Sta Hungry Stay Foolish

Stay Hungry. Stay Foolish.

A blog by Leon Oudejans

Bad money always drives out good money

Each time that I think that the (financial) world can’t get madder, then reality proves me wrong (eg, $40 billion SPAC merger with a Asian ride-hailing app, and $100 billion IPO of a cryptocurrency exchange). While professional investors are already retreating, retail investors are putting in even more money. Hence, bad money always drives out good money.

The previous sentence is the core concept of Gresham’s Law (eg, Investopedia, Wiki). A few hundred years ago, we paid in coins of expensive metals (eg, gold, silver). These have been replaced by paper bank notes, guaranteed by a Central Bank. The gold supporting that guarantee is slowly being sold. Trust in paper bank notes is all that’s left. Hence, Gresham’s Law.

Today, various Central Banks are considering replacing paper bank notes by virtual currencies. China has already created a cyber/digital/virtual yuan, “a first for [a] major economy” (WSJ, 5 April 2021). The latest example of Gresham’s Law. 

A major advantage is that digital currencies have the “power to track spending in real time”, will shrink the size of tax avoiding shadow economies, and (thus) can/will boost tax revenue. Commercial banks become irrelevant and may get nationalised as retail outlets of Central Banks.

Keeping off the (digital) grid becomes near impossible when digital currencies will take over from cash (bank notes, coins). Mobile phones and digital wallets will become a privacy nightmare: every step you take will be monitored; see the Police (sic!) song below.

A question remains: why are we so keen on letting bad money drive out good money?

Some may claim that it’s about theft. I suppose these people ignore cyber crimes (eg, hacking). Some may claim it’s about efficiency (eg, cost). Indeed, efficiency is often a (bad) cause for relaxing (good) controls. Our belief in the good that technology will bring, may be closer to the truth (eg, Robert Oppenheimer and the Manhattan Project).

After a lousy night of sleep, I realised there is another reason: our views on Progress. I’ve never written about this topic before, as far as I can recall. 

Progress might just be a synonym for the coupling phase in Change. In that phase, which is governed by Hope, we may fail to oversee our future regret & remorse (my blogs) on Progress.

“Progress just means bad things happen faster.” A quote by Terry Pratchett (1948-2015), an English humorist, satirist, and author of fantasy novels.

Every Breath You Take (1983) by The Police
artists, lyrics, video, Wiki-1, Wiki-2

Every breath you take 
And every move you make 
Every bond you break 
Every step you take, I’ll be watching you 
Every single day and every word you say 
Every game you play 
Every night you stay, I’ll be watching you

Note: all markings (bolditalic, underlining) by LO unless stated otherwise.


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