War For Control Over Money: How Can Governments Respond to Crypto?
"Governments will try to centralise crypto." "This is like watching the taxi industry try to respond to Uber."
Governments have never really been big fans of crypto. Sure, the odd finance minister and president has praised blockchain technology or even cryptocurrencies themselves on the rare occasion, but generally the overall mood has been one of suspicion and even outright hostility.
And now, with Facebook entering the industry with its Libra stablecoin, this barely concealed opposition to cryptocurrency has become fully manifest, in various ways. U.S. President Donald Trump openly slammed Bitcoin and Libra in July, while a number of governments have already begun flirting with the ideas of cryptocurrency bans and central bank digital currencies.
Both of these potential responses are being conceived as a means of neutering the threat posed by decentralized or private currencies, such as Libra, to government monopolies over money. But as numerous cryptocurrency experts report, it's likely that 'improving fiat currency' won't be enough on its own to reduce this threat, given that the main benefit of crypto is its divorce from governments, central banks and other centralized institutions.
Fear and the futility of banning crypto
Governments love banning things. Bitcoin and cryptocurrency is no exception to this, as evidenced by their complete or partial prohibition in the following countries: Afghanistan, Pakistan, Algeria, Bolivia, Bangladesh, The Republic of Macedonia, Saudi Arabia, Vanuatu, and Vietnam (all complete bans); China, India, Ecuador, Indonesia, Morocco, Zambia, Nepal, Egypt, American Samoa, and Qatar (all partial bans or restrictions).
However, as trigger-happy as various governments have been in recent years, it's clear that banning cryptocurrencies isn't really a viable way of reducing the threat they pose to the governmental monopoly over money.
"Some governments have tried to ban cryptocurrencies but this hasn’t stopped people from using them and the industry expanding," Iqbal V. Gandham – the managing director at eToro UK – tells Cryptonews.com.
"If people want to use these tokens, there is little governments can do to stop this. It would be like trying to ban the internet."
This 'unstoppability' is a large part of the reason why governments are scared of crypto. And now, the emergence of Facebook's Libra stablecoin has raised the specter of a private currency becoming a genuine rival to national fiat currencies, as explained to Cryptonews.com by Glen Goodman, the author of The Crypto Trader.
"Facebook's Libra is the first cryptocurrency that truly scares major governments, even though it doesn't even exist yet," he says. "Donald Trump summed it up in a tweet, when he slammed Bitcoin and Libra, saying the dollar will ‘ALWAYS’ be the world's dominant currency. He knows the U.S. gains major economic benefits from that position and no doubt he'll do anything to protect it from pretenders to the currency throne."
So governments are scared of cryptocurrencies and they can't satisfactorily ban them (at least not in the case of decentralized coins). So what can they do?
Well, they can try creating their own central bank digital currencies (CBDCs) and/or digitizing existing fiat currencies.
"Governments will try to centralise [crypto]," predicts crypto advisor Sydney Ifergan, "and at the same time, turn it to their advantage."
This has already happened in the infamous case of Venezuela's Petro, while the likes of China, Sweden, Ukraine and Uruguay have been researching or planning their own CBDCs. Similar moves have been rumored for Iran and Russia, ostensibly with a view towards evading American sanctions.
On top of this, the United States Federal Reserve has recently revealed plans to create a central bank-led nationwide payment system in the U.S., making it faster and more efficient, and potentially superior to Bitcoin and other cryptos in terms of performance.
But is it better?
The question is, even if major nations do launch their own centralized cryptocurrencies or new digital payment systems, will superior performance alone be enough to neutralize the threat posed by crypto to national monetary sovereignty?
Well, for starters, it's not even clear that a central bank-backed CBDC or payment system would be technically superior to major cryptocurrencies. And as cryptocurrency author Mark Jeffrey explains, the development of such projects will be slowed down by the centralized, unwieldy nature of the organizations driving them.
"Recently, the Federal Reserve announced a real-time payment system called 'FedNow.' However, 'FedNow' won't be available until 2023: laughably far in the future,” he tells Cryptonews.com.
“This is like watching the taxi industry try to respond to Uber: the attempts are somewhere between comical and sad. The Federal Reserve has never been forced to innovate and compete: they have absolutely no idea how to do it."
More fatally, there is also their lack of decentralization, which stands as the main selling point of true cryptocurrencies.
"Cryptoassets like Bitcoin are not about the digitalization of money," says Iqbal Gandham. "The whole reason Bitcoin was created was its ability to bypass financial institutions, like banks, and issuing authorities, like governments, in a bid to create a currency that was borderless and decentralized. "
“Merely tokenizing a traditional fiat currency so that it can be traded on the blockchain will not challenge the premise in which cryptoassets, including Bitcoin, were created."
It's for this reason that crypto has an advantage against CBDCs or real-time payment systems for fiat. Yes, they may potentially end up being faster than many cryptocurrencies, but a relative lack of speed hasn't stopped Bitcoin from gaining traction over recent years, for example, despite the fact that the Visa network was and still is faster than its blockchain.
Should society start valuing monetary freedom more than speed (which is really a solvable technical problem) and price volatility decreases as the market matures, the traditional fiat money system might face some serious questions about its future.