You may remember this reader’s comment from Tuesday:
‘I believe blockchain technology has a future, but I’m sceptical about current cryptocurrencies like bitcoin. What is stopping governments from banning all cryptocurrencies and creating their own, let’s call it govcoin. You get paid in govcoin and all goods and services are exchanged using govcoin. If the government also bans cash then won’t this reduce and maybe eliminate the black market economy? The ATO could also potentially keep track of all your transactions and reduce incidences of people/businesses avoiding tax.’
As I mentioned back then, this is a concern I too share with the reader.
Going digital could allow governments to keep track of all your transactions. It would also make it much easier to impose restrictions on your money and apply exceptional monetary policies like negative interest rates.
That’s why it was interesting for me to hear Marc Fisher’s thoughts on this. He is a hedge fund manager and Director at First Digital Capital in England.
Here is what he had to say during the Blockchain Economy World Tour this week:
‘Already now we are starting to see fiat currencies being challenged by digital currencies and we’ll use some other examples but once this process begins, this doesn’t stop.
‘The idea, in my mind at least, that in 50 years from now, major currencies such as the US dollar do not have a digital equivalent or have been replaced entirely by a digital equivalent is just inconceivable. I think this is an unstoppable process.
‘One of the ironies here is that when the founder whoever that was of bitcoin and of ethereum and some of the other currencies we see today, one of the drivers for them was a distrust of governments and their ability to manage monetary policy, a distrust of any trusted party. The real irony here is that actually having a government currency on a blockchain is the ultimate form of surveillance. So, my gut feeling is that we may actually start to see government backed digital currencies a lot sooner than we think.
‘If we look at some of the developments post the GFC, the regulations such as Dodd Frank act, Volcker act, etc. terrorism was given as an excuse for a lot of these policies being implemented. Again, in the financial industry we were never so sure. We felt this had more to do with taxes than actually with preventing terrorism funding and of course, if your currency is on the blockchain and you can see where every transaction originates from, where it goes to, the ability to collect taxes will be easily enhanced.
‘So, from a surveillance perspective I think governments actually have a vested interest to being supportive of this technology and why it will probably be adopted faster than we expect.’
Will we see central banks abandon fiat currencies in favour of digital currencies?
As you probably already know, fiat money is quite new. Fiat currencies are government issued money that is not fixed or backed by anything. Mass government use started in 1971, when the US stopped backing the US dollar with gold.
I am no crypto expert, but I do agree with Marc that this is an unstoppable process.
I mean, we are already seeing many governments planning for state backed digital currencies. Sweden is exploring launching the e-krona.
Estonia is looking at the estcoin. Remember, Estonia is part of the eurozone, so it can only have the euro as legal tender. One of the ways they are looking to make it work is by pegging the estcoin to the euro and then make it available only to Estonia’s digital residents.
Central banks are looking at this space and trying to figure out how to make use of the technology.
The benefits are clear. The technology will make it easier for governments to collect taxes and implement monetary policy.
And, as Marc told us, central bankers are not the only ones looking to get into this space. Institutional investors are also looking into this area.
Of course, there are a lot of challenges for them still.
For one, there is regulation.
The conference also included a panel with legal experts on regulation. It was interesting to see that most were of the opinion that we will be looking at more regulation soon. And that this will end up being a builder for the crypto economy as it will bring more trust to the space.
And once regulation comes, we could see a lot more money coming into this space.
Editor, Markets & Money
PS: Cryptos are currently in the Wild West of investing. There are a lot of scams out there and only a few will be winners. If you want to know what projects our in-house crypto editor Sam believes could change our industries forever, click here.