The rich get richer, the poor get Bitcoin
Bitcoin is a buzzword and some claim it is a scam. But with Elon Musk’s Tesla having recently invested $ 1.5 billion in cryptocurrency and with the mayor of Miami considering giving city employees the option to collect their salaries in bitcoin, the cryptocurrency could be about to radically change our monetary system. One of the unintended and underestimated consequences of switching to Bitcoin could be the narrowing of the wealth gap, writes Bradley Rettler.
Global wealth inequality is increasing. Meanwhile, government-backed currencies, where most of the poor save their money, devalue each year. The poor do not have access to banking services and cannot get credit. This is at its most extreme in depressed economies, but it is true around the world. The use of Bitcoin can alleviate these problems and level the playing field for the world’s poor as we work for economic justice.
Owning money is a losing game
Between 2016 and 2019, the inflation rate of the Venezuelan bolivar was 54,000,000%. Of course, no Venezuelan wants to own bolivars because they are worth less every day. For those who have bolivars in their bank account, banks have strict withdrawal limits. Families use up to ten debit cards from different accounts and different banks just for shopping. Given the government’s stranglehold on finances, the average person cannot easily acquire other assets. And their bolivars are also often confiscated by the police or the army.
This situation is not unique to Venezuela. Government-funded currencies of many countries are rapidly devaluing, including Turkey, Nigeria, Lebanon, Zimbabwe, Argentina, Iran, and South Sudan. The privileged rich of these countries have no problem weathering the storm. They abandoned the ship of local currency for the lifeboats of foreign stocks and foreign currency. The poor, on the other hand, do not have such luxury. They get paid in local currency, pay others in local currency, and save what they can in local currency. They don’t have the opportunities of the rich. Their boats are sinking, but they have no lifeboats.
The use of Bitcoin can level the playing field for the world’s poor as we work for economic justice.
As their currencies depreciate, the share of the poor in the country’s wealth declines because they lack access to safer investments. Worse yet, many countries do not have a banking system. For example, 76% of Kenyans do not have a bank account; instead, they are satisfied with the M-Pesa payment network via mobile phones. It works well as a medium of exchange, but not for storing value. In the event of the Kenyan shilling devaluing (beyond its current rate of 5% per annum), their options are limited. The wealth gap is growing.
This phenomenon is not unique to countries with rapidly depreciating currencies – it is simply more noticeable. Almost all government backed currencies are designed to devalue over time. The rich store very little of their wealth in cash or in treasury accounts. The rest of us aren’t that lucky. When we want to save, we save in fiat. And it’s a losing game.
It is very difficult to set aside a few hundred dollars in real estate; most of us cannot afford to buy fractions of houses. You would think that apps like CashApp and Robinhood help people who can only invest tiny amounts in the stock market. It is a service that we badly need, but it is not without concern. First, the two sell their order flow to Wall St, allowing Wall St to use that information for high-profile retail investors. Second, they both use slow, centralized clearing houses, which can prevent retail investors from making the purchases they want to make (like buying stocks in GameStop).
The rich also easily accept low interest rates debt in a currency that becomes easier to repay over time and use it to buy assets that hold or increase their value. The poor cannot; they have less access to debts at low interest rates and therefore repay their debts less easily. The currency of almost every country is designed to devalue over time. This is a debt relief program for the rich of the world – the rich individuals as well as the rich countries.
Owning Bitcoin is better
Bitcoin can help. While governments can issue their currencies at will (for example, the US government printed $ 9 trillion in 2020 – 22% of all US dollars ever issued), this is not possible with Bitcoin. Rules built into Bitcoin’s software dictate that its funding schedule will run predictably until there are 21 million BTC by 2140; the offer is capped at 21 million.