Money makes the world go round

Mark Davies

July 9, 2019

Mark Davies (pictured) is managing director of Link Mortgage Services

It’s tempting to regard the advent of cryptocurrencies as something from a sci-fi movie.

Digital currencies are still alien to most of us but the recent announcement by Facebook that it will unveil its planned Libra cryptocurrency has made something other worldly feel very real and it has got the attention of, among many others, regulators who see the prospect of a tech firm with billions of users launching its own currency as a threat to state currencies.

Indeed, Agustin Carstens, chief of the Bank for International Settlements (BIS), acknowledged that central banks will likely soon need to issue their own digital currencies in a recent interview in the Financial Times.

Of course, not all cryptocurrencies are the same. Some are going to be pegged to a basket of other values whereas others such as Bitcoin maintain a market value. Bitcoin too, unlike others has a finite amount that can be created so it is anti deflationary.

Perhaps the starkest difference between Bitcoin and Libra is where you can use the two cryptocurrencies. When it is released perhaps in 2020, Libra will be a digital currency that can be used for purchases and trades on Facebook, WhatsApp, and other Facebook properties.

Other supporting websites will potentially come on board at that time, most likely members of the Libra Association, but that’s yet to be confirmed. Bitcoin, on the other hand, can be used by anyone, anywhere in the world, entirely independently of any organisation or platform.

Trades can happen on exchanges, through direct trade websites, or even in large quantities with entire wallets in a practice that’s typically known as over the counter. Where Facebook will ultimately control where and how Libra is used, Bitcoin is almost entirely deregulated.

Ultimately whether it is Facebook or Amazon or another who launch the next big currency, the challenge to the existing financial services infrastructure, whether that be providers, regulators or HMRC, are clear and present. The speed at which these ideas can be embraced means they will inevitably take hold quickly.

We may not be buying houses from the offset in digital currencies but its not too outlandish to imagine many younger tenants wanting to pay their rents this way. Put that in a landlord’s affordability calculation!

But there are much bigger issues at hand. Will there be discovery of information, or data that can be used in credit provision, and how will data privacy be protected? This is just the beginning of this adventure that will bring many challenges and change the way we organize society. The future is unfolding right now.

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