South Africa’s banking system and why you need to buy Bitcoin

Bitcoin Cryptocurrency

If you’re like most working people, you get a salary in rands every month and you use this to meet you and your family’s needs and some of your wants. You probably feel some financial pain as prices rise but it’s not too bad because good companies know that prices will rise and increment their employees salaries to at least match the increases in the basket of goods tracked by government through the Consumer Price Index. This is not perfect, but it does allow you not to get left too far behind.

You might have asked yourself at one point or another, wouldn’t it be great if prices went down instead of up for an extended period of time? Your living standards could rise without any need for a salary increment.

So why doesn’t that ever happen? Why do prices only ever go up?

The answer has to do with basic economics and how money is created. Money is actually a product, like everything else in the market, and because of the law of supply and demand, an increase in the money supply means a decrease in its value, since rands are used to denominate the value of every other product and service.

How do we know if the rand is gaining or losing value?

We can measure it by the rand value of everything else we buy: things becoming more expensive in rand terms does not necessarily mean those products or services have become more valuable, just that the rand has become less valuable. Therefore, inflation is happening because the quantity of rands is increasing over time. The Reserve Bank is responsible for this increase and they also measure how much currency is out there through their M0, M1, M2, and M3 measures; the different designations just denote the different forms money can take (i.e savings, deposits, coins, notes, etc.) and all of these different measures show an increase over time as can be seen here, here, here and here.

No wonder the rand value of things keeps going up, but the rand is not unique in this respect.

The problem is the globally accepted system of central banking, which is the dominant system used in most countries. In the United States, it’s the Federal Reserve, the Bank of England in the United Kingdom, and the Reserve Bank here.

This system became popular because it allowed politicians to get access to money without having to raise taxes. Banks also favour this system because it allows them to make profit by charging interest on money they don’t have. The mechanism of how all this happens is an article on it’s own, so I won’t discuss it here; but essentially central banking is favoured by politicians and bankers because it frees them from the limitations imposed on both groups by the previous system of resource-backed money (whether the resource was gold, silver or some other resource) even though it guarantees unending inflation.

The implications of this for savers is that they get worse off over time if the returns on their savings don’t beat the inflation of what they would use the money for it means workers have to keep fighting for an increment otherwise they become worse-off while working just as hard or even harder in some cases. This is all by design. The value you lose is captured by politicians and bankers due to the fact that they are the ones who get to spend new money first. It’s a win-win for them.

The custodians of this system are bankers, and this group understands the importance of not overdoing it, lest the sheep – sorry – the hardworking citizens, revolt and upset their cozy arrangement. That’s why, for example, South African bankers are committed to an inflation target of 3-6%.

In comes the new Public Protector, Busisiwe Mkhwebane.

She recommended that Parliament abandon constitutional currency protection and thus, that the Reserve Bank abandon inflation targeting. This would upset the balance between bankers and politicians. Both groups are in it for their own short-term gain, but bankers realise the importance of maintaining this system while politicians only care about votes. Zimbabwe upset the balance as well, and this resulted in runaway inflation and rapid destruction of wealth.

I’m no fan of either group, and that’s why I’m glad we live in a world where technology is making it increasingly easier to escape this oppressive system.

We now have secure crypto-currencies, including Bitcoin, allowing ordinary people a means of protecting the value they’ve accrued with governments having little power to do anything about it. It has all the advantages of something like gold with the added benefit that all transactions and ownership are all anonymous and opaque to big brother. Get yourself some Bitcoin now, before it’s too late. Just ask a Zimbabwean.