The rise of cryptomoney to the detriment of FIAT currency has a logical explanation and it is the same one that has been happening in my country Argentina for many many years: The uncontrolled issuance so that the State can finance the voracious appetite of an uncontrolled State.
In Argentina for many years the State has spent more than it collects and this ends up being financed with uncontrolled monetary issuance, which ends up being a solution in the short term, but in the long term it ends up causing greater damage and that will be very difficult to reverse.
Many politicians see monetary issue as a quick solution to solve their immediate problems, but in the medium term it ends up acting as a counterweight, which only makes the situation worse.
The monetary issue causes several effects:
- On the one hand, loss of the value of a country's currency, since as there is more money in circulation, people tend to get rid of it and choose to acquire with the other asset that really serves as a value reserve.
- It liquefies salaries and ends up pushing the middle social classes towards the lower classes. The monetary issue generates poor people in the same proportion in which it is decided to issue.
- It provokes an inflationary process, which causes relative prices to be distorted, which brings about social conflicts.
- It makes the products that the country needs to import more expensive in order to cover internal needs and even productive processes.
- Regarding exports, while it makes the country more competitive in placing its products abroad, it also leads to producers wanting to place all their production in foreign markets, which makes producers charge for their products a higher value to match what they would receive if they placed all their production in foreign markets.
In short, as you will see, a spiral is occurring that is very difficult to stop and only stops when the government itself decides to take money out of circulation with the instruments it has at its disposal.
In the year 2020 most governments issued money in obscene amounts that did nothing more than liquefy our savings.
What governments have done this year is destroy the value of their currencies and people, when they lose confidence in their currencies in which they keep their wealth, tend to go to a safer asset, something that gives them confidence.
I could compare uncontrolled money issuance (unintelligent) to wanting to put out a fire with fuel.
In our families, when we can't afford to buy certain things, we have two alternatives:
- Getting into debt
- Adjust our expenses.
Governments should do the same, but it is very difficult for them to do so because it would cause them to lose a lot of votes and therefore to lose power.
It is time to rethink government finances so that they can only spend what they collect.
