Cash is trash; is it a new concept? No. To understand why cash is losing its power, we need to understand and acknowledge the economic factor and what exactly cash is.
As per our system, we categorize any holding of value as an ‘Asset.’ These assets are of different forms as well, such as fixed, liquid, tangible, non-tangible, etc., but the more relatable bifurcation should be:
- Hard Asset; and
- Soft Asset.
Hard Assets are assets that are easy to build and difficult to destroy.
Soft Assets are assets that are easy to assemble and easy to destroy.
How?
The assets, which are limited in number and difficult to grow Y-O-Y due to scarcity and limitations, generate more value over the years as an investment and are the best options to create savings.
The readily available assets in the market and accessible trade generally get devalued faster and are not a secure form of savings.
Now comes the million-dollar question, where does the cash stand in the asset class? Take a guess.
Cash is a soft asset, and cash or Fiat money cannot be the underlying asset of any transaction.
Why?
A straightforward answer is to generate a false position of the economy or generate a better picture of the economy; any government has an easy option, i.e., to print fiat money and start providing better returns on money-based savings, i.e., Fixed deposits, Bonds, etc.
Similarly, any government can collapse, and the new government with a new regime can bring a new fiat money and cash system, which downright makes the ordinary public poor.
Recently, we have heard, read, and tried to understand the concept of inflation. The simple understanding is fiat money has lost its value against the barter of goods. So once upon a time, when 1$ would buy us 1 gm of gold, now the same amount of money buys us 0.5 gm of gold.
Hence the value of money has decreased by 50%.
The above explanation brings me to the simple understanding that keeping cash for a more extended period as savings will not make us rich or even keep us at the same level; instead, it will make us poor by lowering our purchasing power.
Why are even Fixed Deposits providing a decent return rate also not preferable?
A fixed deposit provides a return of, let’s assume, 5-7% p.a and the inflation rate is at 10-12% p.a; what shall happen to the cash? Did it multiply? Yes. Did it make me richer? NO
When the inflation rate is higher than the government bond and fixed deposit rate, saving our wealth in cash is not advisable.
So what is to be done to generate wealth, fight inflation, and secure a future?
There is no easy way to generate wealth, but there are investment options available in the market which helps us grow our money backed by hard assets, which helps us manage inflation.
Many factors should be considered while selecting and diversifying the method of investment. The investments made should secure your short-term and long-term goals.
Any asset in scarcity and challenging to grow Y-O-Y basis is a long-term investment, such as gold, property, etc. Hence while creating a savings portfolio, one should consider such assets as a long-term investment.
Why is cash trash, currently more than ever?
The world is moving towards digitalization, where the assets are also very much in digital forms such as Crypto, NFTs, etc., so when the world is going through a change and adaptability of a new manner of trade, it is essential to hold onto assets which the least can do is not lose its value.
Historically, when the world shifted from Silver to gold as the base value, the countries which adopted the change and shift were still prosperous and stable. At the same time, the leaders who were adamant about Silver took a long route to reach a tough economy in the current scenario.
Is the revolutionizing change of asset base shortly?
No, the world has yet to create a system and understandability of many things before even having a digital currency as the internal transaction before going any further. But fiat money loses its value whenever the economy goes through turmoil, and inflation always plays a vital role.
