The country of El Salvador has decided to make Bitcoin legal tender. This means it can now be used legally alongside the national currency for everyday transactions. This development has sparked a debate on whether Bitcoin is a solution for financial inclusion across poorer countries in the world.
Crypto enthusiasts are arguing that if the mass market can get a hold of Bitcoin, then they will be included in a fairer financial future.
Jemima Kelly from the Financial Times of London, however, points out that 89% of Bitcoin has already been created (mined) and are being held by individuals. In order to be included, El Salvadorans will need to buy Bitcoin at an elevated price from the (very self-interested) people who are touting this as a great idea.
Bloomberg’s Olga Kharif highlights the inequality of Bitcoin wealth even further, citing data that shows that 95% of Bitcoins are owned by just 2% of addresses. This led financial commenter Frances Coppola to write that, “Inequality in Bitcoin is far worse than in any fiat currency, and as it is independent of taxation, there is no means of redistributing it”.
Is gold more inclusive than Bitcoin?
Gold is widely owned by individuals, investors, and governments—meaning it is already inclusive.
Nearly every middle–class family in India has some, and China (the world’s largest producer, which does not allow any of its gold to be exported) aims for 55% of its annual production to be held by its 1.4 billion private citizens.
Global gold jewellery sales (37% of annual demand according to the World Gold Council) mean that tens of millions of people, from all walks of life, own some gold.
Governments reserve the monetary benefits of gold for themselves
Gold is a finite asset that has kept pace with the cost of goods and services in the long run and requires no counterparty to retain its value. Governments decided to keep these significant monetary benefits of gold to themselves when they unplugged gold from everyday money back in 1971.
In other words, it is on the government level that gold has been demonetised (disconnected) from money systems. Developed countries like the US, Japan, and Germany hold vast quantities of gold and use it to make payments between them. According to the World Gold Council, however, even less-developed countries own and trade significant amounts.
The Central Bank of Libya, for example, holds more than 116 tonnes on behalf of its 7 million citizens. Lebanon owns more than 287 tonnes, and Greece owns more than 114 tonnes. Even Haiti owns gold. Unlike Bitcoin, the world’s governments already own and trade in gold.
The exhaustion of the bank debt money system, with debt levels the highest they’ve been in centuries, has many commenters discussing the need for a Great Reset of the world’s money systems. Some are trying to argue that a narrowly owned and controlled computer algorithm (Bitcoin), with almost no connection to the real economy or to government finances, can somehow be the basis for prosperity for the masses.
We think the developers working on the new algorithms have mostly good intentions. However, we would suggest instead that the remonetisation of widely-held, widely-traded, and widely-revered gold—anchored as it already is in the real world of people, nations, and commerce—is a more likely path to a fairer and more sustainable financial future.