The emerging Digital Economy: A fresh Opportunity to achieve Financial Freedom

In all my Notes previously written on Financial matters, I have one firm objective or message to the reader. Commit yourself (preferably early in life) to achieving Financial Independence or Freedom. Financial Independence/Freedom is having enough Capital skillfully invested in different asset classes across the spectrum of charachteristics, risks etc. which will give you enough cash flow or a passive income stream to maintain your desired lifestyle. This means you don’t have to work for anyone else ever after that unless you want to. No matter what your starting point, it can be achieved but depending on your personal situation, commitment, discipline levels, knowledge and risk taking abilities, degree of your success and time taken in achieving Financial Independence/Freedom will differ. If you commit yourself early in life to this objective (ie in your 20’s or 30’s), and stay the course with discipline, it is very likely you will get to the “Promised Land” in your 50s or latest in your 60s and you can live out your Sunset years in peace and style. Do not get trapped in the regular rat race mired in debt (vehicle leases, mortgages etc.) working for others forever without having a way out (I call this state being a modern day Slave).

In order to get there, one needs mainly two things. Knowledge and Capital as well as the ability to take on reasonable/calculated risks. Invest time and effort in financial education (most of it is now available free on the Net) and that will eventually enable one to spot opportunities and reduce risk to a manageable level. The Capital you build up gradually over time hence the need to start early in your 20’s or 30’s. Every Rupee not consumed is Saved and available for Investment. Gradually this pool of funds grows (with high yielding investments and the compounding effect) and soon, one will have good enough or large enough capital base to get the Cash Flow/Passive Income one requires to achieve Financial Independence/Freedom to live out your lifestyle.

Currently, we are witnessing many Sri Lankan youth lining up for Passports (understandably so) to migrate to Middle East or East Asia to work and earn in Dollars as the Rupee is fast losing its value or purchasing power. For about an year and half (since the first COVID lockdown in April/May 2020) my view or assessment had been that the SL Rupee will come under severe pressure vis a vis all other major currencies in general and USD in particular due to the countries’ macro economic conditions as well as effects from the global COVID Pandamic. Anyway the SL Rupee has historically seen a sharp depreciation every 3 years or so (2012,2015, 2018, 2021?). The money printing by the government in SL (and elsewhere) in response can only accelerate inflation (rising prices of consumable and assets) and debase the Currency (reduce purchasing power) but cheap or low cost credit is available for anyone who knows how to take advantage of the situation.

Now given that reality my focus or the question in my mind was how do I preserve my standard of living being a resident of SL and whose income and wealth are virtually entirely Rupee denominated? Or how do I dollarize myself? Some of the options available to Sri Lankans are the following provided they have some own capital or access to Capital (by way of Credit)

1. One measure is to hold on to assets or convert Rupees into new assets (even imported consumer items, Vehicles which are generally depreciating assets but sure to go up in price and become out of reach if you stay in Rupees).
2. Buy Forex where possible (in the kerb market, or from those work abroad who periodically send forex to SL etc) and park it in an NRFC/RFC account or hold on to it without earning an interest
3. Transfer funds out of SL on the unofficial black market to a Foreign Account through which real or financial assets can be bought. (Without approval of the Central Bank this may violate Foreign Exchange Act and maybe unlawful. So not recommended)
4. Get into the Decentralized Finance (DeFi) space or Digital Assets based on Blockchain technology (Web 3) and discover a whole new world of Decentralized Banking, Finance based on smart or digital contracts among Peers (P2P) or create/trade in Non-fungible Assets (NFTs) or Stable Coins/Crypto Tokens.

With the advent of new technological tools and infrastructure such as the internet, broadband (5G), blockchain, Web 3.0 etc., as well as social media such as UTube, Instagram etc., people everywhere are presented with a myriad of new economic opportunities (not merely based on other peoples or centralized platforms such as FB, Instagram, Tik Tok but based on a decentralized basis with more control and freedom for the individual/creator/investor/seller & buyer) regardless of where one resides provided one has the requisite knowledge/skillset. One can live anywhere in the world but work, trade, invest, create and do business or simply create or participate in new economic activities. The wonderful thing about this is the ability to function from any remote location and participate in profitable economic activity anywhere else in the World or the ability to become a “Digital Nomad”. In fact, there is new Visa category under that label issued to those who want to relocate to work from a different location. So it makes sense to base yourself in a Country with low Tax Regime (not to mention low housing/living costs) and in my case preferably a sunny place such as Sri Lanka. So the implication is it is not really necessary to migrate to earn Dollars, Sterling or Euros.

 The good news is the SL government currently appear to be encouraging and supporting this emerging new trend at least as far as Blockchain and Digital Currencies are concerned. This opens up many possibilities for SL youth in the world of Digital Economy. More importantly, this gives Sri Lankans a Window to convert their depreciating currency (at least part of it) into a more stable fiat currency such as USD or Euro (albeit at a higher exchange rate than the official one), deposit in a low risk but high interest bearing instrument (upto 10% for USDT) or if so wish, get into higher risk Digital Assets such as Cryptos and NFTs.

One of the defining features of the digital economy is the speed with which it moves and evolves vis a vis the brick and mortar economy. In the regular world we are thus far used to, it could take years for a business idea to be implemented and come to fruition. And it often involves government permits, approvals, raising capital, building factories, hiring and training human resources, marketing etc. This is the very reason I have always emphasized and favoured investments or being an Investor over being and entrepreneur, businessman or being even a trader (of Physical Goods) in the brick and mortar economy which is cumbersome and time consuming not to mention the work and headaches involved.  Being an Investor is in my opinion much easier and achievable by anybody even in the brick and mortar economy as a passive investor in the Share Market or in the Digital Economy/Digital Assets. What’s more, one can be an Investor while being anything else (Architecht, Doctor, Lawyer, Artist, Programmer, Businessman/Entrepreneur etc). Being an Investor is even more easier in the digital age and presents the Investor global reach across economies and currencies (which was not available or very limited for SL investors prior to this).

Another feature in the digital world is the middlemen like Stock Brokers, Money Transfer Companies, even Banks and other intermediaries such as Lawyers are either being totally eliminated or at least their roles have been minimized saving time, cost and inconveniences to the customer and/or the investor. So you have the opportunity to deal with other Peers (Investors, Speculators, Hedgers) or Counter Parties directly using a digital platform via digital contracts etc. at lower costs, at greater speed (often instantaneous) and convenience (no paper work or visiting a physical office etc.). This space is known as Decentralized Finance or De Fi. Besides in the Digital World where markets trade 24/7, interest rates are paid(earned) and charged by the hour (not annual, quarterly or even monthly), the possibility of high annual yields (or payback times of one year or less) on your investment is not only conceivable but achievable. Of course the flip side of that would be the high volatility or risk of investing in such assets which can cause you large losses as well. So do your research and risk assessment before you embark on such investments.

One needs two main things to be an Investor: Knowledge or the Skill set (including the ability to assess and take on risks) and Capital. With commitment, both these ingredients can be built up gradually over time. It is an ongoing process and I am still learning and growing. It is specially so in the emerging Digital Economy where things are evolving and moving fast and new innovations (in terms of financial products, lower costs and more user friendly services etc.) are being offered virtually on a daily basis.

Concluding Remarks/Summary;

1. Commit yourself (early in life – preferably in your 20’s) to achieving Financial Independence/Freedom at some point in life (at 50?)
2. I have urged the reader in my previous Notes to think in terms of becoming an Investor (in tradable Assets) as opposed to an Entrepreneur, Businessmen etc.
3. I have emphasized on the importance of Emotional Intelligence (EQ) in terms of reducing or controlling consumption, delaying gratification, discipline etc. in building up a capital base (starting in 20’s) to invest.
4. Understand what is required to become an investor in terms of Knowledge/Skill Set (including risk assessment and risk taking) depending on the Asset Class (Fiat Currency, Real Estate, Commodities, Stocks, Crypto etc.)
5. Then select the investments you want to engage in and gradually build up a well diversified Portfolio of Assets which give you adequate monthly/quarterly/annual Cash Flow or Passive Income (in addition to substantial Capital Gains) to maintain your desired lifestyle, as well as diversify Risks peculiar to a particular Asset/Asset Class and also focus on better/higher annualized Yields given a particular risk level.
6. The emerging Digital World/Economy presents a world of opportunities (the World is your Oyster) for Investors (specially those based in a country like SL) by making investment across currencies and economies easier thus further diversifying risk in your Portfolio while reducing costs, increasing speed and reducing the hassel associated with Money Transfers/Payments, Trading and Investing in Financial Assets, Art and even Real Estate using transparency and unalterable technological infrastructure that is BlockChain.