[bit.do/azfom] Radio Islam Interview: Prof Asad Zaman Tuesday: 15 Oct 2019 – Radio Islam, South Africa. Q is for Question, and E is for Explanation. 12m Video is followed by a detailed writeup:
Q: What is a crypto-currency? 0:20-1:50
Technical Details are not so important. Roughly speaking, one looks for certain numbers with some complicated properties. These numbers are extremely large and can only be found by running complex programs on large computers, devoting lots of computer power to searching for these numbers. The process is called “mining” because hunting for a number with the required properties is like hunting for gold. But the real issues lie elsewhere.
Q: How have Bitcoins changed the world? 1:50 – 2:30
Until now, there has been no impact on the global economy. It is just too small to make a difference. But there is a powerful theoretical impact of the demonstration that alternative monetary systems can exist.
Q: Facebook is planning to introduce Libra as a new currency. What is likely impact of this? 2:30 – 2:45
This is very likely to have a major impact. The social media are very powerful, and currencies are built on trust.
Q: What should our stance be on these developments? Are they helpful or harmful? 2:45 – 3:32
This is the key question. To understand this, it is useful to go back to the gold standard. Consider a thought experiment. Suppose we decide to go back to gold standard. What would the impact of this decision be? It should be obvious that those in possession of large quantities of gold would be beneficiaries. Those without gold would be the losers.
E: Libra: Compared with OIL-Based Currency 3:32-4:00
The defining characteristic of currency is that it can be used to purchase anything. All other commodities must be sold for currency and THEN the currency can be used for other purchase. For example, suppose we introduce an OIL-Based currency. Then those with large reserves of oil will be able to purchase the world. CURRENTLY, oil owners must first sell oil for dollars, and THEN use dollars of purchases. This is VERY DIFFERENT – one must understand this difference. Superficially, it seems that whether you have wealth in paper currency form, or in commodity oil form, it is the same wealth. But this is not true.
E: Dominance of Dollars: Bretton Woods 1944 to Nixon Shock 1971 (4:00-5:14)
To understand nature of currency, one must follow the money: Who has existing stocks, and even more important, Who can CREATE money? Current financial system is not understood by most. Bretton-Woods replaced gold standard by Dollar standard with understanding that dollars would be backed by gold. This was called the gold-exchange standard, because in theory, dollars could be exchanged for gold. In fact, currencies are only loosely backed by gold. The Vietnam War caused massive overprinting of dollars. In 1971, Nixon announced that he would no longer redeem dollars for gold. (See previous interview – History of Money)
E: Post-Nixon Shock – Dollar-Based Money 5:14 – 5:45
At that point, it was necessary to renegotiate the basis of international trade. However, this was never done. Many efforts were made, but they were all blocked by powerful USA, which benefits immensely from current system. They get to print dollars, which are now equivalent of gold. Everyone else must export to earn dollars. The nature of global trade has been enormously affected by this artificial system which puts dollar at the center of global trade. For more details, see “The Petro-Dollar Explained“.
Q: What is the Impact of Dollar-based money on Global Trading System 5:45 to 6:52
It is worth understanding this clearly. In any natural system of global trade, everyone would like to BALANCE imports and exports – buy and sell same value of commodities. But current system: everyone wants to increase exports. WHY? Exports of one country are imports of another so It is impossible for everyone to increase exports. In this asymmetric system, US can just print dollars and export paper, and buy real goods as imports. Everyone else must increase exports in order to earn dollars, not just to get imports, but also to provide backing for their own currencies. See “International Financial Architecture Part II“.
E: Necessity for a new system of international trade 6:52 – 7:45
Current system gives huge advantage and power to the US – they can print dollars at will, and it is considered equal to gold by the rest of the world. This is obviously unfair to all other countries, who must sell real resources to earn dollars. There is now widespread realization of the problem. Also, shifts in the balance of power currently taking place make it possible to create alternatives which are not centered on dollars. See “A Lopsided Monetary System“.
Q: Who will benefit from crypto-currencies ? 7:45 – 8:40
Whoever has the ability to create this currency will derive benefits. This development is not useful for Islamic World. We do not have the computers and the specialized math and computer skills required to generate and create cryptocurrencies. Others who have these skills, computer and computing power, will benefit enormously from being able to create money. Instead of saying yes/no to whatever proposals arise, we have to pro-active; introduce our own proposals for money, based on our own resources.
E: Money and War 8:40 to 9:40
The power to create money is immensely valuable. For one, it creates the power to conduct wars. Modern warfare is very expensive, and being able to finance it by just printing money makes it much easier. When you can finance wars against anyone, you acquire a lot of power on the world stage. For more details, see “The Great Transformation of Economic Theory”
Q: The Most Important Question: Who is authorized to CREATE Money? 9:40 to 10:40
For any monetary system (new or old) the most important issue is WHO gets to create money? We discuss all sorts of technical issues, but this main question is rarely asked. This question is of extreme importance even for our ordinary everyday money. Every year, billions of rupees come into existence – WHO creates these, and who benefits from this creation. To understand money, we must understand the answer to this question
E: Concluding Remarks: The Need for Pro-Active Thinking 10:40 to 11:20
We need to do out-of-the-box thinking, like those who created crypto-currencies did. Financial systems are not NATURAL and they are not NEUTRAL. Rather, they are designed (artificially constructed) and They are designed for the benefit of SOMEONE ELSE (not us). So instead of looking at proposals floated by others for their own benefits (like the Facebook Libra), we have to think for ourselves, and design our own systems for fair trade.
Links to Previous Radio Islam Interviews:
Understanding Global Economics and the Islamic Alternative – bit.do/azint
History of Money – bit.do/azhom