The banking fraternity has held a white knuckled grip over the finances of the world and maintained a tight hold over fiscal policy and currency regulation, but is this about to change? Are the central banks being confronted by a wild tiger they did not expect and which is showing all the signs of overtaking the control of the financial economy of their world?
Bitcoin has risen seemingly from nowhere to challenge the existing banking structure. True despite the dramatic rise Bitcoin is still in its infancy and in comparison with the world finance markets, is infinitesimally small. But its growth spurts have alarmed the Central Banks who seem to see it as an upstart trying to take away what it considers is rightfully their business and a mad scrabbling around has ensued to find out if it can be suppressed, controlled or even used to their advantage.
Former US Senator, Judd Gregg (R-NH) a previous chairman and ranking member of Senate Budget Committee recently asked, “Can a bunch of computers that are set up by a bunch of smart people do a better job [than central banks] of managing the vagaries of the world’s money supply?”
The instinctive answer is no according to Gregg as it would ‘defy the logic of time and history for Bitcoin to challenge national currencies — and the central banks that manage them — for dominance in the marketplace.’ But according to Gregg this may not be entirely correct. “If people accept that Bitcoin or any of its descendants have value — and if that acceptance becomes the bedrock faith underpinning the marketplace — then it will herald a new era,” he wrote. “The implications of the legitimization of Bitcoin as a currency are truly staggering.” And “it is also possible to foresee, not too far over the horizon, a world economic structure where currencies like the dollar, the euro and the yen will be challenged by crypto-currencies that obtain generally accepted status.”
Acceptance by government as well as banks are mixed around the world as both grapple with this unexpected push and shove by Bitcoin and other crypto currencies onto the world markets. Predominantly the first reaction has been to try and shut down the production and use by trade by hard line governments such as China and when that observably does not work then a step back and regulation becomes the order of the day. Surprisingly some countries with strong independent economies and a far seeing approach such as Japan and Singapore, have welcomed Bitcoin with open arms along with some weaker economic countries such as Venezuela. But China, South Korea Vietnam and Indonesia, for example are taking a hard line with tighter regulation and taxation enforcements. Currently this appears, on the face of it, independent action by each of these countries but S. Korea’s call to other nations for unification of tighter regulations is something the central banks will certainly endorse and support as an entrance point to reducing the influence of crypto currencies on the financial market.
Given the persistence of Bitcoin and increasing influence of other crypto currencies we can see a future challenge to traditional currencies such as the dollar, yen, pound and central banks being slowly ‘neutered’ as Gregg put it. Has Japan seen this and decided to use it to their advantage rather than resist it? In Daniel Krawisz article, hyperbitcoinization, listed at the Satoshi Nakamoto Institute, he speculates the Bitcoin induced demonetization as that, ‘…which is what would happen to any hapless currency that stands in Bitcoin’s path of total world domination? If this happens, the currency will rapidly lose value as Bitcoin supplants it.’ Hyperbitcoinization would replace hyperinflation and Krawisz makes a good point that this would be more stable after an initial period of confusion. There is an old principle that when you introduce order into an area some confusion rises to the surface and dissipates after which the order introduced begins to establish itself. One can generally see this in any situation where something new is introduced into an already established scenario.
The Central banks having nothing to crow about however. Hyperinflation, decreasing value of traditional currencies, uneven distribution of wealth, inflation, the world debt clock showing $69,338,058,000,000 and constantly rising, all demonstrate an alarming level of incompetence in the handling of basically … money. Money is an idea backed by confidence and the irresponsible handling of world fiscal policy has not inspired confidence in the Central Banks authority on control so Bitcoin and other crypto currencies seem to be growing to fill a void in the growing lack of confidence in money.
Nassim Nicholas Taleb author and scholar made a valid point when he said that Bitcoin is an insurance policy against government mismanagement. Its mere existence is an insurance policy that will remind governments that the last object establishment could control namely, the currency, is no longer their monopoly, and “This gives us, the crowd, an insurance policy against an Orwellian future.”
Regulation of Bitcoin can be a good thing however provided it does not interfere with the right for anyone to buy own or sell Bitcoin. And that regulation does not surpass the regulations currently imposed on fiscal currencies. Of course laundering of crypto currency should be curbed but compared to the extent of money laundering in traditional currencies in which many banks have been involved, any laundering using crypto currencies pales into insignificance.
Taleb also pointed out, “It (Bitcoin) fulfils the needs of the complex system, not because it is a cryptocurrency, but precisely because it has no owner, no authority that can decide on its fate. It is owned by the crowd, its users. And it has now a track record of several years, enough for it to be an animal in its own right.
Bitcoin, and many other crypto currencies, are here to stay. What we and the central banks do with them remains to be determined, but sure as eggs are eggs, it will not go away and will form, at least, a significant part of the financial economy of this planet.
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