Trust in money has been eroded
American businessman and investor, Jim Rogers, has warned that Europe is on the brink of a very serious financial collapse.
On his blog on October 6, 2014, he said, 'It’s pretty scary what’s going on in Europe…when they start taking money out of people’s bank accounts. I, for one, am making sure I don’t have too much money in any single bank account anywhere in the world. Now there is a precedent…The IMF has said loot the bank accounts. The EU has said loot the bank accounts...'
He goes on to say, ‘Think of all the poor souls that just thought they had a simple bank account. Now they find out that they are making a ‘contribution’ to the stability of Cyprus.
‘Don’t trust any government. If you’re going to listen to government, you’re going to go bankrupt very quickly...'
These are worrying words, writes Prince Michael of Liechtenstein. But the desire to see a proportion of savings covering public debt adds to the justified concerns people have about the value of money itself, as central banks grow their balance sheets and increase the amount of unprotected paper money in circulation.
These concerns are understandable, irrespective of whether this has an inflationary effect or not.
It is also clear that trust in the banking system has been eroded. People are worried about the solvency of their bank and they are also concerned at the layers of bureaucracy in dealing with banks.
No wonder alternative systems such as bitcoin are emerging and taking hold. It seems that many people now trust bitcoin more than the legal tender, even though the bitcoin system is difficult to understand. They see bitcoin as an alternative to insecure official currencies, the solvency of banks and dangers posed by government.
Whether bitcoin becomes a long-term a success or failure, it demonstrates that the market looks for some alternatives when trust in paper money is lost.
It was astonishing that US Secretary of the Treasury, Jack Lew, saw bitcoin as a major danger to the financial system, in his speech at the World Economic Forum in Davos in January 2014. That shows that even the head of the US treasury doubts the strength of the present monetary system, or did 10 months ago.
Prudent Central Bank and trustworthy government policies would be more helpful than bedevilling parallel systems.
Savers will, in any case, require new and diverse alternatives to paper money even if bitcoin fails.