-inflation stays unlikely and whether or not he actually believes that Facebook’s Libra venture is a horrible concept.