Bitcoin and cryptocurrency enthusiast Stevan Mcgrath draws the line between global and national digital currency, explaining what hides behind the latter and what implications it presents.
Widespread adoption of cryptocurrencies with the most utilized being Bitcoin (BTC), has been a source of worry to many national governments and their financial establishments. As more society move away from cash, the government’ potential to make profits from issuing cash currency will be threatened.
The economic impact of cryptocurrencies is huge enough for most national Central banks to issue statements and propound regulations.
The Path of National Cryptocurrencies
The core structure of the cryptocurrencies in today’s public domain, which is its decentralization, is usually the target of government policies. Hence, debates have ensued on the advantages and disadvantages of having either government issued digital currencies or globally distributed cryptocurrencies.
Most people have mistaken the concept of national government digital currencies for cryptocurrencies. Cryptocurrency is a blockchain decentralized asset while government issued digital currency is based on a banking system of debt and the liability.
The motivation behind the creation of Blockchain based digital currency was to bypass the established monetary instruments in peer-to-peer transactions. At the moment, cryptocurrencies are being proposed to serve the biddings of the institutions it is subverting. It is possible because the Blockchain, which is the technology behind the cryptocurrency, can be adopted as a tool for these national governments.
Most of the money available already is digitized, in central bank reserves or with local banks. Presently, the amount of cash bills in circulation is only a fraction of the digitized money. The problem is that funds are locked up in private accounts with multiple layers of securities and databases to pass before executing transactions with them.
A Global Perception
In the last few months, many countries like Iran, China, and Venezuela have commenced plans to venture into the digital currency world. Some have even launched the initial coin offerings (ICOs) for their national “cryptocurrency”.
Venezuelan president, Maduro once claimed that an oil-backed digital currency launched by the country’s government, got $735 million during the ICO campaign. The president further made claims of amazing successes of the cryptocurrency to the public.
Following in the Venezuelans footsteps, the Iranians, suffering from many international sanctions, have also announced their plans to have a national digital currency backed by the country’s ‘elite’.
With all these national currencies now labeled ‘cryptocurrencies’, one will be inclined to inquire about the level of government regulation they are subjected to. A simple fact remains that all national cryptocurrencies are not ‘decentralized’ like the global public ones.
Many nations are beginning to thinking up strategies on ways to deal with the rise in the adoption of cryptocurrencies. The government approved bills are money of the state, but the sanctity of distributed cryptocurrencies makes it the currency of the people.
Likewise, governments of India, Canada, Russia, Japan, Switzerland, etc. have Blockchain technology investment plans for their countries.
The Swiss View Point
The Swiss government has e-Krona in the works and this could be launched in a matter of months. Several other nations have similar plan that tells us that cryptocurrencies are making a headway around the globe.
Over the past decade, the demand for cash in countries like Sweden has significantly dropped. Most retail outlets accept digital fiat, and the national bank seldom disburse or take cash. The government is currently experimenting with the e-Krona to determine its viability.
Also, the Swiss Stock Exchange appealed to the nation’s central Bank (SNB) to launch an e-Swiss Franc.
The Swiss National Bank in response, reiterated its message that it has not considered any reason for such move. Therefore, the increasing call for the Swiss bank to launch its own cryptocurrency has been stonewalled.
In the Swiss case, the country is rich and thriving with its Crypto Valley. There is only a little national wealth differences between the nation and other top emerging markets around the world.
The Russian View Point
In Russia, Oleg Fomichev, a deputy minister in the country stressed that the nation’s CryptoRuble will be allowed to circulate on international markets. The country has embraced the CryptoRuble as the national digital currency in an increasingly digital world economy.
Even the President, Vladimir Putin was quoted to have said the emergence of new technologies is the metric for the development of the modern human from the Stone Age.
NGDC Versus GDC – Verdict
Money is an ultimate network effect which digital currencies, in any form, can multiply as well as diminish. The current level of acceptance of fiat money in the world financial system can also be affected.
One great thing about cryptocurrencies is that no one owns it in a sense. It is like a democratic system where everyone has access to the distributed ledger, as well as block ownership. People only buy bits and parts of the currency, which forms a part of the chain. The security and discipline is built into the technology itself.
A careful examination of what money means is now necessary. This is bordering on the fact that new technologies are redefining and will continue to redefine our grasp of it. Increasing adoption of electronic payments and rising debts will also push many more governments into exploiting the cryptocurrency.
Any government remotely considering having a national digital currency must also consider the implications of the move before venturing into the landscape.
The success of Bitcoin and its recent enormous surge in value has put the spotlight on the failing finance systems around the world. Central bank digital currencies are governments’ attempts to catch up with the burgeoning prowess of the cryptocurrencies.
Cryptoassets have the power to increase the scope of monetary securities to the masses across all classes. The unfettered growth of globally distributed digital currencies can provide people with the liberty and security unattainable with national currencies, digital or otherwise.
Blockchain-based public digital currencies currently exist in a corner of the world monetary market. But they are threatening to break free from many governments’ sanctions, restrictions and policies. In addition, they provide an escape for individuals unable to sustain their wealth in the established system of the world.
It is a good thing that nations are looking for ways to venture in the cryptocurrency technology. Nonetheless, it is improbable that any national bank will back a state-owned decentralized cryptocurrency. This could mean the state will lose the power to manage and control the distribution of the currencies.
Generally, it is more probable that nations will toy with the idea of a distributed ledger in the Blockchain technology. The potential for efficiency is immense for many other government parastatals and instrumentality.