Why does Spain have such low wages?

Despite having the highest average salary in history, the average Spanish wage is almost 450 euros lower than the EU average and continues to have one of the highest rates of job insecurity in Europe.

 

Inflation has eaten into wage increases and reduced citizens’ purchasing power to an extent not seen for thirteen years. This economic mess is not unique to Spain, but it is exacerbated by Spain’s low wage levels, an endemic problem that has been dragging on for decades.

Although the latest unprecedented rise in the minimum wage has reduced the gap, both the average gross wage (1,126 euros) and the Spanish minimum wage (1,751 euros) are among the lowest in the European Union, 20.2% lower than its European partners.

Within the Western bloc, with average wages above 2,500 euros per month, Spain is at the bottom, followed by Portugal (1,106 euros) and Greece (1,034 euros). There are wide differences with countries such as France (2,446 euros), Belgium (2,830 euros), the Netherlands (2,883 euros) and Germany (3,303 euros). Spain only does well when compared with the less developed countries of Eastern Europe.

 

Minimum Wage EU

Average Salary EU

Low productivity and high unemployment

The precariousness of employment for a large part of the population in the face of the business world is an endemic historical evil in Spain. The insecurity created by the fear of unemployment makes workers accept low wages and working conditions that would be unthinkable in other developed countries.

When, after the sanitary crisis, the media spoke of “The Great Resignation“, referring to the fact that in many Western countries many employees were rethinking their priorities, giving up their usual jobs to get better ones, from here, with more than three million unemployed and salaries equivalent to a Western European China, we looked at it as if they were talking about another planet.

The high number of part-time and temporary full-time workers means that many employees do not receive proper training and do not maintain a professional career, which negatively affects productivity. This is exacerbated by the heavy weight of the service sector in the Spanish economy, which has little added value, low wages and is prone to outsourcing labour activity. The composition of our productive fabric has suffered a gradual deterioration in sectors that historically had better salaries.

Added to this is another trend that is prevalent in Catalonia and in Spain, but which is not observed in the developed European bloc: the enormous wage gap between younger and older employees. The low salaries received by the youngest employees, who will have to sustain the economy in the future, jeopardise the economic support of the country and a solidarity-based pension system.

 

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With more than 4,000 entities, community banking remains central  to financing the productive US economy and continues to be an example of good practices. Its roots in the local communities where it operates continue to give it a fundamental competitive advantage over large banks.

 

It is estimated that in the United States, community banks are responsible for 60% of small business lending, over 80% of agricultural lending and 43% of Internet lending. 

These banks tend to operate in a small geographic area and, unlike the large financial institutions, remain focused on the core functions of banking: deposit-taking and the provision of mortgages, loans and lines of credit to businesses. 

Being smaller, community banks cannot offer the product range or branch networks of large banks. On the other hand, because of their deep knowledge of the local community, they are able to lend to businesses and individuals who sometimes do not meet the impersonal rating criteria of the big banks. In addition, community banks also tend to offer better interest rates on deposits than the big banks, as a study by DepositAccounts shows. 

 

Close and agile banking

It is clear that the close relationship of community bank employees with customers is a competitive advantage for community banks. Jamie Dimon, CEO of JPMorgan Chase, himself acknowledged the advantage of the proximity of these small banks to the communities they serve, since “their senior corporate officers live in the same neighbourhoods as their customers”. As a result, according to the head of the largest bank in the United States, “they are able to forge deep and lasting relationships” and bring “a deep understanding of the local economy and culture”, which allows them to “offer specialised, high-level banking services”.

Another advantage of community banking is agility. According to the Independent Community Bankers of America, community banks tend to make lending decisions faster than large regional or national banks. This is not surprising considering that decisions are made locally in the case of the former, while larger institutions often have to convene approval committees whose members are far away and completely unfamiliar with the applicants.

These factors result in higher customer satisfaction for community banking. According to a survey, 76 % of small businesses that received a loan from these institutions were satisfied with their overall experience, while this percentage drops to 62 % for large banks.

 

Deeply rooted in the territory

The fact that community banks are rooted in their environment means that they reinvest a large part of their profits in the community, contributing to the growth of small businesses and the creation of local jobs. Deep down, they realise that they only thrive when their customers and communities thrive.

Unlike large financial institutions, the managers of community banks do not have to be guided by the interests of large shareholders thousands of miles away. And this makes a fundamental difference. As the US Federal Deposit Insurance Corporation (FDIC) points out, it allows community banks to “weigh the interests of shareholders, customers, employees and the local community differently than would a larger institution with closer ties to the capital markets”.

 

A forced decline?

Regulatory changes favourable to large banks and mergers have significantly reduced the number of community banks in recent decades. In 2021, there were 4,490 community banks insured by the FDIC, down from 7,442 in 2008 and 14,323 at the end of 1988. 

Despite this decline, US community banking remains an example of good practice in the financing of the productive economy. As Ben Bernanke, then chairman of the US Federal Reserve, acknowledged a few years ago, “community banks play a critical role in sustaining the vitality and growth of their local economies”. 

It should not be forgotten that the proven ability of community banks to raise short-term deposits to finance longer-term investments is essential in any economy. And, as an article by the Fundación de las Cajas de Ahorros (Funcas) points out, community banks can continue to be “disruptors of larger banks, either as allies of fintech companies or through their own innovations”. 

 

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The two great world powers, China and the United States, know that they will have to face an imminent global debt crisis, but each has decided to take opposite paths. While Beijing needs to continue stimulating the economy of emerging countries, Washington believes that interest rates must be raised to control inflation. Behind these two divergent strategies, there are strong geopolitical motives. At 11Onze, we take a closer look.

 

Behind the scenes of the economy, there are always political motives that we are often unaware of. If Xi Jinping and Joe Biden want economic conditions to stabilize, it is not only to safeguard the economy of their respective countries, but also because both of them will have to face a re-evaluation of their political leadership in the autumn of 2022. To achieve this, they know that important interest rate decisions must be made. Yet each is approaching this challenge from very different perspectives and strategies.

While the United States (US), like the UK and the European Union, is concerned about an economy under pressure from high inflation and supply constraints, which has pushed up prices and sent the purchasing power of citizens plummeting; China is worried that a rise in interest rates will hurt the sovereign debt of the emerging economies with which it has trade deals —and there are many of them, as we shall see— which could trigger an unprecedented global crisis. Which of the two hegemonic economies will emerge as the winner in this contest?

 

US: controlling inflation to withstand the onslaught

This is how, at one end of the planet, US President Joe Biden will have to face the elections to renew Congress in November. If this contest does not favor the Democrats, he will lose the ability to manage the inflation crisis, in a context in which his popularity continues to fall. For this reason, Biden is convinced that public opinion must be satisfied by attacking the disproportionate increase in the prices of basic consumer products due to inflation.

In this sense, and in line with classic economic movements, he considers it an essential strategy to raise interest rates. And this task, it is clear, falls to the US Federal Reserve. In fact, leading economic analysts are certain that the Fed wants to start raising interest rates in March.

Moreover, the US is not alone in tackling this runaway rise in inflation. The decision is in line with what the Bank of England wants to do. And, likewise, it remains to be seen what decision the European Central Bank will finally take, which has decided, for the moment, to leave interest rates at 0%. Despite this, it is under increasing pressure to raise them to at least 0.5% to show that the eurozone also has enough determination.

But the balances in the economy are precarious: if action is taken to lower inflation at a time when most countries, especially in emerging markets, have off-limit sovereign debt, this could lead to a debt crisis of biblical proportions. As we have explained in 11Onze, analysts such as Bill Dudley in ‘Bloomberg’ warn that as the Federal Reserve begins to tighten monetary policy, “funding costs will rise and less credit will be available.” This is because interest rates reduce the incentive for investors to seek the kind of returns offered by these emerging countries.

And all this has to happen at the same time as the moratorium by the International Monetary Fund (IMF) and the World Bank agreed with the G-20 countries during the pandemic comes to an end. Dudley proposes that the IMF leave the aid tap open, so that emerging countries can assume their sovereign debt and no longer continue to be subjugated to private lenders and large lenders such as China.

China: the risks of colonizing the emerging market

On the other side of the world, Xi Jinping needs the US Federal Reserve and the European Central Bank to continue their soft monetary policy, which has stimulated the world economy throughout the pandemic. And he needs it, first, because he wants to get to the fall National People’s Congress through the big door, since it is the political event that has to endorse his leadership for a third five-year term. And, second, because the Asian giant’s colonizing economy is faltering.

“If the major economies slow down their trajectory or make a U-turn in their monetary policies, it will have serious negative repercussions and challenge global economic and financial stability. Emerging countries will bear the brunt,” the Chinese leader said at the last Davos conference.

In fact, if China’s GDP has shown signs of recovery after the pandemic, it has only been thanks to exports, which have increased by 30% throughout 2021. In contrast, wholesale and retail sales within the same country do not exceed 1.7% and 3.9% respectively, compared to 2020, the year in which the Asian leader’s growth came to a screeching halt due to the effects of Covid-19.

As things stand, it is much more in China’s interest to continue exporting smoothly than to control inflation. And it has good reason to want to do so. According to a report by the College of William & Mary, China has literally colonized the emerging market in recent years. As the chart above shows, nearly 70 developing countries have incurred debts to China in excess of 5% of their GDP.

If a combined action by the US Federal Reserve, the European Central Bank and the Bank of England raises interest rates, this threatens the strength of these emerging economies, which will have serious problems repaying sovereign debt, as Dudley explains. In this context, the main loser is China, which has granted many of these debts.

 

A chain crisis of unknown dimensions

Experts warn that the first effects of this chain debt crisis will drag down the entire Chinese real estate sector, which has already shown good signs of tension in recent months with the bankruptcy of the country’s second largest real estate group, Evergrande, due to dubious financial policies that have given wings to sovereign debt – and now put it at risk.

As the World Bank predicts, “the risks and potential costs of contagion from a sharp deleveraging of large firms, especially in the real estate sector —with combined onshore and offshore liabilities amounting to almost 30 percent of GDP and strong linkages to various parts of the economy— far exceed any potential damage from the collapse of a typical large industrial company.” 

Be that as it may, and provided that the monetary policy decisions of the capitalist West are confirmed, complicated months lie ahead, both for the emerging economies and for the Asian giant —and, therefore, for the entire planet—. If the most pessimistic predictions come true, we will have to start taking measures to face this debt crisis that already seems inevitable.

 

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Now that Black Friday and Christmas are coming, we’d better be prepared to avoid falling into the so-called oniomania.

 

How many times have you left a shop with a trolley full of things you don’t need? According to the Associació Centre Català per les Addiccions Socials (ACENCAS), impulse shopping has increased by 20% during the pandemic. Impulse purchases are those that are made spontaneously and are the antithesis of routine shopping. Supermarket and department store design, marketing strategies and advertising have excelled in the art of trapping us into buying, but experts warn that these impulsive purchases can cause serious problems for the household economy.

When this impulse becomes an obsession, then we speak of oniomania or compulsive shopping, a term first used by German psychiatrist Emil Kraepelin, which describes the irrepressible desire to buy. Compulsive buying generates, as psychiatrists point out, an immediate satisfaction that fills us with meaning and with which we manage to erase problems temporarily. For this reason, people who buy compulsively to the point where they consider themselves to have a disorder often hide the objects they have bought in shame and become irascible or depressed. They compensate for this feeling of guilt with a new purchase. It is a fish that bites its own tail.

  1. Never buy when hungry. We have already pointed out a few lines above: supermarkets and department stores are organised with millimetric care to awaken all the baser instincts. They classify the products, establish relationships between brands, leave enough space for you to observe the shelves, illuminate the space so that you can focus your gaze in a specific direction, place less sought-after products near the checkouts or leave the offers on display, among many other tricks. Therefore, a good tip when you go shopping is to do it with an empty stomach. When you are hungry, it is easier to give in to the temptation to buy something you want.
  2. Take your shopping list from home. Another way to avoid last-minute temptations is to make a list at home of what you need. With the list in hand, you can be sure that you don’t overbuy and, if you do, you will be very conscious of it.
  3. Avoid 2-for-1 offers. Avoid as much as possible all those offers that only make you go home with extra products. Why do you need three toothbrushes if you live alone? If you need one shirt, why buy two? It’s important not to get carried away with the feeling that buying bargains saves you money, because it’s not true.
  4. If impulse buying becomes compulsive, ask your doctor. If shopping causes you discomfort, low self-esteem, emotional emptiness or fear, but you can’t avoid it, maybe it’s time to talk to a doctor. Psychotherapy is necessary to overcome this disorder, without which compulsive shopping can persist for a lifetime and even lead to the financial ruin of the person affected and their immediate environment.

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The lack of rain leads to a reduction in the water supply in many municipalities in our territory. These restrictions directly affect agriculture and, consequently, livestock farming. The increase in production costs and the loss of crops due to lack of water have a significant impact on the rise in inflation. Sílvia Garriga, 11Onze agent, explains it to us.

 

Global warming caused by human activity has exacerbated drought, an endemic problem in Mediterranean countries. A fact that is evident in the state of water reserves in aquifers and reservoirs in our territory. Catalonia has accumulated months of drought and water reserves have fallen to 33%, almost half of last year’s reserves.

Rainfall and water reserves are vital for agricultural production and have a direct impact on the prices we pay for products in the supermarket. This link between drought and inflation is not always obvious. As Garriga points out, “many of us have not been aware of the drought-induced increases in production costs“.

In addition to the rising costs of electricity, fuel, fertilisers, and animal feed, there is the loss of crops due to the lack of water, which leaves the agricultural sector with no profit margin. “If crops are lost due to the lack of water, demand does not decrease, and products have to be imported, which will end up being more expensive for the consumer,” explains Garriga.

More than 500 municipalities with water restrictions

Catalonia is suffering the worst drought since 2008 when water reserves in reservoirs and internal basins fell by up to 20%. Faced with this situation, the Catalan Water Agency (ACA) has been forced to decree a drought alert in several areas of the territory, approving limitations on water consumption in more than 500 municipalities.

In addition to the 301 that were already on alert, more than 100 municipalities in the regions of Alt Penedès, Anoia, Baix Llobregat, Barcelonès, Garraf, Maresme, Selva, Vallès Oriental and Vallès Occidental, which supply the Ter-Llobregat basin, and also those affected by the area of influence of the Darnius-Boadella reservoir, were added on Tuesday.

Although the situation is not expected to worsen so much as to reach exceptionality, at which point reserves fall below 25%, everything will depend on the rainfall that may fall during the remainder of the autumn. The long-term weather forecast maps suggest that, from November to January, there will be more rain than normal on the coast and in the counties of Girona, but less rain than usual in the western Pyrenees.

 

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Some concepts are fundamental to understand why we are on the brink of a recession, where the new world economic order is heading and who will be the major players. 

 

The Great Reset is the name of an initiative of the World Economic Forum that sought to rethink the capitalist economic model once the ravages of the pandemic had been overcome. The reality is that the health crisis has been compounded by a debt crisis and an inflationary crisis that have brought us to the brink of recession. 

In the current context, the “great reset of capitalism” called for by this international body is more necessary than ever. We review some key concepts to understand how we have reached a situation close to collapse and what factors will condition the economy’s near future. 

 

Asia

The axis of the global economy is shifting from Europe and the United States to Asia. According to a study  by the consulting firm McKinsey, by 2040 Asia will account for more than half of the world’s gross domestic product and 40% of consumption. Europe’s loss of prominence is evident and the IMF predicts that at least half of the eurozone countries will enter recession in the coming months.

 

Climate change

Global warming has forced us to move away from the idea of unlimited growth at the expense of depleting natural resources and has given way to the idea of the circular economy, with opportunities in the field of the “green” economy. As COP27 has shown, it now remains to be seen to what extent industrialised countries will bear the economic cost of the climate change they have generated and what measures they are prepared to take to slow down warming in the context of economic crisis.

 

Corporate power 

Large multinationals have growing power in the face of declining state influence. Many of these corporations oversee huge supply chains, sell their products around the world and have revenues exceeding those of many governments. In fact, if it were a country, Walmart would rank tenth in terms of revenue. Globalisation has reversed the balance of power and in many cases large corporations are allowed to avoid paying taxes with impunity.

 

Decentralisation

New technologies are enabling the emergence of products and services beyond the control of states and large corporations. As James Sène, chairman of 11Onze, pointed out in a session at Fintech Talks, we are facing a “transition from the old model, totally dominated by a few, to a new model that reaches more people and is decentralised”. Decentralisation of money creation, for example, has been one of the great pillars of cryptocurrencies.

 

Digital currencies

Faced with the advance of cryptocurrencies, which propose a totally decentralised monetary model, states are working against the clock to develop digital currencies controlled by central banks (CBDCs) in order to maintain a centralised financial system. In China, more than 260 million people have already used the digital yuan (e-CNY). In Europe, the European Commission expects the regulation on the digital euro to be ready by the beginning of 2023 and the digital currency to be operational by 2025. The initial aim is that the digital euro, managed and supervised by the European Central Bank, will not replace cash, but complement it.

 

Inequality

Data from the World Inequality Report 2022 show that since the mid-1990s, the richest 10 % of the world’s population has accumulated 76 % of the wealth generated in the world. In fact, 38% was concentrated in the hands of the top 1% of the world’s population. And the poorest half of the population has had to make do with the crumbs: barely 2% of the wealth generated during these last decades. Unfortunately, this gap between the super-rich and ordinary mortals has only widened during the pandemic. And experts agree that this growing inequality is a brake on global economic development.

 

Interest rates

After 11 years without an increase, the European Central Bank began raising interest rates in Europe in July. For the time being, they have already reached 2 % and the forecast is that they will continue to rise in the coming months to cool the economy even more and curb inflation. The ECB has aligned itself with the majority of the world’s central banks, which are also raising their interest rates to combat rising prices. This measure will directly impact the pockets of many citizens, as mortgage and variable-rate loans will become increasingly expensive.

 

Printing fiat currency

It is estimated that the total amount of money in circulation worldwide, including banknotes, coins, cheques and promissory notes, exceeds 60 trillion euros. The problem is that a considerable part of these banknotes have been put into circulation in recent years. For example, in 2020 alone, the US money supply increased by 24%. Most central banks have been printing money to cope with galloping public debt. And this increase in fiat currency has been mainly responsible for the current inflation.

 

Public debt

The world’s public debt has soared in recent years and is strangling economic growth. Although the limit set by the Maastricht Treaty for EU member states is 60 % of their GDP, the eurozone countries as a whole have been above 100 % for more than a year now, according to Eurostat data. The situation outside Europe is no better, with the International Monetary Fund estimating that, by the end of 2021, global public debt also represented 100 % of world GDP. Moreover, debt levels could worsen if the crisis deepens.

 

Stagflation

Since March 2021, prices have risen sharply and almost uninterruptedly. Inflation in Catalonia, which exceeded 10% year-on-year in the summer, was close to 7% in October. The situation beyond our borders is no better, as inflation in the euro area as a whole reached 10.7% in the same month. Successive interest rate hikes are expected to help control inflation levels not seen since the 1980s. The price to be paid will be further economic stagnation, leading to a recession in the major economies.

 

Subscription

As we pointed out in an article in La Plaça, a new mutual model is emerging, more communitarian and based on the sharing of goods and services, as an alternative to the model of individual purchase and use. In subscription business models, each customer pays fees that allow prolonged access to a good or service instead of making a large upfront payment to own that good or service. This business model is increasingly common in the computer, entertainment or automotive industries.

 

Virtuality

We do not live in a virtual world, but we do live in a virtualised world, since “what happens in the digital world has a real impact on our lives”, as James Sène warned in a session on the current economic situation. In this sense, the president of 11Onze predicted that the metaverse, whose economy depends on the authentication of digital properties, will play a key role in digitising our identities.

 

If you want your business to make a giant leap, use 11Onze Business. Our business and freelancer account is now available. Find out more!

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Last September, the Plenary of the Congress of Deputies definitively approved the new regulations within the Recovery Plan, which aims to promote the creation of businesses, eliminate regulatory obstacles and fight against late payment.

 

It is no secret that excessive bureaucracy, high taxes and late payments slow down entrepreneurship and business growth. Although in recent years the process of setting up a business has become significantly simpler and cheaper, reducing the costs and time required for paperwork, authorisations and licences, as well as cutting the rate of late payments, remains an unfinished business.

A World Bank report from 2020, which ranked the cost of starting a business in different countries around the world, placed Spain at the European average, but twice the cost of France and Poland, and three times the cost of Portugal. Regarding the ease of doing business, it placed Spain in 30th place out of 190 countries analysed, far behind the weight of its economy in the world.

In this context, and at a time when entrepreneurship is more complicated than ever due to the current economic situation, the new Law for the Creation and Growth of Companies, better known as the “Create & Grow” Law, was finally approved on 15 September in the Spanish Congress of Deputies and aims to address and eliminate some of these problems by facilitating the process of business creation, reducing costs and fighting against late payments.

New measures to reduce late payments

The regulation, which has received broad support in the Congress of Deputies, includes measures proposed by PIMEC, the employers’ association representing micro, small and medium-sized enterprises and the self-employed in Catalonia, and the Multisectoral Platform against Late Payment (PMcM), to prevent late payments in commercial transactions, which is one of the causes that have the greatest impact on the liquidity and profitability of businesses.

In this respect, the obligation to issue and send electronic invoices is extended to all commercial relations between companies and the self-employed. On the other hand, the aim is to guarantee greater control of payments and avoid long payment periods, compelling contractors to specify in their work certifications that payments made to their subcontractors comply with the legal payment periods.

In addition, a State Observatory on Private Delinquency has been created to monitor data on payment deadlines and to publish an annual list of defaulting companies. Although the new regulation excludes businesses that do not comply with the Late Payment Act from access to public subsidies, it will not include a penalty regime for companies that fail to comply with legal payment deadlines, as some political groups had requested.

 

Eliminating bureaucracy and facilitating financing

With the aim of reducing economic costs, simplifying the procedures for setting up a business and encouraging entrepreneurship, the possibility of creating a Limited Liability Company with a share capital of just one euro is contemplated, instead of the 3,000 euros required until now.

In terms of procedures, notary fees and the time required to set up a business electronically, through the one-stop-shop of the Business Creation Information and Network Centre (CIRCE), have been reduced. Likewise, the law on trade liberalisation measures is amended, increasing the number of economic activities exempt from licensing.

In addition, the law introduces more flexibility in the field of crowdfunding, adapting to European regulations and expanding the type of businesses in which these entities can invest, including financial companies such as 11Onze, with a high technological component.

At 11Onze, we also want to help businesses reduce costs by offering an account that allows them to automate processes in a simple and effective way, managing their capital or exchanging currencies at the best price.

 

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The digitalisation of the economy has spurred the popularity of cryptocurrencies in recent years. A revolution in the financial system that has led some governments’ central banks, initially reluctant to introduce them, to start issuing their own digital currencies. We analyse the reasons behind this change of mentality.

 

The capitalisation of financial markets by digital currencies, especially cryptocurrencies such as bitcoin, continues to increase year after year. Technological automation and distrust of traditional banking institutions due to banking abuses have led to the emergence of cryptocurrencies based on blockchain technology, which makes them more secure than physical currencies, and which do not depend on a central bank.

It is precisely this decentralisation of monetary creation, which characterises cryptocurrencies, that has been the spearhead of their popularity. In other words, they democratise the creation of currency while diluting the banking monopoly, hitherto exclusive to governments and central banks. This paradigm shift is a threat to those who have always held economic power, and one of the most obvious changes to the status quo that has facilitated the entry of digital currencies into the global economy.

This obviously does not please everyone, especially states and the financial institutions that serve them, which see their power of coercion and control of the population diluted. It is therefore not surprising that governments, central banks, and financial institutions such as the International Monetary Fund (IMF) or the World Bank, which were previously opposed to decentralised cryptocurrencies, are now more optimistic when it comes to digital currencies under their control, the so-called central bank digital currencies (CBDC).

 

If you can’t beat them, join them

Several central banks are working on the development of digital currencies, but some countries, such as China, are well advanced in the testing process. The Asian giant already has 261 million people using the digital yuan, e-CNY, which was used to make payments of more than 280,000 euros a day during the Beijing Winter Olympics.

In this context, the European Central Bank (ECB) does not want to be left behind and is developing its own electronic currency. The digital euro, managed and supervised by the ECB, can be used by citizens and businesses alike, but it will not replace cash, but complement it. The European Commission expects the regulation to be ready by early 2023 and the currency to be operational by 2025.

Other countries such as Sweden, Uruguay, and the United States are also experimenting with centralised digital currencies. This trend is gaining momentum as many central banks consider issuing their own digital currency to prevent their physical currency from losing ground.

Even so, in addition to the potential of digital currencies to drive innovation in new products, processes, and services that can be incorporated into business models, there is also an economic and geopolitical aspect. In other words, a whole set of interests of various players make it easy to predict that the rise of digital currencies is here to stay.

 

11Onze is the fintech community of Catalonia. Open an account by downloading the super app El Canut on Android and Apple and join the revolution!

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Digital means of payment, cryptocurrencies, digital currencies promoted by central banks themselves… All of these are increasingly pushing physical money into the background as a tool for exchanging goods and services. Here are some of the keys to how the international monetary system is changing.

 

In 2020, covid-19 led to cards overtaking cash as the preferred means of payment for citizens in many countries for the first time. In the UK, for example, the use of cash was halved.

The monetary system is in the midst of a transformation process with the emergence of cryptocurrencies and even the creation of digital currencies driven by central banks themselves. In this context, the days of physical currency appear to be numbered.

Although cash is reluctant to cease being the main tool for buying and selling, it is estimated that physical money currently only accounts for between 5% and 8% of all the money that nominally exists on the planet. In just a few years the financial markets have been flooded with new products, currencies and assets of all kinds.

Just as the first coins minted by goldsmiths changed the economic systems of ancient societies, the electronic money will change the economy as we know it today. As 11Onze agent Laura Buñol explains, in this new stage of globalisation, it seems that “the system wants to make structural changes”.

Towards digital currencies

The popularisation of the Internet and mobile telephony together with the rise of cryptocurrencies are pushing us towards a world of digital money that will mean “the death of physical money“. In fact, as Laura Buñol explains, in 2019 the then governor of the Bank of England “already proposed the creation of a global digital currency, supported by various central banks”, which would replace the dollar as the world’s reference currency.

Sweden already has an e-krona in the testing phase, which is used for some transactions. And both in the United States and in Europe, studies are underway related to the implementation of digital currencies. In fact, there is already a project for a digital euro, as explained in the article “The digital euro, the end of physical money?

There are still many unknowns about what digital currencies will be like, but it seems that, like cryptocurrencies, they will also be based on the blockchain to guarantee security. In any case, the encryption of their codes will not be designed to remain outside the surveillance of central banks. And it seems that it will be a useful resource for governments to crack down on the shadow economy.

 

The role of central banks

Central banks cannot ignore the progression of cryptocurrencies, so they have to adapt to the new times or they will lose their sense of meaning and “eventually cease to exist”, as Laura Buñol points out. States cannot afford to lose control of monetary policies.

In fact, the traditional financial system is working hard to regulate and incorporate cryptocurrencies into its operating logic. The establishment knows that, if it does not do so, it risks being pushed into a corner in the global economic landscape.

Everything points to the fact that, as Buñol points out, in the not too distant future we will probably have to look for alternative formulas to heads or tails or the current system of unblocking supermarket trolleys.

 

11Onze is the community fintech of Catalonia. Open an account by downloading the super app El Canut for Android or iOS and join the revolution!

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The sharp rise in the price and profitability of cryptocurrencies, led by Bitcoin, has caused a real gold rush. But in this case, the gold is digital currency.

 

Unlike the traditional monetary system, where Governments print money based on their needs, if we focus on Bitcoin, monetary creation is limited. Bitcoins are put into circulation every ten minutes and, approximately every four years, the software halves the blocks of currency issued, in a process known as halving. It is expected that by 2140 the total of 21 million Bitcoin will have been put into circulation.

 

How do Bitcoin mines work?

Bitcoins are not issued or are available to anyone who wants or gets to pick them up first. No, they are put into circulation in encrypted blocks that need to be decrypted. And this is where the concept of cryptocurrency mining comes in: with each issue, every ten minutes, miners connected to the network receive a new algorithm to solve a mathematical problem that, once solved, gives them the reward of new Bitcoins or commissions for the transaction; the miners validate the block and add it to the blockchain string.

Increasing competition to do this work has led to the creation of Bitcoin Farms around the world, where cryptocurrencies are said to be cultivated. These farms respond to the need to build real supercomputers by networking computers, so that they are able to decipher increasingly complicated algorithms as quickly as possible, to do so before the countless competitors.

These structures generate such a high consumption of electricity that they are most often installed in countries where this energy is more economical and the climate is colder, which allows avoiding overheating of computers and equipment. However, they have also led to the intensive demand for essential computer components to create these networks, such as graphics cards, to the point that some online retail chains have removed them from their open catalogue to avoid running out of them.

A problem of electricity consumption in Catalonia

In our country, the implementation of Bitcoin Farms is not illegal, but it mainly clashes with the high cost of energy that consumers in general suffer and that, in the case of these facilities, makes the electricity bill soar. This has led to the fact that, in some cases, their owners chose to tap into the power line or fraudulently connect to it. The ensuing allegations have led the Mossos to open investigations, in most cases with the mistaken suspicion that they were marijuana plantations.

It is in this way that cases such as the well-known one in Cambrils in 2018 have come to light, a great mine in a hotel under renovation of this coastal town; or this same week, the discovery in a flat in Sant Adrià de Besòs, to which we referred before. So far, they are rather isolated and semi-clandestine cases, but all indications are that they may be growing, as the profitability of cryptocurrencies and the fever of their miners to obtain them are growing.

For this reason, from time to time news such as these appear. Bitcoin Farms and the desire for presumed profits have also arrived in Catalonia.

Semi-clandestine flats, basements, or warehouses full of networked computers cultivating cryptocurrencies or mining Bitcoins, expressions used to define the extraction and obtention of digital coins. It may seem difficult to understand, but all of this makes sense within its issuing system.

 

11Onze is the community fintech of Catalonia. Open an account by downloading the super app El Canut for Android or iOS and join the revolution!

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