Bitcoin as a profiteer of the central banks in the dilemma of the „deflationary“ technology?

Diginex CEO Richard Byworth believes central banks‘ inflation targets are wrong and Bitcoin Evolution could benefit.

Over the years, technology has developed rapidly, which has made people’s lives more efficient and cheaper at the same time. However, technological progress is only making itself felt to a limited extent in the wallets of the population, which is due to the wrongly set inflation targets of the central banks, as Diginex CEO Richard Byworth explains.

Bitcoin, in turn, could benefit from this plight

„Technology has a strong deflationary effect on many products and services,“ As Byworth first stated in an interview with Cointelegraph. The CEO of Diginex is active in the tech industry with his company, working on solutions for crypto and blockchain.

Byworth remembers that twenty years ago music albums on CD were still sold for 25-30 D-Marks. Nowadays, music lovers can buy their favorite albums on iTunes within a few seconds for just under 10 euros. That’s less than half the price even if inflation is factored in.

The driving reason for this development is that technological advances have drastically reduced production costs in the music industry

In addition, digital distribution makes it possible to dispense with physical data carriers such as records, CDs or cassettes, which reduces the costs even more.

Such deflationary effects of technology exist in many areas. Food, real estate and many other products and services have changed drastically as a result of development progress, which has also been accompanied by falling costs.

Then, following the 2008 financial crisis, Byworth entered the crypto industry to hedge his wealth against the depreciation of inflation. Such a devaluation threatens again in 2020, which is primarily due to the political and monetary policy measures in the wake of the Corona crisis. Many governments around the world are holding out the prospect of massive aid packages, while the central banks cut interest rates and “ print money ”. This is happening to an extent that is now scary, as Byworth says.

“If you look at the development of the money supply over the past 40 years, then this slope is pretty much the same until 2008. After that it goes up significantly and becomes steeper and steeper until it shoots straight up in April of this year. In just four months this corresponds to a growth of 25% of what we have seen over 40 years. „

When considering the inflation target to stabilize the economy, the central banks also use the so-called consumer price index (CPI) as a guide. This index shows how much the average person has to pay for a shopping cart of various common goods.

However, Byworth does not consider the CPI to be an orientation towards setting the inflation target, since a devaluation of the respective national currency does not necessarily have to be behind falling prices, as the above example of music CDs shows. Some products and services become cheaper through innovation and increased efficiency alone. The price reduction of these goods occurs in a “natural” way, while the central bank assumes that inflation is responsible and counteracts it out of false ambition.

„Having a target for the CPI is total bullshit,“ as Byworth therefore says. And further: „You will never be able to raise the CPI significantly again, otherwise you run the risk of losing total control over the money.“

„The central banks are basically fighting to hit the 2% mark for a basket of goods that is inherently very deflationary.“

Due to the corona crisis, the prices for many goods and services that are naturally scarce rose drastically in 2020. This is in turn due to the monetary policy of the central banks, which devalues national currencies with their strategy, as Byworth has already explained.

However, rising inflation has an undreamt-of benefit for governments because if „money is worthless, debt is worthless,“ said Byworth.