- 4. The Evolution of the Monetary System ------
The wealth gap between countries will be decreasing fast meanwhile the gap between rich and poor individuals will be increasing in the world. The world financial market remains to be active and expanding meanwhile it is become considerably competitive. This is the entire influence of the globalisation on the world financial economic situation. It provides individuals with the wide range of opportunities meanwhile it exaggerate competitions in the wide range. The new era of the information technological advancement combined with the globalisation will gradually transform the international macroeconomic environment and structure. The world monetary system will be based on the dual currency system of both the traditional currencies and the newly introduced digital currencies.
- 4.1. The invention of a digital currency and its influence on the monetary system
In particular, the introduction of the digital currency such as Bitcoin will be beneficial for individuals living in those countries where their national monetary system is immature and constantly in a turmoil situation. Many emerging countries (The term called LDCs and the third world will cease away) will adapt the electric currency such as Bitcoin or something similar. The leapfrogging development of the technological innovation allows various emerging economies in Africa, Asia, and South America to introduce the international electric monetary system like Bitcoin.This is far less costly than improving the already existing traditional monetary policy units. This is similar to the situation that these countries are much easier to adapt the new mobile phone devices and their market competition not restricted by the monopolistic corporations of the landlines.
Even the advanced economies with the relatively stable monetary system will be still impacted by the spread of this kind of digital currency. More individuals in this world will start using Bitcoin or any other digital currency due to the accessibility to currency and the scale of trading places connecting the entire world via the world wide web. So, the market transaction based on the traditional currency issued by central banks will be more influenced by this new market based on the digital currency.
The great advantage of Bitcoin is that its default programme limits the maximum money supply. The money supply can be increased by adding more CPU capacities to calculate in the entire system connecting the whole world. An individual contributing to adding the capacity with her/his PC gain some extra Bitcoin, and this is called mining. The reward of this mining process becomes smaller when the aggregate supply of Bitcoin becomes closer to the supply limit set by the default programme. Therefore, there is no authority which is able to either increase the excess money supply or prevent individuals from accessing to its usage.
In another word, Bitcoin is more likely to be considered as a commodity like Gold. However, Bitcoin enables far more individuals to access to its usage than Gold. This is because it is electrically traded at the speed of light because it is more efficient to set its market value than Gold. The value of this digital is instantly measured by the products traded in this market and their trade frequency via the transaction based on this digital currency. So, its value is instantly adjusted to the purchasing power of the entire world market using this digital currency.
The traditional currency of central banks of a nation or a group of nation will lose its authority over economy, and individuals will start choosing both currencies, the traditional one and the digital one, for each different situation. Central banks will struggle to keep their security of maintaining their authority over the market where their issuing currency is distributed. Any devaluation of and/or any usage limitation of the traditional currency will encourage individuals to use the digital currency more often. Therefore, the authorities of nations and a group of nations will attempt to maintain the royalty of citizens to their traditional currencies so that they will inevitably need to restrict their asymmetric distribution of the money supply which deviates from the optimum level required by the market.
The world monetary system will be the system combining the advantage of both the fixed foreign exchange market under the gold standard and the free flexible foreign exchange market. The value of the traditional currencies will be less deviated from the purchasing power parity due to the influence from the competition with the digital currency. Even though the foreign exchange rate remains to be fluctuating, the value of currency will be much faster to converge to the optimum stable rate in the market. This also implies that it will be more difficult to gain profit from the arbitrage in the foreign exchange market.
All in all, any individuals will be emancipated from the dominance of national monetary authorities. Furthermore, it will be difficult for anyone to maintain their dominance propped up by gaining profit from the market arbitrage. Then, more financial institutes and individuals participating the market will severely struggle in their cut throat competition. These financial corporations will shift to create the alternative model of their investment strategy based on this new market situation, and those who are behind adapting this new model will lose their revenue. Hence, the dynamic transformation of the market competition and the wealth distribution system takes place in not only the real market situation explained in the previous chapter but also the financial market.
- 4.2. The still hotly debated Eurozone future
Both Euro, the currency, and the European Monetary Union (EMU) might remain in the future because it is costly for many EMU members to replace it with their independent monetary system. However, there is a high possibility that some of the members will leave the EMU, and there is still a small possibility that the EMU will completely break up and Euro disappears. The common monetary union has both advantages and disadvantage by means of economic analyses.
It will be highly dependent on the philosophical view of these Europeans to decide whether they preserve it or not. The pure reasoning is not completely based on either an objective reality or a rational decision-making process. It is highly influenced by the subjective feelings of individuals deriving their reasoning. Then, any friction of their daily life events easily change their mind for determining their long term future political decisions. The cause of both the European Union (EU) and the EMU was based on not only the economic purposes but also their political ideal to unify Europe. Therefore, it is unpredictable to forecast whether their will remains to pursue their ideal or some influence on their mind disturbs their pursuit of the ideal.
The future situation is still relatively unpredictable for the EU. Only what can be predicted is that resolving the EMU will reduce the economic strength of the member countries. The world economic trend still encourages shifting to borderless trades and the big economies of scale which the current EMU provides all the Eurozone countries to develop their economy. Therefore, the EMU still have the enormous advantage of maintaining the EMU.
Only the problem is compromising the reform aimed at the further integration of the Eurozone economy including their fiscal integration. Otherwise, the unbalance of the economic environment of each Eurozone country among the EMU will be perpetuated, and it may urge some deprived Eurozone country to leave. Their future is determined by the will of European citizens to pursue development and progress or refuse drastic reforms for their stability.
