As I got not a single question from subscribers, I will consider the Q&A idea to be a non-runner!
I will turn the tables.
My question: who knows what the above initials stand for?
I suspect no-one, yet the introduction of CBDCs has the potential to undermine the operations of every private sector bank in the world and change the whole balance of power in both democratic and autocratic countries.
I think it is possible that the wholesale introduction of CBDCs could be the best opportunity in around 150 years for governments to wrest back the power they have steadily lost to corporations since the late 19th century.
The acronym stands for Central Bank Digitised Currency.
Digital currencies are an interesting and current topic, but like most new ‘products’ have all sorts of hidden risks at the early development stage. Maybe that is why the UK Regulator the FCA is banning the sale and promotion of digital currency derivatives (the most risky way of ‘playing’ with an investment or commodity) to retail investors from next year.
Serious Bitcoin fans who want to take out hedges and so on will get around this by dealing on overseas exchanges, I guess.
And you may know that Facebook thought having a digital currency – Libra – was a good idea and that the G7 nations were seriously opposed to that, rather supporting my proposition that controlling currency will be the new battleground between states and mega corporations.
The news is that China is encouraging Hong Kong residents to get their hands on a chunk of Chinese government digital money by giving away lottery tickets and Shenzhen residents are already able to open digital Renminbi accounts with e-wallets. China is where about a quarter of all the people in the world live, so what happens there is significant.
Would you want to put your money with a government bank?
Any of you that have National Savings Certificates or Premium Bonds have already taken that decision and many did so because they thought it was the most secure option.
That makes me think that a government sponsored e-wallet account would quickly take market share from commercial banks.
The institution that has all your money and also controls the legislative process may be one to worry about. What do you think?
Hi Mark, I think the Q&A idea is really good, – I wanted to put in a question about the impact of blockchain technology on banking and the wider market. ( I was struggling to frame the question in a usable context!)
CBDC is something we do need to be up to speed with, indeed the whole of Fintech, so actually your Monday mashup suited me down to the ground, – however, any chance of you developing the theme and broadening it out to explore investment potential ? I’ve been doing some light research on companies like Square and a couple of the bigger ETF’s in the blockchain sphere. (Too many people get sidetracked by Bitcoin, when in my opinion we need to be looking at the much wider picture.)
Best regards,
Greg.
Hi Greg. Thanks for the comment.
As a start, I would suggest that it is necessary to appreciate that Fintech (including things like blockchain and digital money) is an all encompassing and rather amorphous topic. I see the advanced use of technology as somewhat like the introduction of railway travel in the 19th and early 20th Centuries.
Things like CBDC and blockchain are high up at the infrastructure level (some of which may well be nationalised) and parallel to that are the makers of capital equipment (like locomotives and carriages with railways) – they are the tech service companies like Square or Naspers, or the now notorious Wirecard. Finally we have the operating companies that deliver the actual service to the consumer, like Visa or Amazon at the large end of the market or the little local travel agencies selling a few hundred tickets a month – the private sellers using Shopify and so on.
There will of course be overlaps and operators in more than one layer of this model. In the railway days, the big operators were large enough to expand whole towns for their workers, like Eastleigh in Hampshire, corrupt politicians, get legislation passed in their favour and so on and thus it is with technology. Another parallel is that railway development facilitated all sorts of other changes in commercial activity, including finance, and it destroyed established businesses as soon as it was up and running, like stage coaches.
Using this analogy, I immediately recall from my enthusiasm for classic literature how the ownership of railway company shares was ‘de rigeur’ for any up and coming well to do citizesn in Victorian England and of course how much money was lost on failed speculations!
Returning to the modern world, what you are writing about is I think at the infrastructure end of the theme. The cryptocurrencies are not really comparable with equities but with commodities and that is another subject. I think you are asking: how could one invest in background manufacturing/infrastructure (heavy lifting processes)?
It is easy enough to invest at the other levels using technology, financial services or even ESG funds. That most of us owning funds are probably already doing even if we never specifically thought about it, if we own innovation, global growth/focus or ESG funds.
ETFs are less likely to give one enough focus on just the best infrastructure in my opinion because any index or algorithm behind such a passive fund is almost bound to include some dross in a relatively new industry sector. But I do not claim a very deep knowledge of the ETF market – let me know if you have any tips! I am aware of the names of some that appear to be targeted in the right area but also very aware that ETFs are created by marketing departments as soon as there is a whiff of public demand!
Finding a fund (OEIC) that focuses just on the most promising digital currency developments is something I will keep in mind. At the moment my interest is in the high level (macro) impact of things like e-wallets, commodity credit cards (I have one) and the role of the State (again with an eye on history and the eventual heavy state intervention in public transport). The high level impact on other businesses is what interests me most; I do not want to be invested in the national stage coach horse suppliers when new railway stations are opening up every week!