Kuwaiti Newspaper | The “shadow economy” wastes the efforts of monetary policymakers

A parallel investment sector outside the formal economy hinders efforts to control inflation rates
Cryptocurrencies, “NFT” and digital content are investment tools that have restored the balance of money and reshaped ownership, investment and assets
It achieves significant financial returns, maximizes purchasing power and high interest temptations are unable to do so and are ignored by central banks.

Usually, the “shadow economy” supports the official economies of countries and maintains a balance in market prices when it comes to activities involving production units, employment and production. However, we are here in the face of a new “shadow”. economy ”that seeks only profit without worrying about its side effects on the economy and society.

With the recent decision of the US Federal Reserve to raise the interest rate by 75 points, for the first time in 28 years, in an interval between 1.50 and 1.75 percent and the subsequent decisions of other major central banks in the world , and in its steps, to raise interest rates, to try to curb Control of sharp inflation rates It seems that the expectations of experts and economic institutions that the Federal Reserve will raise interest rates 7 times in 2022, to achieve at 3.4 percent at the end of this year, and 3.8 percent in 2023, are on track to be completed.

Perhaps, too, speculation may be true that central banks will not only run the risk of inflation becoming an integral part of consumer and business expectations, but must also take into account current consumer and market behavior in decisions. their monetary policy, otherwise any attempt to control monetary policy is meaningless.Inflation by raising interest rates.

The issue here is no longer just about typical economic and geopolitical factors, represented in the high prices that accompany pandemic opening and consumers starting to spend at high levels, or the sharp rise in oil, gas and base costs. . goods resulting from the Russo-Ukrainian conflict in Eastern Europe, but more. we are faced with a wealth accumulated in the hands of a group of individuals, through work.More than zero, while this business achieved a significant return, not recorded in the domestic product accounts of countries, not included in it national incomes, and not under the official umbrella of the economy, namely the informal parallel economy or the “shadow economy”.

Although this type of “shadow economy” usually supports the formal economy and maintains a balance in market prices, when it comes to activities involving production units, employment and production, we are here facing a new “shadow economy” that requires only profit without paying attention to its side effects on the economy and society, and includes investment activities capable of achieving profits that exceed, in any case, what can be achieved by the benefits of bank deposits that central banks seek to restrict the movement of funds. to control inflation by raising it.

Here we are talking about a new kind of economy that has upset the monetary balances in the world and the concept of ownership and investment is no longer formulated, not only, but also assets, to the extent that it abuses monetary policy efforts. manufacturers control spending rates, and then inflation rates, such as digital currencies, for example. For example, whose market size at the end of last year exceeded $ 3 trillion, before falling during the recent crashes to about $ 900 billion, according to data from CoinGecko.

With the massive decline in the cryptocurrency market, the NFT non-exchangeable tokens market has recovered and despite the difficulty in estimating the volume of funds traded in it, some estimates indicated that it exceeded $ 40 billion by the end of 2021, and economic institutions estimated that the volume of its transactions would exceed 400 billion by 2025..

In addition to the digital content industry on social media platforms, whose financial returns are difficult to calculate, a number of institutions estimated it at millions of dollars, the most recent of which was a report released by the News Agency Bloomberg, which reported that YouTube, one of Google’s media wings, has paid over $ 30 billion to content creators over the past three years, in revenue from advertising, marketing and other services.

So we are facing large cash flows, achieved through parallel investment tools, outside the formal and traditional investment sector, which offer significant returns for a large number of individuals and temptations to raise interest rates, whatever they may be. , and thus maximize their purchasing power, are not definitively taken into account.Monetary policy makers, which means that central banks make decisions about fighting inflation regardless of one of its main causes.

In practice, these creators have no choice but to consider this reason, legalizing these investments and systematizing them within the official economies of countries, on the one hand, are included in the data on which monetary policymakers rely in decisions, which, of course, include decisions concerning interest rates and the treatment of inflation, and on the other hand, they are subject to tax claims and benefit the official economy, in addition to the fact that they are “kept” out of control. and regulatory authorities enable them to control their values ​​and reduce exaggerated profits, which reduces the purchasing power of its pioneers, and then controls the sharp inflation rates, which can lead to, In this situation leads to a a real economic catastrophe, which is what is known as stagflation, where neither real economic activity nor economic growth coincides with large price increases, as a result of labor that has no added value at all.

Tamer Abdulaziz

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