"Blockchain virus" spreads around the world, and governments compete to develop official digital currencies

Governments are currently actively developing what the Bank for International Settlements calls a "central bank cryptocurrency," which Isabella Kaminska of the Financial Times calls "Crypto Fiat," a digital currency issued by the government that people would be able to deposit directly with the central bank.

The survey suggests that this trend of governments competing to develop official cryptocurrencies will affect the development of the global monetary system in the coming decades.

Venezuela

Last fall, Venezuelan President Nicolas Maduro announced the launch of the Petro, a cryptocurrency backed by the country’s oil reserves. On February 20, the presale of the Petro began, with Maduro claiming to have raised $735 million and 170,000 orders on the first day, while several Venezuelan companies were forced to accept Petro payments.

While early rumors suggested the petro would be an ERC-20 token built on the Ethereum platform, the government ultimately decided to use the NEM platform.

Maduro's opposition in Congress declared the Petro illegal, and the U.S. Treasury warned investors not to deal with the Petro, as doing so would violate international economic sanctions against the country. U.S. senators hinted at taking action to "prevent the Maduro regime from blatantly evading U.S. sanctions."

In theory, the Petro is backed by the country’s oil reserves. In reality, it can only be redeemed for the Bolivar (Venezuela’s official currency) based on the price of oil. As Ethereum founder Vitalik Buterin said, the risk of the Bolivar exchange rate being manipulated would make the currency very vulnerable.

Russia

Russian President Vladimir Putin has ordered the issuance of a national cryptocurrency to avoid international financial sanctions. A proposal was submitted to parliament at the end of January, marking an important step in issuing a "crypto-ruble", a cryptocurrency that will be pegged to the ruble. The latest reports indicate that the crypto-ruble will be launched in mid-2019.

China

Yao Qian, chief researcher at the People’s Bank of China (PBOC), affirmed the central bank’s efforts to develop cryptocurrencies, arguing that a digital currency issued by the central bank could “reduce transaction costs, better provide financial services to rural areas and improve the efficiency of the central monetary policy.”

The deputy governor of the central bank said: "China's official digital currency will adhere to a centralized management model, aiming to replace M0 (cash in circulation) rather than M1 (broad money supply, demand deposits) or M2 (broad money supply, the sum of demand and time deposits), and we should remain cautious about incorporating smart contracts into the central bank's digital currency."

Türkiye

A Turkish lawmaker recently drafted a report proposing the creation of a state-backed “Turkcoin” with the goal of digitizing asset-backed securities, including large public assets in wealth funds such as Turkish Airlines, Istanbul Stock Exchange, Botas Gas, Turk Telekom, Agricultural Bank of the Republic of Turkey, and the National Lottery.

Iran

Iran’s Minister of Information and Communications Technology has confirmed plans to develop a national cryptocurrency by the country’s Postal Bank.

Marshall Islands

The Marshall Islands plans to issue the Sovereign (SOV) as its official legal tender, requiring users to undergo identity verification. The country’s parliament has voted to approve the plan, which they hope will help “boost local budgets.”

The country has partnered with Israeli startup Neema to develop the currency, and unlike other countries, they at least have a concrete plan for its implementation.

U.K.

Although the Bank of England (BOE) has been conducting research on cryptocurrencies, they have stopped developing the state-backed cryptocurrency due to concerns about its potential impact on the UK's entire financial system.

If central banks launch their own cryptocurrencies, they worry that consumers will abandon commercial bank accounts and use the central bank's cryptocurrency to purchase goods and services.

The central bank added that they were concerned that if people withdrew money from commercial banks in large numbers and switched to the Bank of England’s cryptocurrency, banks down the road would not have enough cash to pay depositors, causing economic turmoil. – David Thorpe, Financial Times

Sweden

Sweden, which is on the verge of becoming a completely cashless economy, is also conducting cryptocurrency research, with the Swedish central bank having launched a project to investigate whether Sweden should issue an official cryptocurrency, the "e-Krona".

One of the reasons for the Riksbank survey is that the use of cash in Sweden has been steadily declining for a long time. The central bank's statutory task is to provide banknotes and coins to the public, but cash usage in households is decreasing, and private institutions are also reducing the public's access to and use of cash. This means that the access to legal tender and future payment methods will eventually be in the hands of private institutions.

In addition to the obligation to provide cash, the project is based on the Riksbank’s goal of maintaining price stability and promoting a safe and efficient payment system in the new digital environment. — Riksbank’s 2018 “e-Krona” action plan

Canada

The Bank of Canada has experimented with “CAD Coin,” another exploration of distributed ledger technology. However, senior deputy governor Carolyn Wilkins said the bank is “very far away” from issuing a cryptocurrency for public use.

Technically, a CAD coin is a deposit slip that allows the holder to withdraw money from the central bank. But this means that CAD coins are just another form of legal tender. Unlike central bank reserves held in the main account of the Federal Reserve Bank, CAD coins are only stored in the bank's "wallet" in the form of a distributed ledger. Using CAD coins to transfer money from one bank to another does not affect the central bank's balance sheet. Only at the redemption stage, when CAD coins are exchanged for legal tender, will the central bank's reserves change.

The Royal Bank of Canada (RBC) Capital Markets Group, one of six private banks working with the Bank of Canada on the CAD coin project, has released a report arguing that cryptocurrencies could represent a multi-trillion dollar market.

Switzerland

As a recent article in The Economist puts it, Switzerland is “enthusiastically embracing” digital currencies and entrepreneurs in the cryptocurrency space.

The chairman of the Swiss Stock Exchange told the Financial Times that he doesn’t like cash and wants the Swiss National Bank to issue its own cryptocurrency “e-franc” as soon as possible, however the Swiss National Bank (SNB) said they do not see the need for such a move.

A think tank of Swiss financial experts has released a report outlining their vision for a “Crypto Franc” coin pegged to the Swiss franc.

USA

Last September, a Washington Post columnist published an article saying that the United States' "federal currency" would be greater than Bitcoin.

“If the Fed issues its own cryptocurrency, it could one day become a major competitor to Bitcoin and other cryptocurrencies, and it would be much less volatile. In fact, it is not clear whether the Fed wants such competition, but the Fed has the ability to constrain the current cryptocurrency market. So, watch out, Bitcoin.”

The Fed’s official statement indicates that we will not see the emergence of “Federal Currency” for the time being. Last November, John Williams, president of the Federal Reserve Bank of San Francisco, said that the federation has no plans to issue digital currency. U.S. Federal Reserve Chairman Jerome Powell also expressed similar views on this issue in a speech last year.

In fact, I hope the private sector will be more proactive than central banks and build faster payment systems to attract retail customers. Central bank-issued cryptocurrencies will compete with these currencies and stifle innovation in the private sector in the long run. —Jerome Powell

However, given the actions of other countries around the world, it appears that policymakers are discussing the feasibility of issuing an official cryptocurrency behind the scenes. Comments from a senior government official show a deep understanding of the value and potential divisiveness of cryptocurrencies.

Sheila Bair, former president of the Commonwealth Insurance Corporation, said she is not worried about the enthusiasm for cryptocurrencies and does not think the government needs to ban them.

“I don’t think we should ban Bitcoin — the thin green paper many of us carry in our wallets today has no intrinsic value, its value is in people’s psychological perception, which is the same for any currency — regulation should focus on exposing bad social phenomena, education, and preventing fraud and other criminal activities. Let the market determine their value, that’s what we should do” - Sheila Bell

Earlier this year, the Federal Reserve Bank of St. Louis published a “Brief Introduction to the World of Cryptocurrencies” that acknowledged some of Bitcoin’s advantages over other forms of money.

However, Bitcoin is not the only currency without intrinsic value. State-controlled currencies such as the dollar, euro, and Swiss franc also have no intrinsic value. They are fiat currencies created by government decree, and the history of state-controlled currencies can be said to be a history of wild price fluctuations and failures. This is why decentralized currencies are welcomed by existing monetary systems. It can be said that in some ways, the Bitcoin protocol is more powerful than some existing fiat currency protocols. Only time will tell. — Alek Sandbergensen and Fabian Scheuer

At a recent hearing of the U.S. Senate Committee on Banking, Housing and Urban Affairs, Senator Mark Warner said cryptocurrencies could be as transformative as the mobile phone. The chairman of the U.S. Commodity Futures Trading Commission testified at the hearing.

Our financial markets are entering a new digital era, and just as we witnessed the development of the Internet, we cannot put the genie back into the bottle (referring to blockchain technology). Virtual currencies mark a fundamental shift in the way we view payments, traditional financial processes, and the way we participate in economic activities. Choosing to ignore these developments will not make them disappear, nor is it a responsible regulatory attitude. The evolution of these assets, their volatility, and the widespread interest they have attracted from millennials around the world deserve our close attention. — (Christopher Giancarlo, Chairman of the Commodity Futures Trading Commission)

Giancarlo’s comments have earned him the nickname “Crypto Dad” and a large number of Bitcoin fans on Twitter.

If the world’s largest economic and military power decided to issue its own cryptocurrency, it would have major implications for its citizens and the world economy.

Conclusion  

Most of the countries in the world that have issued or have specific plans to implement cryptocurrencies are authoritarian regimes, "rogue states," or countries that have political or economic conflicts of interest with the United States. I do not believe that official cryptocurrencies can benefit ordinary citizens of these countries. On the contrary, they may serve as tools to help dictators consolidate power or evade international sanctions.

But if a country like China, Switzerland, Canada or the United States launches a national cryptocurrency, it will be very attractive to those who are still afraid to try Bitcoin or other cryptocurrencies because they don't trust the currency that is not backed by the country. I have met many such people.

According to research in this field, the most sensible approach for a government cryptocurrency would be a publicly contestable, decentralized currency.