Goldman Sachs Recognises Bitcoin’s Potential as Global Currency
Just six weeks after Goldman Sachs CEO Lloyd Blankfein said the company would adopt a “wait and see” policy towards Bitcoin, it seems that the Wall Street Giant is beginning to recognise the benefits of cryptocurrencies. In a recent report Goldman’s analysts have identified the possibility that Bitcoin could replace the dollar as the world’s global currency, particularly in developing economies.
The report points out that, “the value of money derives from its usefulness”. Provided cryptocurrencies can offer utility, they can succeed as money. Though currently people in developed economies can get along fine without them, cryptocurrencies could offer real benefits to people in poorer or badly-managed economies.
In sub-Saharan Africa, for instance, local currencies frequently lose their value due to high inflation. In such environments foreign currencies like the dollar and euro are often used. In fact, according to Bloomberg, 90% of all deposits and loans in the Democratic Republic of the Congo are made in non-native currency. However, such arrangements are put into jeopardy when governments try and control the use of dollars.
As the Goldman Sachs strategists Zach Pandl and Charles Himmelberg wrote in their report:
in those countries and corners of the financial system where the traditional services of money are inadequately supplied, Bitcoin (and cryptocurrencies more generally) may offer viable alternatives.”
They also point out that should payment become normalised, the volatility and potential high returns associated with cryptocurrencies will be normalised too. In the long-run, they say, “cryptocurrency returns should be equal to (or slightly below) growth in global real output,” i.e. a low single-digit number. In such a situation cryptocurrencies would be a lot less like startup stocks and more like, “low/zero return or hedge-like assets, akin to gold or certain other metals.”
There is the trade-off for the crypto-enthusiast. If you can persuade the world to use cryptocurrencies they’ll become more useful but, like the dollar, perhaps less interesting.
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