Answers on money printing and rising markets during a pandemic.
Over the years, technology has improved by leaps and bounds, therefore making life more cost-effective and efficient. Such technological improvements, however, may not save citizens money as intended, due to inflationary efforts, according to Diginex CEO Richard Byworth.
“Technology is just so deflationary on many of our goods and services,” Byworth told Cointelegraph in an interview. Diginex stands as a company helping produce framework for blockchain and crypto solutions.
Byworth remembers buying music albums on CDs decades ago, which sold for 16 pounds each, valued at approximately $25 in U.S. dollar terms at the time. Fast-forward to present day. Customers can buy the latest albums on iTunes within seconds, paying just $10 to $12 on average — less than half of the prices seen twenty or so years ago, even given inflationary damage over the last few decades.
Technology facilitated a decrease in the cost of music production. Digital delivery removed the need for costly physical products — all while increasing efficiency.
This concept of technology as deflationary applies to countless other categories as well. Food, housing and other goods and services have all seen massive technological advancements through the years, essentially bringing down their cost of production.
In the years following the 2008 financial crisis, Byworth explained he entered the crypto space looking to protect his capital against inflation. Money devaluation concerns have risen significantly in 2020, in line with COVID-19 prevention measures and various governments’ efforts to fix economies struggling as a result of such measures. Countries around the globe continue printing money as a solution. “It’s gotten to a point of being frightening,” Byworth said.
“If you look at a trend line of monetary expansion over the last 40 years, and then it’s a fairly steady line until you hit about 2008. Then the gradient just increases. It gets much steeper, and then suddenly, in April of this year, you have a straight line up that is an increase of 25% on the entire increase that you’ve seen over that 40-year period — you’ve seen that in four months.”
When weighing inflationary goals as part of an economic balancing act, the U.S. central bank looks at the consumer price index, or CPI. The index essentially shows the cost an average citizen pays for common purchases, based on an array of products and services condensed into one number.
Byworth mentioned the U.S. Federal Reserve looks at CPI when determining inflationary targets. Devaluing currency differs from CPI, however, as shown in the cost of CDs. Certain products and services are becoming less expensive due to innovation and efficiency. Central banks then think they can raise inflation based on those figures, when really, those goods and services should become cheaper, not stay the same.
“Having that CPI target is really just a distraction,” Byworth explained. “They are never going to be able to get that CPI meaningfully higher unless they lose control of the money itself,” he added.
“Effectively these central banks are fighting to get to a 2% number on a basket of goods that is very deflationary.”
In 2020, amid money printing and COVID-19 difficulties, the public has seen rapidly rising prices for assets and services that hold limited quantities, such as certain real estate for example. These rising prices stem from the aspects Byworth mentioned regarding currency devaluation.
Inflation, however, benefits governments with debt. “The U.S. government has a gigantic amount of debt, so if the money is worthless, then the debt is worthless,” Byworth said.
“This is the game that everybody is playing, and that inflation and monetary base really means that the only way to protect your value and your wealth is through sticking it in high value assets — so assets that people are going to fight for.”
The Diginex CEO explained this as rationale for the rising stock market in 2020, also giving a hat tip to Bitcoin as an option. “This is why Bitcoin is going to continue to be more heavily and heavily demanded,” he said.
A number of mainstream entities have piled into Bitcoin in 2020, seemingly looking at the asset as a hedge.