Guide Evaluation: The Future of Money


The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance. 2021. Eswar S. Prasad. ‎The Belknap Press of Harvard University Press.

Today, you’ll be able to’t activate the tv or the radio with out listening to an advert for cryptocurrencies or crypto exchanges. Numerous celebrities are touting crypto buying and selling platforms, together with skilled athletes LeBron James and Tom Brady and actors Matt Damon and Larry David. Are cryptocurrencies the subsequent huge funding, a fad, or a forex that can remodel the financial and monetary panorama? What are among the benefits and shortcomings of digital currencies? Who will profit from these new currencies?

Eswar S. Prasad makes an attempt to deal with these questions in The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance. Prasad, the Tolani Senior Professor of Trade Policy at Cornell University and the writer of a number of books on currencies, offers an attention-grabbing and insightful exposition on the shifting panorama from conventional paper notes to digital currencies.

Prasad begins his dialogue of the way forward for cash with a quote from Cecilia Skingsley, the deputy governor of Sweden’s central financial institution: “If you extrapolate present traits, the final be aware can have been handed again to the Riksbank by 2030.” Skingsley is just not the one authorities official who sees a grand future for digital currencies. China is one other nation that has been transferring away from paper forex. In the United States, President Biden, recognizing the significance of latest digital property, signed an government order to make sure digital property’ accountable improvement in March 2022.

The ebook is split into 4 elements. Part I, “Laying the Bedrock,” appears on the future and promise of digital currencies and offers an introduction to finance for these with little background. Part II, “Innovations,” focuses on the historical past of fintech and the crypto revolution. Part III, “Central Bank Money” makes a case for central financial institution digital currencies (CBDCs). Part IV, “Ramifications,” considers the potential penalties for the worldwide financial system.

The “Innovations” part of the ebook begins with a chapter titled “Will Fintech Make the World a Better Place?” Here, the writer takes us by the historical past of fintech, which he factors out is a catchall time period for novel monetary applied sciences. It was first coined in 1993 with Citicorp’s creation of the Financial Services Technology Consortium. However, some improvements, such the ATM, have change into so ubiquitous that we neglect these had been as soon as novel applied sciences. The historical past contains an attention-grabbing have a look at newer improvements, comparable to M-PESA, which allowed people in Kenya to conduct banking by a cell phone, in addition to peer-to-peer lending, crowdfunding, and on-demand insurance coverage. Many of those new providers will pose challenges to conventional monetary providers corporations.

Today, fintech is most intently related to cryptocurrencies, comparable to bitcoin and Ethereum. However, a dialogue of cryptocurrencies can not start with out understanding the blockchain and the way this know-how is reworking enterprise and finance. Blockchain know-how has been touted as the way forward for finance and of quite a few different areas of enterprise, together with securing of medical data, non-fungible token (NFT) marketplaces, and provide chain and logistics monitoring.

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Most funding professionals will concentrate on the blockchain and the idea of a decentralized ledger throughout a peer-to-peer community, however many could not perceive the know-how totally. Prasad offers an in depth however accessible rationalization of how the blockchain works, from its historic origins to the know-how underlying the system. The time period “blockchain” is related to a wide range of cryptocurrencies. However, the protocols used to validate transactions differ for varied blockchains. Furthermore, every protocol has benefits and weaknesses. Will many various protocols proceed, or will one emerge as the usual for the business?

Bitcoin makes use of a “proof-of-work” protocol to validate transactions, which requires block creators, often known as miners, to resolve a randomly generated cryptographic drawback. The method permits transactions to be validated with no trusted third get together. However, this technique requires important computing assets, which want massive quantities of electrical energy to energy the computer systems. Another draw back of this method is that it permits solely a comparatively small variety of transactions to be validated concurrently.

Ethereum makes use of a “proof-of-stake” protocol. Proof of stake was created to cope with among the inefficiencies of the proof-of-work method. Here, the privilege of validating a block relies on how a lot has been “staked” by competing nodes. However, as Prasad factors out, this much less resource-intensive method is just not with out its shortcomings.

Prasad debunks among the myths of crypto and different digital currencies. For instance, many view utilizing cryptocurrencies, comparable to bitcoin, as a technique to keep anonymity. The actuality is that, not like money, digital currencies require identifiers for customers to obtain the products bought with digital currencies, which removes the anonymity. Blockchain has additionally been seen as a safe know-how. Although this know-how presents better safety than different strategies, Prasad factors out ways in which people can hack the assorted protocols.

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Like all new applied sciences, the fintech revolution has introduced with it an entire new language to outline the brand new choices, together with hashing, safety token choices (STOs), good contracts, preliminary coin choices (ICOs), hash time locked contracts (HTLCs), and secure cash. The Future of Money permits buyers to be taught the brand new vernacular of this discipline and contemplate which improvements could provide the best investable alternatives.

Reading by the ebook is unlikely to offer any insights into how one can worth cryptocurrencies or how digital currencies, comparable to bitcoin, are more likely to change government-issued cash as a retailer of worth, a medium of change, or a unit of account. However, Prasad presents a glimpse into the potential for digital currencies within the chapter “The Case for Central Bank Digital Currencies.” He maintains that CBDCs can enhance effectivity on the wholesale facet by bettering the best way central banks distribute reserves to business banks for fee, clearing, and settlement. On the retail facet, CBDCs could provide a number of advantages, together with offering a backup fee system, selling monetary inclusion, and bettering financial and monetary coverage.

Although these chapters could appear to be of better curiosity to financial economists and central bankers than to buyers, Prasad offers some insights from which buyers could profit. He recaps a research that analyzed how insurance policies by some European nations to cut back the usage of money shrank the shadow economic system and elevated tax revenues. The considerate investor may ask which investments will profit from these elevated tax revenues. Will the extra revenues be used to fund infrastructure spending? Will nations use the windfall to finance different power tasks? Perhaps nations dominated by conservative lawmakers will select to return the cash to residents and companies by tax cuts. If that proves to be the case, which industries are more likely to profit?

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Innovations produce winners and losers by creating new alternatives and challenges for incumbents. Financial business improvements are not any completely different. Understanding among the present and potential future modifications will allow analysts to raised decide which companies and industries are more likely to prosper and that are more likely to endure. The Future of Money offers readers with a window into among the alternatives and challenges that lie forward for the monetary sector.

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All posts are the opinion of the writer. As such, they shouldn’t be construed as funding recommendation, nor do the opinions expressed essentially mirror the views of CFA Institute or the writer’s employer.

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Ronald L. Moy, CFA

Ronald L. Moy, CFA, is affiliate professor of finance at St. John’s University, Staten Island, New York.


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