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Author's profile photo James Zdralek

Ghosts of Dead Money (8th in the series)

What if the world ran on new classes of digital currency that are inflation resistant, create price stability, discourage bubbles and deflationary spirals? What if they could protect citizen’s savings without reducing liquidity when they save rather than spend?

This blog series examines issues and possibilities in the changing banking and monetary systems. Rapid change could occur in the near future due to the ongoing digital transformation. What are the possible outcomes? Which future will happen? How are you prepared?



Futures-backed currency, introduced in the first of this series of blog posts, is a type of currency that addresses stagnation caused by hoarding.

This argument is against dead money. The issue of whether a more stable banking system could be created with fractional reserve, full reserve or alternatives is moot if it is not agreed that dead money will be the worst possible thing for an economy. I think keeping fiat currency in a bank is bad. In fact, I think national fiat currency is a bad idea. What I am arguing today is hopefully obvious and concerning to economists who are observing the cryptocurrency market.

Digital wallets containing cryptocurrencies are worse for an economy than fiat currency.

Cryptocurrency wallets are the worst way to manage and store wealth because it is economically identical to hoarding cash. A digital wallet locks the value of a cryptocurrency into a digital mattress. A complete waste of the resources that were burnt merely for the intent of digital containment. The investment in a share of a company or even the depositing of currency into a bank to earn interest are both active ways of using value, activity that contributes to the expansion and activity of a healthy economy. When you deposit money into a bank it is loaned out to someone who needs it. I deplore the fractional reserve aspect of traditional banking but credit liquidity must exist. Cryptocurrency does not fix banking. It makes it worse. The activity of paying interest for a loan and earning interest for a deposit are the two sides of the same coin. Any digital wallet that does not offer an interest rate is creating a pool of dead money that will destroy an economy that depends on it.

If you deposit money in a bank it is loaned out. If you invest in a publicly traded company, the money is used to pay workers, buy supplies and build factories. Both active uses of wealth. The shares increase in value when the stock market realizes the company is making something that can be sold at a wide margin to the production and research costs. When buying the correct shares of a company early the winners are the shareholders whose net worth increased. The loser, if you can call them this, is the consumer who buys the goods but these losers are the people who are creating the value of the company by paying a premium for a product they want. The key is the “losers” still get what they want and are happy to pay for it.

The loser in the crypto currency speculation gambling market is the person holding the bag when the music stops. The loser did not want cryptocurrency, they have no use for it. The loser wanted to get rich but held on too long. The product has a limited use value when stripped of its exchange value. Cryptocurrency is entirely composed of exchange value and very few of the currencies have patent or licenses that make it the only product of its kind. The cryptocurrency market is creating a few winners but many losers who are walking away without anything that they wanted. People are hoarding more and more cryptocurrency assets into digital mattresses as the products they want to buy, lambos, become cheaper and cheaper since they can buy more and more with less of their hoarded digital currency. A classic deflationary spiral that will kill an economy dead.

The cryptocurrency market will remain a gambling casino until an interest-bearing wallet can survive longer than the short life of Delta Financial. Once there is the stability to achieve this then the rate of interest needs to be determined. Control of that interest rate by a centralized authority whether they are bankers or miners is where attention and efforts to decentralize should be focused. The centralized control of an economy by interest rate manipulation is the blunt instrument that could be contributing to income inequality and poverty. A decentralized method of interest rate determination exists in terms of bonds but is still manipulated and interfered with by central bank rate changes. A bond market for cryptocurrencies would be difficult to manage under the current value fluctuations. There is a high level of risk and a crypto-bond for a deposit would not be able to create the stable unit of interest that is needed to plan business expansion. A step farther is industry specific interest rates but this would need a deeper rethink of the monetary system than the cryptocurrency meme factory is capable of a present. My proposal is a different take on the use of asset-on-blockchain which will generate an ultra-stable unit of value and natural interest rate.

The paper linked below takes a different approach to the problems caused by hoarding wealth and allows an economy to thrive even if money is kept stuffed under a mattress. Stay tuned for additional examples of how this theory can help.



This blog series will be a forum to discuss different concepts and areas where these theories can be applied. Subscribe to stay informed.

Read more about the future of money: Full article. 



The Team

The SAP Canada Ideation Centre’s mission is to help Canadian leaders of business, academia, government and non-government organizations develop a deeper understanding of the digital forces driving the economy today. Ideation Centre members strive to bring forward made-in-Canada fact-based arguments that challenge decision makers to think about the potential of organizational shifts that were not possible in the past. The Ideation Centre is fueled by thought leaders from the Industry Value Engineering team at SAP Canada. This diverse team of industry and value advisors helps organizations of all sizes and industries take advantage of technological innovations to create incremental economic value by adopting new business models and optimizing business processes, from the back office to the boardroom, farm to storefront, mine to operating room, etc.



The Author

Over his decades-long career in the high tech industry, James Zdralek has concentrated on usability, user research and design thinking while building a reputation as a visionary innovator. Merging his expertise in product design, human behavior, and economics, and through his focus on improving accounting tools, James envisions ideas that can drive tectonic shifts in financial and monetary systems. He holds a bachelor’s degree in Industrial Design, a masters in Psychology, and a diploma in Professional Accounting.

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