Author: Marina Generalova
Governments making their own cryptocurrencies is a hot topic in the crypto community. Would it be possible to centralize the decentralized?
If governments were allowed to, they would have banned Bitcoin at the early adoption stage. Indeed, many of them tried, but this turned out to be hard to do. Bitcoin and its peers were deemed illegal in Russia for many years, but it didn’t stop anyone from using cryptocurrency. This is the beauty of crypto, the international currency that is more powerful than any single-nation authorities. Once it became clear to officials that they had no way to stop Bitcoin, they attempted to regulate it. Special committees were created and the best economists were called upon to decide how to treat the disruptive digital money. Advanced economies led the way here, recognizing digital currencies either as a security or as a completely new asset class.
Regulations did a good thing for the crypto world, they offered legal protection to the coin-owners (the laws are still new and not perfect though, and the level of protection is limited). Despite the new rules, a major portion of crypto transactions remains anonymous and invisible to authorities, circulating without taxes, borders, and control. But control is what governments are all about, so unsurprisingly they are ready to do whatever it takes to preserve their influence.
What’s behind the Chinese curtain?
Back in 2014, China was among the first countries to announce the development of its digital currency, although they haven’t disclosed a lot of information since then. I think their main goal was to finally win the battle against the shadow banking sector, which has always been a huge problem in China. Now we can only guess how this process is going. News that Beijing, which has already banned ICOs, plans to ban cryptocurrency mining sparked a new bunch of rumors about the Renminbi (the Chinese official currency) becoming crypto.
Indeed, it is quite possible that the government is clearing the path for its own cryptocurrency which will be introduced in the near future. Donald Tapscott, executive chairman of the Blockchain Research Institute, thinks in 20 years people in China will not be using Bitcoin, as the Renminbi (RMB) will be the only cryptocurrency used in the country. If the society adopts a Blockchain-powered centralized currency and goes 100% cashless, which was the government’s of China plan, Beijing will enjoy control over every single transaction happening with the use of Crypto RMB (let’s call it this). For me, it’s hard to imagine how this may become possible, considering all the world’s failed attempts to ban crypto.
Sweden and the e-krona
Unlike the Bank of China, Swedish Riksbank is more open about its cryptocurrency experiments. In technologically-advanced Sweden, circulation of cash has fallen dramatically in recent years, to the lowest level in Europe. The Central Bank thinks that e-krona (national currency on Blockchain) may be a great and reliable substitute. But Riksbank is not rushing to introduce this asset to the general public – at least no estimated launch date has been announced at the time of writing. Central Bank officials highlight that no decision on launching the e-krona has been made, there are no historical precedents and they need to be very careful.
There won’t be a FedCoin
The US Dollar, which is the world’s number one reserve currency, could become a real threat to other fiat currencies if the Dollar were to be put on Blockchain – the governments of China, Russia, Venezuela, and many other countries would immediately lose control over ways their citizens are transacting and the amount of money they have. Indeed, this process is already happening with decentralized cryptocurrencies. But an introduction of a crypto-backed Dollar, an asset people are already familiar with, could spark a real revolution. It is hard to imagine the consequences of such a change. But unlike their Swedish and Chinese peers, the US Fed Reserve is officially not interested in launching its own digital coin, because”‘the key characteristic of cryptocurrencies are a red flag for central banks.” (source)
What about other countries?
Bank of Canada tried to launch its own cryptocurrency five years ago, but the project called MintChip was discontinued quickly without disclosing the reasons for failure. Rumour has it that the authorities of India and Bangladesh are also working towards having a national cryptocurrency. The Bank of England is actively investigating the potential of Blockchain but doesn’t make big promises about developing a crypto Pound. All they say is that the BoE doesn’t eliminate the possibility of a national cryptocurrency being developed at some point in the future.
Digital money is convenient and even regular credit card usage is gradually pushing cash away. The IMF has encouraged central banks to develop their own crypto coins. Placing national currency on Blockchain has many benefits. If we take China as an example, it could provide the Chinese with a better, safer way to transact and significantly diminish the role of banks. Transaction costs would be lower, financial operations would be processed faster and the level of security would rise. Blockchain-based money outperforms traditional money in a lot of ways. National currencies put on Blockchain can definitely improve our daily financial routines, the same as an invention of plastic bank cards did earlier, but there is a huge difference between improvement and disruption. The beauty of Bitcoin and its peers lies in their decentralized nature – these coins don’t have reporting authorities and are equally accessible to anyone, anywhere. No national currency will ever provide this level of cross-border freedom – a feature much needed in our globally-connected world. In general, national cryptocurrencies seem to be a good thing, they just won’t kick the decentralized crypto out of the market.