By Perks of cryptocurrencies are spiraling in the fintech industry. Well, after prolonged discussions of whether to legitimizing virtual currencies or not, it seems now various states are hinting at the possibility of issuing their own state-backed cryptocurrencies.
In the past, the idea seemed most popular among tyrants looking to evade or undercut international sanctions that are enforced through the global banking system. But supporters of government-backed cryptocurrencies have always speculated that if the movement takes hold, it could irreversibly change the current international monetary system.
How would governments benefit from issuing cryptocurrency?
Regulating the money supply through changes in interest rates would be much more direct, which would mean it’s more effective and economical. Governments could also efficiently crackdown on tax evasion since transactions would be completely traceable.
Additionally, for the same reason, crypto is popular among folks looking to evade government control on money. Hence, starting a national digital currency would seem attractive to any government that doesn’t like how the international financial system operates. That includes governments facing global sanctions.
Moreover, cryptocurrencies are impossible to counterfeit because they are secured cryptographically. That means governments would rid themselves of the headache of fake money issues.
Wondering Why National Cryptos Are Coming Up?
Essentially, it is because governments around the globe don’t want to have decentralized currencies that are outside of their control. In fact, since Bitcoin’s inception in 2009, countries like China and the U.S have been viewing it as a threat to their national currencies.
That’s why many countries want to issue their own nation-backed digital currencies, which are nothing but a digital version of fiat money. Also, some countries have concluded that using national cryptocurrencies will help them save a lot of printing costs.
However, the main reason behind the surge of national crypto is that digital currencies have steadily grown in popularity and have remained largely unregulated despite numerous attempts to ban them. This has forced the hand of many governments to either launch their own national cryptocurrencies or at least start thinking in that direction.
Possible Upcoming National Digital Currencies
Here is a comprehensive look at 3 of the leading countries that are looking to launch their own digital currency:
1. China
China has been doing trial runs of its own cryptocurrency for a few years now and is reportedly ready to launch it in the near future. Representatives from the People’s Bank of China hinted in recent weeks that the country is almost ready to launch a digital version of its currency (the renminbi) to substitute fiat money for customer payments.
China’s motivation to roll out the monetary format sooner than later seems to emerge from the government’s desire to create a digital currency system it can control. It is denoted that speculators are currently selling off the traditional currency and buying up the virtual kind at an alarming rate. Creating a national digital currency will likely create stability in the economy.
According to Deputy Chief Mu Changchun, a central-bank-issued digital currency would have an advantage over payment platforms like Tencent and Alibaba because these privately owned commercial platforms could go bankrupt at any time and cause users to lose money.
The new currency will, however, not mimic crypto, as it’ll rely on a two-tier split, with the People’s Bank on top and commercial banks below so as to help deal with the gigantic size of China’s economy and population.
Moreover, it won’t rely entirely on the blockchain that forms the backbone of cryptocurrencies, as it just couldn’t deliver the throughput needed for retail. In fact, the forthcoming digital currency would reportedly bear some similarities to Libra in that it would strike a balance between anonymous payments and preventing money laundering.
2. Canada
The Bank of Canada is apparently exploring the possibility of launching a digital currency. The goal of the proposed currency would be to mitigate the direct threat posed by cryptocurrencies to the economic sovereignty of governments and central banks.
Leaks within the Bank of Canada showed officials are mooting over the development of a central bank digital cryptocurrency (CBDC).
To compound the rumors, Mike Eppel, Senior Business Editor at 680 News, recently revealed that Canada’s central bank is considering the development of a national cryptocurrency.
During his interview, Eppel drew attention to concerns surrounding cryptocurrencies, such as insufficient regulatory structures, as well as unpredictability.
It soon became apparent that the fundamental reason behind Canada’s interest in national crypto comes down to centralization. It is reported that the central bank is nervous about the growing number of cryptocurrencies with no government oversight.
He explained:
“All these new cryptocurrencies are not overseen by any type of government regulator, and they would like to have a little bit more say…the flip side, of course, is, they can use this to track our spending.”
3. The EU
Germany and France released a joint statement on Sept. 13, 2019, that called out Facebook’s proposed cryptocurrency Libra as potentially damaging to the financial sector, warning that they could block the coin’s authorization in the EU.
The EU countries are seemingly concerned about what such an unregulated cryptocurrency would do to the value of the Euro, instead of throwing their support behind the idea of public crypto.
The European Central Bank (ECB) recently said it was working on a public digital currency that would deem projects like Libra redundant.
In fact, the European Commission’s executive vice president for digital, Margrethe Vestager, was recently hired to revamp the current regulatory infrastructure of digital currencies in the EU, and her enthusiasm seems to be incredibly high to create plans for a public digital currency for the entire EU zone.
Several other ECB officials reportedly support the plan for the development of a native EU digital currency, including ECB board member Benoit Coeure, and France’s & Germany’s Finance Minister Bruno Le Maire Olaf Scholz respectively.
Conclusion
It seems that Central banks worldwide could increasingly issue their own digital currencies in order to shut cryptocurrencies out.
Currently, governments and central banks around the world are making moves in the crypto space. While individual countries largely remain tight-lipped over their crypto plans, those in the know believe CBDCs are just a matter of time.
For instance, Philadelphia Federal Reserve bank president Patrick Harker recently claimed that a US CBDC is inevitable.
There remains much to be learned about the potential scope of cryptocurrencies, and whether or not they are viable options for governments.
After all, some of the vital draws for crypto users are the cryptocurrency’s decentralized nature, anonymity and lack of government control, aspects that government-backed currency may struggle with.
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