A financial expert has expressed his confidence that the world is “moving towards a brand new system of money and currencies, which will be different from the commodity money used in the past (such as gold and silver), but will help to bring back the important functions that commodity money used to perform.”
Money and cryptocurrencies remain an underdeveloped aspect of the digital economy, contributing to the imbalance of the global economy, said Professor Ruslan Dzarasov, head of the Department of Political Economy at Plekhanov Russian University of Economics. The comment came in an interview with RIA Novosti following the conference, “Challenges of the Digital Economy: Russia amid Global Trends.”
Dzarasov added that he believes that together with BRICS countries, especially in collaboration with giants like China and India, Russia can significantly influence the establishment of a new monetary and financial system in the post-crisis world.
Post-war periods are characterized by the global dematerialization of money, Dzarasov believes. “Take the history of money circulation: first, there were gold and silver, then we switched to paper money, then there was the end of money’s convertibility to gold (the infamous cancellation of the gold standard initiated by US President Richard Nixon in 1971); now we have electronic money and cryptocurrencies — money is nothing more but electrical signals in computer systems,” he explained.
In this regard, the expert noted that according to the commodity theory of money, money is a commodity that can play the role of a universal medium of exchange, but can also be used to generate savings.
“Dematerialization of money is the result of a profound change in the production system and is an indicator of large imbalances in the global economy,” the professor said. He also added that the postwar gold-dollar standard (the Bretton Woods system) suggested that the dollar should play the central role and serve as a reserve currency. “At the same time, countries that have larger dollar revenues, which were generated through foreign trade, could exchange them for gold,” Dzarasov said, adding that the US once tried to maintain its gold reserves by issuing government bonds and selling them to countries that had a surplus of dollars. However, later the country found it impossible to service the increased external debt.
The US had to switch to fiat money, which is not backed by gold. Its value is based exclusively on trust in the country issuing the money.
The expert believes that all these factors speak to a shift away from the commodity nature of money — a process that is reaching its limit when it comes to cryptocurrencies. At the same time, Dzarasov says, the global economy still requires full-fledged money, which can be used to measure value and serve as a reliable means for generating savings. But today, as the expert suggests, this requirement is met through “surrogate money,” including various derivatives as well.
Dzarasov cites futures as an example. “I would like to buy some oil, but not now, but half a year from now. So I sign a contract that I will buy a certain quantity of oil for a fixed price at the going rate,” he explained, interpreting this as an attempt to retain the purchasing power of money — money that is no longer a commodity in nature. “That is why we have to invent new instruments to meet this requirement, which proves the inferiority of today’s money that is now degrading into cryptocurrencies.”
The expert also pointed out the distinctive feature of cryptocurrencies: “This money is not controlled by any government. That is how the vision of liberal philosopher and economist Friedrich Hayek is being brought to life: he wished for money to be printed by banks, not the state.” However, the introduction of cryptocurrencies is undermining the role of banks as well, since these funds are being emitted and are circulating without their help.
“Cryptocurrencies create a fundamentally new base for the development of the derivatives market — a market for derivative financial instruments, the value of which is based on the value of underlying assets, as in the case with oil futures”, Dzarasov said, noting that this results in the ballooning of the financial speculation market and its assets. “Money lacking a commodity source cannot perform its functions properly, thus opening up a large niche in the market for various forms of surrogate money, which increases the risks to the global economy.”