By Obi Nwosu, CEO and Co-Founder, Coinfloor
Everyone is trying to combat the coronavirus, but the fiscal and monetary medicine will have long lasting implications. We all have a responsibility to help towards the quick recovery of the economy once the pandemic is over by protecting our personal finances and starting to develop financial immunity.
The announcement that the Federal Reserve is pumping $1.5 trillion into the US economy would normally be the biggest news story on the planet, but these are no ordinary times.
As we teeter on the brink of a coronavirus-caused recession, the financial impact of the pandemic is being treated as a mere footnote to the daily litany of miserable news. And at this time, that’s as it should be. After all, money matters pale into insignificance when compared to a projected death toll in the millions. But we need to talk about what the world looks like when we finally emerge from the grip of this global illness.
With central banks showering the economy with cash, oil prices plummeting and stock markets shedding a third of their value in three weeks, we should not think that monetary value is any more immune to Covid-19 than we are. But for most people the financial impact of coronavirus is extremely abstract: why worry what the Fed and the FTSE are doing when your most immediate priority is stocking up on loo paper?
But the fiscal and monetary policies enacted have enormous and immediate implications for everybody. By helicoptering trillions of dollars onto the market, the US government is instantly inflating the money supply by a quarter, potentially meaning a 25% reduction in the value of the dollars in consumers’ pockets. We may not notice it, but we’ll feel it: in the smaller restaurant portions, the less-regular holidays, the nagging sense of money being short.
And it’s not just the recent actions of the central banks we need to pay attention to. In an unprecedented step, local banks are being permitted to ‘print’ money so that they can stay solvent even if there’s a rush to withdraw. If 2020 weren’t historic enough already, this marks the first recorded move from fractional reserve to “zero reserve” banking.
So, not only is it very likely that the inflation will significantly reduce the value of our money; we also have fewer safe places to store value. The all-encompassing nature of this crisis means that we can no longer turn to traditional investments like real estate or the stock market and expect them to hold their value.
There’s a lot of future-gazing going on at the moment as people try to comprehend what long-term effects this pandemic will have. Coronavirus will, we hear, lead to revolutions in everything from global supply chains to remote working, so it makes sense that we should rethink our relationship with fiat currency and traditional investments. The next few months look pretty grim for us all and we will respond to this infernal infection with the spirit that British people are world famous for. But while we’re rightly worried about our health, it would be irresponsible to ignore the threat to our wealth. With the world retreating into self-isolation, now is the time to plan an effective response: a personal financial containment strategy; one that shields us from the inflation that will persist long after this virus has been vanquished.