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Trust in the future of our money: A requirement for a functioning market economy

Updated: Jun 14, 2023

Striving for financial freedom, being able to afford something without worries, making investments and investing for the long term. Our financial goals are diverse and individual. But they have one thing in common: they need money. But what does the future of money hold?

Digital payment - Photo by Christiann Koepke

What is money?

We encounter money everywhere in our daily lives, as banknotes and coins, as book money in bank accounts or as digital money on cards and smartphones. What is decisive is not what material or what form money has. Crucial is that it is generally accepted as a means of payment and that we can trust our currency.

Money needs to fulfil three functions: The function as a medium of exchange, the function as a unit of calculation and the function as a store of value.

Money serves primarily as a means of exchange or payment. Exchanging goods for goods is tedious. Without money, long chains of exchange would be necessary until everyone gets what they need, e.g.: Eggs into paper, paper into bread, bread into a water bottle. Money therefore facilitates trading, since every good can be exchanged directly for money.

Above all, money must function as a store of value, i.e. it must retain its value over a longer period of time. This way, you can save it and use it for a purchase at a later date.

The holders of money must be able to trust that they will be able to buy just as much for their money at a later date as they can today. The purchasing power of money must therefore be maintained.

In the past, people tried to maintain the purchasing power of money through the material, such as gold or silver. History teaches us what happens when this principle is deviated from. Today, coins and banknotes have hardly any material value. Book money and digital money are in fact just electronic records. Therefore, nowadays we must be all the more confident that our money retains its value.

Maintaining the value of our money is the legal mandate of central banks!

The Swiss National Bank (SNB) and the other central banks of the Eurosystem work together for price stability. Their mandate is to ensure the value of and thus confidence in the Swiss franc through monetary policy.

How reliably does this system work?

The events of the last ten years raise doubts. With their expansionary monetary and negative interest rate policies, they are endangering the value of money and thus confidence in the future stability of the international financial system.

Political interests and the increasing concentration of power are progressively overriding important market mechanisms and thus endangering the stability of the financial system, currencies, purchasing power and thus our prosperity. What is the alternative?

Alternative means of payment: digital assets on the rise

The rule is: don't put all your eggs in the same basket!

In addition to official money, the currencies of countries, there are also private arrangements that can serve as a medium of exchange, unit of account and store of value. This includes, for example, digital assets (crypto-assets) such as Bitcoin or Ethereum.

These markets are still young, but they are becoming increasingly important. The possibilities of exchanging Bitcoin and Co. for other currencies is expanding and thus fulfilling money functions better and better. Digital assets are still subject to strong price fluctuations today, but they reflect supply and demand in a free competition and without a political agenda. As crypto and blockchain regulation improves and international creditor protection legislation evolves, confidence in this new decentralised technology and in digital assets will continue to grow. For example, since summer 2017, it has been possible in Switzerland to set up limited companies and limited liability companies with the most important cryptocurrencies - first and foremost Bitcoin. The formation of corporations has since been recognised in practice, especially with Bitcoin and Ether. Cryptocurrencies can be used in application of the provisions on contributions in kind pursuant to Art. 628 et seq. OR, to contribute to the share capital or the ordinary shares.

There are currently about 19 million Bitcoin in circulation with a market capitalisation of about 507 billion (as of 22 March 2023). Its number is limited to a maximum of 21 million Bitcoin, which means that the currency follows the principle of the former gold standard. Accordingly, the currency is designed to maintain its value in the future. Ethereum, on the other hand, has 122 million ethers in circulation with a market capitalisation of around 205 billion euros (as of 22 March 2023). Ethereum is the second-largest blockchain network behind Bitcoin. In addition to payment transactions, Ethereum enables the execution of automated contracts (smart contracts). Smart contracts are contracts that are automatically executed as programmes as soon as an Ether value specified in the contract has been transferred. This does not require a manual check of the incoming payment, because the transfer directly triggers the payment stipulated in the programme, without a bank - in a decentralised manner. Is this the future of payment transactions?

Cointract is committed to this development and strives to transfer classic business models to the blockchain and bring them to their customers via their app. Have a chat and grow with us.

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