The world economy is becoming more digitalized. This fact is hardly surprising. However, what is the reason behind a sudden urge of multiple governments to issue a digital coin of their own? Altcoin Buzz contemplates and asks for an opinion.
Cryptocurrency is the buzzword.
Over a span of just a couple of weeks, multiple countries announced that they are either planning or are close to introducing a digital asset. There is China who is continuously working on its digital project. Then there is Turkey: President Erdogan has recently announced that the country plans to finish testing digital Lira in 2020.
Most recently, the European Union, an entity that comprises 28 member states, has stated that it is considering launching a virtual currency of its own. It is called Eurocoin.
These moves are impressive. After all, just a couple of years ago many countries were wary of the concept of digital money as such. Cash remained king; so did the credit cards.
However, the sentiments toward cryptocurrency per se seem to have changed. Here are a few reasons why this could be the case.
Need for speed
Moving capital fast is a must. Even the most conservative folks (many of which end up being in the government) realize it. The advantages of virtual currencies in this regard are thus clear. They are indeed faster and at the end of the day it matters not just a little bit, but a great deal. If a company is slow, it is likely to lose customers. In the same vein, a state that cannot move funds fast might end up losing influence.
The fact that multiple “big boys” are considering the introduction of digital assets is sufficient for many political players out there. Thus, if a giant economy like China is set to introduce a digital asset, other countries will eventually have to do it as well. Why? Primarily, because of trade matters. The EU, for instance, is continuously competing with the Chinese economy in terms of trade. If one issues a digital currency, the other one is bound to do it as well eventually (once again: think of moving funds fast).
Circumventing “bad things”
It is not coincidental that countries like Russia and Turkey, for example, are feeling benevolent toward introducing digital versions of the Ruble and Lira. Both are authoritarian states that are either already subject to sanctions or about to (just think of the recent offensive championed by Erdogan).
By introducing digital versions of their currencies, they might try and circumvent restrictions. This matters as the Russian economy, for instance, is getting hit by sanctions. Even President Putin has admitted that the country fell short of $50 billion since they were introduced in 2014.
The mesmerizing nature of Bitcoin (and not Libra)
In one way or another Bitcoin has had a profound impact on the world. The governments–whether deliberately or by chance–acknowledged that it has the potential to challenge fiat.
However, Bitcoin is still very much in its nascent stage. To date, many don’t understand the concept of this cryptocurrency. Others are simply put off by its wild price fluctuations and occasional involvement in illicit activities. Hence, the governments do not seem overly concerned about it, albeit being wary of it in general.
However, this is not the case with Libra, which has received a storm of critique. Mark Zuckerberg, CEO of Facebook, is continuously trying to prove that Libra is not posing a threat to states. But the majority is not buying the argument.
Answering the question “why”, it is possible to suggest that this has to do with FB’s huge user base. Currently, it stands at 2.45 billion monthly active users (September 2019).
If such a big number of people suddenly start using Libra, the governments will feel highly uncomfortable and left out.
It is therefore not coincidental that states, like France, believe that Libra is a threat to sovereignty.
In light of this, if Libra’s only competitive advantage boils down to the fact that it’s fast and easy to move around the world, then national digital currencies quite frankly have all the same features to offer. And it makes sense to create them on the governmental level and obstruct the development of Libra.
That goddamned hyperinflation
When money loses value it’s considered to be bad. However, when its value almost literally melts in your hand that spells big trouble. Why? Because socio-economic turmoil is close to inevitable. Just think of the Weimar Republic, hyperinflation and the emergence of the German Nazi State in the 1930’s as well subsequent horrors of the Holocaust and war.
Thus countries like Venezuela have decided to introduce digital currencies to help deal with the plummeting national currencies. The world knows it as El Petro.
An expert’s view
At the same time, Dr Usman Chohan, an economist who is ranked among the top 10 Business Authors in the world on the Social Science Research Network, suggests that the reasons for the introduction of digital currencies vary.
“There are two approaches: independent developers create a currency that becomes so popular a government adopts it (1st type), or the government in question researches and develops a currency of their own (2nd type),” says Chohan in an exclusive comment for Altcoin Buzz.
He then gives examples of Iceland, Venezuela, the UAE, and China.
Hence, following the 2008 financial crisis that hit Iceland particularly hard, the Auroracoin cryptocurrency was created.
“Even though the government opposes it and some call it a scam, but its tokens (50%) were distributed to all Icelandic citizens,” he says.
Venezuela, on the other hand, is suffering from hyperinflation. “The gringo sanctions regime and a wildly fluctuating nominal Bolivar makes Petro a strong choice for a state-backed currency, especially since it is to be securitized based on the oil reserves of the country,” he says.
Some are after the brand
The UAE has a different reason, according to Chohan. He points out that it is part of its “integrated blockchain” 21st-century branding.
Last but not least, China. According to Chohan, it is “using a national cryptocurrency will give them better oversight on citizen movement of wealth, certainly domestically but also possibly overseas. It is also an attempt to seize the market before instruments like Libra get in the mix and Chinese people start using them instead.”
“The risk though is that the Crypto-yuan could hammer private solutions such as Alipay which are already very big,” he added.
He also believes the EU is pursuing 21st-century branding and some control over EU citizens.
He adds, “a crypto-euro might help transact with businesses in Iran, for example (possibly).” The latter ties into the concept of circumventing sanctions.
How soon is now?
It seems almost safe to say that as soon as the Chinese national digital asset goes live. Even though the country is definitely not pioneering the field (EL Petro has been available for a while now, even though some question its viability), its economic size speaks for itself.
In a recent interview with Altcoin Buzz, CEO of Global Cryptocurrency Organization stated that all fiat will move onto the blockchain. Assessing the potential timeframe, he suggested that China’s recent moves will speed up the process.
Quite frankly, it is extremely hard to disagree. The world is indeed on the verge of becoming even more digitalized.