For the last few days, the markets have been really on a tear, isn’t it?
Indeed. I guess we are seeing a reflation ethos setting in the markets with better news about vaccinations, particularly in the US and the UK. I hope that over time, things will improve in emerging markets and in continental Europe as well and that generally makes some sense despite the concerns about the new variants in South Africa, UK and Brazil.
The financial backdrop here is a gradual steepening of the US yield curve, a gradually weakening dollar and inflation concerns out there but actual inflation data as of today is well under control. So it speaks to this idea of gradual sort of normalisation, staggered across the world by sector and therefore nothing terribly disruptive as vaccination proceeds.
I want to ask you about the inflows that we are seeing as far as cryptocurrencies and Bitcoin goes. In India we got our first unicorn from the crypto space. We can thank Elon Musk for the last rally but are you going to start making portfolio allocations for cryptocurrencies?
Cryptocurrency is not the central issue. The underlying technology and instantaneous payments and settlements is the main technological and economic change that matters here. The idea of cryptocurrencies replacing state backed fiat currencies still seems too far. It is more likely that bankable currencies will be legal tenders. People’s Bank of China, the Federal Reserve Bank of the US and many others are trying to make a trail there and that is going to continue.
Cryptocurrency is an interesting idea and may be used as a bit of a hedge, not unlike gold, but I would not overstate it. Gold is quite important and maybe digital currencies, cryptocurrencies have a place in portfolios as well. The more cryptocurrencies and gold are used as hedge against inflation or deflation or against fiat currencies, the more like financial assets they are likely to behave. When it comes to their use as a currency, the problem with what we have seen over a period of many decades and particularly in the last decade is that when you have a severe economic or financial shock, you really need the safety and the liquidity and the longevity of the state to back the currency and to back the assets that are used as bank reserves or as international reserves for safety and liquidity. I do not think cryptocurrency works for that. Of course, it can go up and down like other financial assets and may be that is interesting from a speculative point of view or portfolio allocation point of view.