PARIS — For each passing day, as a perfect storm where both demand and supply plummet together across the world, the 2008 crisis starts to pale in comparison. Economists are thinking hard behind the scenes, with some pondering post-War recovery plans and others looking to earlier pandemics, like the 1918 Spanish flu, for guidance.
But comparisons with the past shock events are a poor playbook for our insta-globalized age. In one other crucial way this moment is different, even from 2008: currency. The way money is created, distributed and even conceived of reaches new inflection points every year. Indeed, a new monetary paradigm has been underway for some time, and the question today is whether the now accelerating shift will only snarl up the already intricate paths ahead, or rather, reach its consecration and blaze a trail to faster recovery and a more resilient economy.
Even before our attention turned to economic recovery, worries about the virus transmitting, literally, through dirty money raised the question if COVID-19 would spell the death of cash. The consecration of a fully digitalized payment system, already well established in countries like Sweden and South Korea, has been questioned for issues such as cyber security, lack of internet connectivity and inaccessibility for the elderly. But even this debate seems almost trivial now as much bolder ideas are percolating within the walls of central banks.
The concept of a digital dollar to provide U.S. taxpayers with stimulus payments during the pandemic was recently floated by U.S. lawmakers, and while the proposal fell by the wayside, such initiatives are under way in both France, where a digital euro is currently under trial, and in China where the digitization of the yuan is reaching the end of the pipeline.
Indeed, as the global economy is on track for its steepest slowdown since the Great Depression, the need to provide people with money fast and directly is now making reality of ideas which has so far only been experimental. But while a digital currency can solve some issues, such as — in the nearest-term — getting governments out of the logistical nightmare of a cash and check-based stimulus plan, it raises questions about what technology will underpin the systems, especially as many central banks have argued that the blockchain technology supporting major cryptocurrencies like Bitcoin is not yet fully vetted.
However, banks can only remain impartial to technologies for so long. If blockchain becomes the way, would it then be interpreted as an endorsement of other, non-centralized cryptocurrencies? We're already seeing micro-examples of state-currencies falling, like in the small Italian town of Castellino del Biferno, where the mayor has begun printing its own "Ducati" bills to help out the most vulnerable of the town's 550 inhabitants. Such community currencies have been issued before, like during Argentina's crisis in 2001 when the government of the province of Buenos Aires printed the quasi-currency "Patacones' to pay government bills, or after the 1930's Great Depression, when a wide range of regional fiats were issued in the U.S., Germany, Austria and Switzerland.
Today however, with a multitude of decentralized options available, there might be no back to normal. Behind the already thorny technological and regulatory questions, there is also the issue of the world moving deeper into a faceless economic system already too complex for most people to understand. The domino effect of the 2008 crisis impacted, in big ways and small, every person alive. Yet few could explain the mechanisms that actually led to foreclosure on their house or the elimination of their job. Radical changes to currency may help us accelerate the recovery, or it could undermine the most basic trust that guarantees a citizen's relationship with the economy.