Tag: currencies

National Currencies last breath?

The world of digital currency has gained massive popularity in the past couple of years.

Bitcoin has moved over $19,000, whereas, Ethereum is increasing in value every day and its price has crossed over $700. The continuing boom of cryptocurrencies might eventually lead to the next big step, i.e., the end of cash currencies.

Yes, you heard it right. Even the director and founder of Bitt, Gabriel Abed, is of the opinion that cash has been in the market for too long, and all the currencies will eventually be digitized.

 

Rise of the New Economic Age

All the cryptocurrencies, including Ether and Bitcoin, are basically issued by private organizations, groups, and individuals, they mine it through cryptographic protocols  and more and more countries are gradually heading in that direction.

  • Russia has recently announced its plans for a national digital currency called Crypto-Ruble.
  • China and Kyrgyzstan are following the lead.
  • In Japan, over 200,000 stores have been accepting bitcoin as a legal tender and some of the big banks are planning to create their own version of these cryptocurrencies.

In a highly innovative environment, efforts are being made to circulate digital currency in various economies. The Federal Reserve in the United States however, has no such plans of nationalizing the cryptocurrency.

 

Crypto-Ruble – A New Start for Better Russian Economy?

Putin is very strict about following law and order and despite the advantages of having a national digital currency, it has gray areas when it comes to its legal status. This is why he is a little skeptical about cryptocurrencies. Therefore, the aim of Russian official crypto-policy is to eliminate the chances of illegal transactions such as, human-trafficking, terrorism financing, and  money laundering, while at the same time using this technology to modernize the internal capital management of Russia. This is the main strategy behind crypto-ruble.

The crypto-ruble will serve as a connection between the real world and the crypto-world, which would enable the efficient tracking of capital flow in the Russian economy. Those who won’t be able to provide a paper trail of ownership will have to pay tax on crypto-ruble at the capital gain rates. It will encourage the development of low-cost crypto-payment systems, which allows the exchange of rubles for goods only in digital currencies where ownership can be tracked.

 

China Taking a Step to Cryptocurrency Implementation

People’s Bank of China has already created a prototype of a digital currency that may be circulating in the market in times to come, alongside Yuan. The country is testing possible scenarios in a simulated environment and running dummy transactions using digital currency with a few commercial banks in China.

 

Making Quantitative Easing Easier with National Cryptocurrency

The rise of new economic age with cryptocurrency as a national currency will make quantitative easing much easier. Quantitative easing is an economic concept, whereby the central bank purchases predefined amount of financial assets and government bonds to give a boost to the economy. By having a national cryptocurrency, it will be easier to execute the concept of quantitative easing.

 

Why is National Digital Currency a Better Idea?

Abed further added that nationalizing the digital currency is a better option as it is more transparent, immutable, and efficient. In fact, there have been talks between the Central Bank of Jamaica and Bitt to enable testing this technology. At the same time, the company has been running the active pilot programs in other Caribbean countries.

Jamaica is encouraging the FinTech startups by enabling them to operate in the country. The main reason behind these efforts is to foster innovation. A representative of the Caribbean Development Bank said that they do not want to be in a situation where regulatory authorities have a strong and dominant hand initially. He further said that the Caribbean can be used as a virtual space to test the new technology in a secure environment. These efforts will eventually enable them to take bigger steps in the future.

Should Regulators be Concerned About This Profitable Investment?

Although investors from around the world have shown increasing interest in the digital currency, many regulators negatively criticize Blockchain and Initial Coin Offerings (ICOs). However, there has been an exception recently as Yao Loong Ng, the executive director of the Financial Market Strategy department, is encouraging the regulatory authorities around the globe to learn about cryptocurrency and ICOs. He even pointed out the fact that learning about the developments in the world of digital currency can be useful for regulators.

In a panel discussion of the South East Asian Nation Capital Markets Conference that was held in Malaysia, Ng said that it takes a lot less time to market for the ICOs as compared to IPOs (Initial Public Offerings).

IPOs can take as much as 9 months to market. This is why he believes that if the entire process of writing a white paper for ICOs and its subsequent listing is taking just a few days, then regulators certainly have something to learn from it.

 

Current Developments in Cryptocurrency

But the question is, why is there a need to regulate it? Cryptocurrencies have gained a lot of traction in the last few years and so many investors have been investing in the virtual currency. In fact, in July 2017, Alex Tapscott, Blockchain Revolution’s author, made an announcement of closing an over-subscribed financing of 20 million dollars for his digital investment funds. The hedge fund is called NextBlock Global. His opinion is that this fund has everything, including domain expertise, and market access to have a bright future.

Last year in September, Olaf Carlson also created a hedge fund of digital currencies, which had more than $200 million in Assets Under Management. Among many venture capital firms that are backing this fund, Union Square Venture, Sequoia Capital, Andreessen Horowitz are a few leading names.

Currently, the majority of the investors in the world of digital currency are either individuals with high wealth or retail investors. Institutional investors have so far shown very limited interest in cryptocurrencies. But this is not going to stay the same. In fact, the change has already started taking place. The new flow of investment by the institutional investors will give a boost to bitcoins and other altcoins by pushing its value rapidly in the upward direction due to their small market capitalization.

In times like this, it has become increasingly important to step forward. Instead of negatively criticizing the new form of currency, it’s time to embrace it and start the efforts of regulating it. Although, there has been a constant backlash from the regulators community at large, there are a few countries where authorities are working on creating regulations.

 

Regulating the Digital Currency

In Malaysia, the Security Commission has made an announcement that it is currently in the process of preparing guidelines and regulations on how these currencies should function, which includes secondary market trading of established digital assets and currencies.

Tan Sri Ranjit Singh, the chairman of the commission said that they are working closely with the central bank of Malaysia to develop a framework on cryptocurrencies. He further added that it will take a few months for the framework to complete. He also mentioned that they are observing it very carefully and since the Security Commission control and regulate the secondary market, they will design the rules and regulations in such a way that there is a right condition in place for trading values in order to secure market integrity. This is also being done for providing the projection to investors.

 

Regulatory Efforts

A consultant at the Institute of Defence Studies and Analyses, Munish Sharma, talked about the dilemma faced by most regulators, especially when it comes to the existence of this new technology in the highly regulated space. He said that digital currency has gained a lot of investors’ attention in the past 5 years, but at the same time, there have been growing concerns among the financial institutions’ regulators around the world.

Instead of just letting the digital currency grow without any interference or regulation, governments of various countries are brainstorming with the regulators on how to regulate these virtual currencies.