I attended the Singapore-France Economic Forum 2019 2 weeks ago. The discussions were around global macro policies and international issues.
One panel brought up the some points regarding problems in the world economy today. It got me to think about the massive issues and conclude that global cryptocurrency has a shot at reducing some problems.
Note: I said reduce, not resolve the problems
Here’s how and why.
Some problems that exist in the physical global economy today:
- Credit. Too much, too unmanaged, too out of control.
- Geopolitics and dollar dominance. That’s the USD.
- Execution of policies
- Inequality amongst individuals, companies, countries
- Volatile capital flow
- High debt levels
- Anti-trust institutions
- Burden of central bank
- Policies are not reacting fast enough
- Different objectives with changing times (E.g. IMF, World Bank)
- People in power like to accumulate power
- People are not rational whereas the system is built with expectation of rational agents
How crytocurrency could reduce some problems
I mention CURRENCY because I am talking about global MONETARY policies and the relation between MONEY and economic activities.
Other token function includes utility and securities. I am NOT talking about them. Just 💵.
- Easier to track, manage and limit credit with baked-in governance codes.
Relevant interesting papers to kickstart this very complicated topic:
> Changes in Bank Lending Standards and the Macroeconomy (Bassett et al., 2013)
> Capital flows and the risk taking channel of moentary policy (Bruno et Shin, 2013)
> Financial stress and economic dynamics: the transmission of crises (Hubrich et al., 2014)
> Open market operations (Rocheteau et al., 2016)
> Risk, uncertainty and monetary policy (Bekaert et al.,2010)
> The optimal inflation rate under Schumpeterian growth (Oikawa et Ueda, 2018)
- Reduce dollar dominance with a currency less tied to geopolitics: Global institutions are trying to increase the global dominance of EUR and CNY. (Bye bye GBP & JPY). But those currencies are still very much tied to geopolitics, in the interest of their economic region and not global economy as a whole. Even Dr Zhou Xiaochuan, Governor of the People’s Bank of China, mentioned in 2009 that we need an international monetary system reform.
- Quicker execution to policies due to baked-in governance as mentioned above.
- Different governance levels with various specific objectives to react to situations
MakerDao has 4 layers of governance, each with a key purpose.
Think about each governance as a “union” in traditional sense. They fight for a single objective.
- Limit people with power accumulating more power (E.g. the consensus designs of various blockchain platforms.)
These solutions are very general and there are limitations and downsides to them. However, even a 1% increase in efficiency in the current system can bring about a significant change with the multiplier effect.
Also, it’s time to shift the focus of “world economy = macroeconomics”. As we move towards higher degrees of digitisation, we need to start bringing in conversations around more engineering, computer science & math (aka microeconomics).
This article first appeared on LinkedIn.