“At the end of the day, when you look at all these currencies around the world, they have all devalued – throughout history all currencies have devalued”. That’s how Mark Mobius, former executive chairman of the Templeton Emerging Markets Group and now a founding partner of Mobius Capital Partners, opened our conversation. The author of many books, his latest (published in 2020) has a timely title – The Inflation Myth and the Wonderful World of Deflation. I spoke to him in his Hong Kong office (via Zoom, of course) to find out what he thinks of gold today and how he sees the rise of cryptocurrencies.
“The good news is that because of technology the cost of goods and services is going down. Inflation measures don’t really tell us that because they refer to baskets of goods and services which constantly change, so you can’t really compare one period to another. I still believe a gold standard would make a lot of sense because it would prevent governments from over-printing [fiat currency] and devaluing their currencies”.
We stray onto the topic of Central Bank Digital Currencies, about which Mark holds strong opinions. He says: “The entire financial world is being digitised. What is this digitisation? It’s just another way of communicating the value of money from one place in the world to another. So if a central bank says now ‘we’re going to digitise US dollars’, that’s entirely different from Bitcoin for example, which is a created ‘currency’ that has no basis in a government or any foundation. People are getting confused over Blockchain. Blockchain is a very simple mechanism for ensuring safety in transactions. A lot of people think this is a solution to the problem of transferring money – no, this is not a solution because Blockchain can be hacked”.
As for gold, Mobius says that “gold goes through cycles. Sometimes it loses value against fiat currencies but going forward it will continue to rise simply because those currencies continue to be devalued. There’s a limit to the amount of gold available around the world. So I think gold will come back and surge”.
Money is power said the 7th US President Andrew Jackson. Mobius agrees and feels “that’s why these cryptocurrencies will not be available as real money, in other words as money which you could spend. You can see that already – the US government is starting to crack down on the various cryptocurrency exchanges. I think governments will increasingly crack down on these cryptocurrencies because it threatens the very power of governments, which is the ability to create money”.
Elon Musk’s decision not to allow Bitcoins to buy his Tesla cars was couched in terms of “the rapidly increasing use of fossil fuels for bitcoin mining” tweeted Musk; but his abrupt volte-face on Bitcoin – on 24 March he said people could buy a Tesla using Bitcoin – nevertheless shook the Bitcoin price and rocked its claim to currency ‘status’. In the UK, the Bank of England’s deputy governor, has just said that “it looks probable in this country that if we want to retain public money capable of general use, and available to all citizens, the state will need to issue, public digital money”. In other words, if governments want to retain control over money – if they want to keep power – they will soon need to provide digitised fiat currency.
Some countries are already rapidly rolling out their own central bank digital currencies, including China. Might the Chinese Renmimbi be about to topple the US dollar from its international reserve currency status? Mobius thinks “not yet. It will take a while. The big challenge that the Chinese have is that they still want to control the exchange rate against other currencies. The day they give up on that is when the Renmimbi could become a truly global currency. The effort to create a digitised Renmimbi makes a lot of sense for the Chinese because the big problem they have now is they have to work through the US system, in most cases to trade, the Swift system, which monitors and enables the transfer of money. The degree to which they can create a digitised currency which does not require going through this system could be an incredible boon for the Renmimbi”.
Mobius is dismissive of the latest fashion in macro-economics, the so-called Modern Monetary Theory, which argues that it doesn’t matter how much governments print and spend currency. Debt is not a problem, according to this. Balancing budgets is for the birds – just create more money. “This will just devalue currencies further, there’s no doubt about that”.
Our chat draws to an end but we can’t part without a consideration of the big question of the day – are we in an inflationary or deflationary environment? Mobius considers “we are in a deflationary environment. A lot of economists hate deflation, they think it’s very bad, because they think you have to have inflation to create growth, but in my latest book I point out that we have had growth even during this deflationary period. As for gold, I don’t have a clue what is going to happen to the gold price in the short-term, but in the long-term it’s just going up”.
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