We need new digital currencies to shake up the status quo

 
Allister Heath

THERE is much to like about what Bitcoin stands for: free-market money, safe from the grabbing hands of a state that cannot wait to debase, devalue and decimate whatever currency it gets its hands on, destroying hard-working savers.

For years now, techies of a libertarian bent have been doing their best to devise a workable digital currency that is genuinely distinct from existing fiat (or paper) currencies, and that is separate from the mainstream banking and financial infrastructure.

Bitcoin is the most successful digital currency yet. It’s a replacement for gold for a generation of digital bugs, with an inbuilt mechanism that supposedly limits its supply, thus preventing inflation.

But while lots of this is appealing, Bitcoin itself isn’t my cup of tea. The frenzy surrounding it at the moment has sent its exchange rate rocketing. Valuations have gone completely bonkers, with the Bitcoin doubling in the last couple of weeks. A lot of people stand to lose a lot of money, which could discredit the whole idea. Bitcoin could also be abused by criminals, which could also lead to its downfall as an unregulated venture.

But it is encouraging that governments no longer monopolise money. If the reach and influence of currencies such as Bitcoin continue to grow, the internet may yet eventually achieve what F.A. Hayek, the Nobel prize winning economist, called for many decades ago: competing currencies that finally force monetary authorities to get their act together.

HELPING GENERATION RENT

It is excellent news that the Prudential is buying over 500 residential properties – house as well as flats – from Berkeley, the housebuilder. This is now the second major deal where a large institutional investor has snapped up homes and is planning to let them out. Britain needs to move away from a rental model exclusively dominated by amateur landlords operating cottage industries to one where large, modern, professionally managed institutional property firms offer many thousands of properties for tenants. That is the future for Britain’s generation rent and one way in which the crippling mismatch between demand and supply will be partially rectified.

LESS CASH THAN MEETS THE EYE

Regular readers may remember that I discussed the corporate sector’s vast cash piles in this space yesterday, and concluded that we should not expect firms to go on a spending spree any time soon. My point has been strengthened further by the Association of Corporate Treasurers, which tells me that it believes the official figures overstate the magnitude of UK Plc’s stash – not just by a bit, but by a very large amount.

It points to research by Standard & Poor’s that implies that the cash pile is perhaps just one third of the official estimate of £671bn. Separate Reuters’ Eikon data suggests a number getting towards £200bn or so.

A 15 per cent of GDP number (rather than the 46 per cent currently estimated) is the kind of level the US used to report before its own estimated cash pile was dramatically revised down by number-crunchers last year. It seems fiendishly hard to work out how much cash non-financial firms actually have – apparently, in the UK’s case, money held by hedge funds and private equity may have been wrongly classified. The good news is that the Office for National Statistics is investigating the numbers, and will report back in the summer. Confirmation that the actual pile is smaller than currently estimated would be another blow for those hoping for a rebound in corporate investment.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath