Cryptocurrencies

new weapon for states to ensure their monetary sovereignty? – Cryptocurrencies

Yuan, yen, dollar, euro

As Japan has just announced the launch of its sovereign cryptocurrency in 2021, it is time to sit down together and take a look at the initiatives carried out around the world in this area over the past few years. It must be said that the phenomenon is fairly recent, and it is hard to say whether it was created in the midst of central banks’ mistrust of Facebook’s Libra project which caused a stir in the corridors of our financiers, or well if these old dinosaurs told themselves that it was necessary to spend the second to land in the new world and try to thumb their noses at Bitcoin (BTC) by creating their own digital currency. We have investigated this growing phenomenon for you: CBDC, MDBC, what are we talking about? What were the notable episodes of this rise in power of central banks on the subject? What would Satoshi Nakamoto say? In the land of sovereignty, we take you with us around the world to explore these initiatives straight out of the crypt.


Prelude: in the beginning was the currency

One could not begin such an article without briefly recalling the accelerated history of money, tool of sovereignty throughout history. It must be said that since Antiquity, money has undergone several major changes: first barter tool to become fiat money, she gradually went through the ages to become scriptural money then digital. Considered since the dawn of time as an instrument of power, money has also become a powerful vector of social links thus explaining that the stability of its value is an essential element in the balance of societies. But as a political instrument, it has long allowed states to have a monopoly on tax collection and money production.

In 1944, the Bretton Woods agreements will ensure monetary stability across the world, which the IMF and the World Bank continue to follow in their founding principles.

Finally, with the advent of new players in the 2000s, the currency is taking the digital turn and becoming dematerialized, with the sulphurous passage of Paypal, Paylib, Apple Pay or AliPay. A new monetary paradigm The latest revolution in the monetary era has barely taken hold: the blockchain revolution and cryptocurrencies, strongly popularized by the publication of Bitcoin White Paper by the mysterious Satoshi Nakamoto. Money thus branches off into a logic of Token Based Money, in other words, a token containing a monetary value, with the revolutionary idea of ​​removing any trusted third party and opening a completely decentralized peer-to-peer network without any intervention from the ‘State or any regulator.

There, the authorities ignite, the digital token and Bitcoin shake the trading rooms and turn the heads of senior European and international officials who do not know which foot to dance on. We go on the routes of the fabulous history of money through the ideological upheaval caused by Bitcoin until the emergence of CBDC today by central banks. Who will be the winner?

The difficulty is not to understand new ideas, but to escape old ideas. ”

John Meynard KEYNES

Episode 1: the Bitcoin tsunami upsets the status quo of central banks and the very philosophy of money

bitcoin, new digital gold
Bitcoin, the new digital gold

On October 31, 2008, a wind of revolution blew the world, heralding the creation of the cryptosphere and the advent of Bitcoin, this new digital currency, liberal, based on a completely decentralized operation which brings with it a whole new monetary paradigm. Many did not believe it, and yet 12 years later Bitcoin tops out at $ 20,000 and increasingly brings together institutional and private investors.

It must be said that the landing was not smooth. Remember the context of the financial crisis linked to subprimes, the disapproval of States and the feeling that our money is slipping through our fingers in favor of monetary regulations that are not always very transparent.

This is howsome Satoshi Nakamoto, pseudonym worn by the famous creator of Bitcoin, publishes his White Paper, a very fundamental element of the movement in motion.

Based on the blockchain and totally decentralized, Bitcoin is presented as a solution to the financial and economic crisis of 2008. Bitcoin then promises an alternative to Fiats currencies controlled by governments and central banks.

Anarchist theories and fruit of the whim of utopians, this is what the first, the most protesting, will say; avant-garde others who want to believe in this new chapter in monetary history will say.

This turning point so much technological than ideological Then comes to upset the position of master of bankers, central banks, and States which see the emergence of a serious competitor in their path. In any case, the objective is clear, Bitcoin signals the end of the state’s stranglehold on money and invents a new decentralized peer-to-peer system and everyone is now able to become a money issuer. It is from this observation that GAFAM and in particular Facebook will be inspired to in turn enter the race for digital currency.

Episode 2: Libra, a first failed attempt for the one that threatened the sovereignty of States?

Libra advertising image
Libra, a Facebook project to create a new global sovereignty

In June 2019, Facebook announced that it had created Libra, a single universal currency indexed to a basket of currencies. Designed as a stablecoin (stable cryptocurrency) in order to avoid any speculation since it is backed by a basket of reserves, Libra provokes in the minutes which follow its revelation, an outcry from the majority of the governments which see well coming the threat of the American giant. Unlike Bitcoin which is clearly against the current system, Libra takes the opposite view and offers a global currency promoted by an actor with a planetary network.

Governments, very suspicious of this major initiative, immediately saw a risk to their monetary sovereignty due to the possible membership of 2.7 billion users of the most famous social network in history. In the face of extreme hostility from governments, Libra reviews his copy and presents again his project under another eye in April 2020 by focusing on two main value axes :

  • A stable currency fully indexed to the local currency when the local currency is also available in digital version
  • A global stable currency as in its initial version indexed to a basket of currencies if there is no local digital currency available

The crucial difference with Libra is that it acts with permission, unlike Bitcoin. It means that validation of transactions is only possible by authorized participants, that is, members of the Libra association. With this turnaround in the face of pressure from the states, is Libra really that free? Facebook ended up abandon his initial project to become a real cryptocurrency. So, is the Libra project a failure in the cryptosphere or a sign that states have not said their last word?

The attribute of state sovereignty must remain in the hands of states, and not of private companies, which serve private interests.

Bruno Le Maire, French Minister of the Economy and Finance

Episode 3: Central Banks retaliate and dream of imagining their sovereign cryptocurrency

Clearly faced with the significant network effects that characterize a payment system, the financial authorities could not reasonably pass up the opportunity to compete in the digital currency 3.0 ring as well.

Christine Lagarde, President of the ECB takes up the subject and announces want to create a digital euro. She stresses the importance of having a regulatory framework that is not too restrictive and that it is an opportunity to optimize the financial sector by improving and securing international payment systems. At the same time, The Middle Empire, always very strategic in its tactical approaches, officially announces the pioneering launch of the first digital currency based on the Blockchain (DCEP – Digital Currency Electronic Payment). Note that China does not quite create a stablecoin since its digital currency is only backed by the onshore renminbi, a way for them to protect their precious from any exogenous instability.

Pub

Cryptoassets are highly volatile unregulated investment products. No EU investor protection. Your capital is at risk.

With the advent of the CBDCs, central banks thus aim to slow down the dazzling appropriation by GAFAM of cryptocurrencies, and the surge of Bitcoin which seriously threatens their hold.

Clear, a CBDC (Central Bank Digital Currency) or MDBC (Central Bank Digital Currency), is a digital form of fiat money, issued and regulated by a central bank. Sometimes a method of payment, a store of value or a unit of account, The CBDC is therefore trying to thumb its nose at Bitcoin and Libra, but does this mean that these initiatives still fall within the libertarian understanding of its ancestor? not sure.

diagram showing the operation of CBDC
Graphic: Clémence Maquet / Siècle Digital. Source: Bank for International Settlements

Like monetary policies, each CBDC launched or planned in countries across the globe contributes to various objectives : developed countries see it an alternative to cash while developing countries see it the opportunity to democratize access to financial systems and reduce costs for “unbanked” customers. It must be said that in this matter, everyone goes at their own pace, and while giants like China are already in the deployment phase, others are still in the maturation or design phase of their CBDC. In total, according to the BIS, more than 70 countries are preparing their currencies of the future today.

But while the original philosophy of Bitcoin and cryptocurrencies was to decentralize and create a new world, lo and behold Central Banks appropriate the subject to recentralize a decentralized concept, since they act by proof of authority. And the first to have imposed its vision and its goal of dominating the new world is the Middle Empire, which has been incubating its CBDC project since 2014.

Since then, the CBDC turns out to be a real project of world domination through an emerging market that relaunches the economic-digital war and a new battle of nations !

Episode 4: China opens up a new geopolitical battlefield in the race to create a benchmark digital currency

image of the digital yuan, the digital currency of China
The Digital Yuan, a new weapon for the Middle Kingdom

With the launch of its cryptoyuan, China is clearly positioned as a forward-thinking leader in its trade war with the United States through the creation of the first central bank digital currency. Backed by the yuan, the cryptoyuan will initially be offered to Chinese residents to encourage and facilitate daily trading. Alibaba, Tencent and UnionPay, the Chinese digital giants are of course in the game.

But their strategy looks at the long term, since in the long run, China intends to overthrow the American domination allowed thanks to the dollar, in particular by having international ambitions for its national cryptocurrency. Xi Jinping made it clear, his goal is to turn the crypto yuan into a new international reserve currency, just that.

Even beyond China’s technological, monetary and ideological supremacy, what lies behind it shouldn’t surprise you : the digital yuan has a vocation of mass surveillance since establishing such a digital currency controlled directly by the Empire in order to continue to fuel the social credit scores granted to citizens. Indeed, by having the possibility of preventing certain transactions or of requesting proof to carry out a particular transaction, we lose all the value of a decentralized blockchain.

Waiting, the 3.0 yuan is already being tested in 4 Chinese cities and is expected to be rolled out on a large scale during the Olympic Winter Games in Beijing in 2022.

But beyond China, which countries are about to roll out the red carpet at the CBDCs?

Panorama of initiatives launched around the world

While China has been a pioneer in this area, particularly through its speed of execution, other countries have long since launched consultations and even the deployment of digital currencies, like the Venezuela, which was a forerunner with the Petro, its national crypto currency backed by the country’s oil and mineral reserves.

It should be noted that depending on the central banks, the reasons for launching these sovereign cryptocurrencies vary: from development of a cashless company in Sweden, fight against money laundering in the Bahamas, untilfinancial inclusion in emerging countries, everyone is having fun. For Africa, the central bank digital currency represents above all a tool of emancipation for a territory which, until recently, lived on the CFA Franc, a time marker of the French post-colonial period. Central Bank of West African States (BCEAO) adopted the ECO in May 2020 ending the CFA Franc.

“Central bank digital currency is a very effective tool, and could be useful for some economies, where there is a notable lack in terms of tools and access to banks precisely. These aspects have little to do with why European countries and others are working on MNBC, but they are possible considerations ”

Lorenzo POCCHI.

In addition, the BIS (Bank for International Settlements) works closely with 7 central banks and in particular the American Federal Reserve (Fed), the Bank of England (BoE), the European Central Bank (ECB), the Swiss National Bank (SNB) ) and the Bank of Japan (BoJ). Their thinking is progressing in particular on the intrinsic characteristics they want to impose on central banks: resilience, wide availability at little or no cost, appropriate standards and a clear legal framework, while leaving an appropriate role for the private sector. Finally, a new battleground for technologically advanced countries, the race for the CBDCs once again reveals the competition represented by digital currency on the international scene : a document from the think tank dGen announced that By 2030 three to five countries around the world could launch their own digital currencies to replace their national currencies.

Focus on initiatives under study or already launched around the world to issue sovereign cryptocurrencies:

Pub

Cryptoassets are highly volatile unregulated investment products. No EU investor protection. Your capital is at risk.

Appeared in the 1990s, digital currencies were popularized by the famous Bitcoin before creating an unprecedented craze among States and central banks. Now a fatal weapon in the service of a technological-economic war, the race for the CBDCs or MDBCs has only just begun and some winners already seem to be emerging, but how far will they go? Will they succeed in dethroning the unbeatable? Will they succeed in producing a secure, inclusive currency in order to embark citizens in a new digital age? Case to follow.

Tags

Related Articles

Back to top button
Close
Close