Governments around the world have been toying with the idea of state-owned cryptocurrencies for quite some time, and the concept has become appealing to the Feds as well – with talk of a state-backed cryptocurrency having surfaced in American discourse.
Some nations’ central banks have already considered such a step as a middle road between unregulated cryptocurrency enthusiasm and outright banning.
Not only is the tremendous value of blockchain technology apparent to even vested interests of the old order, the push from enthusiastic consumers in almost every country of the world has forced governments to formulate appropriate responses. As with Bitcoin and other digital currencies, a state-backed virtual coin would be held in a wallet and employed as a transactional currency.
Rod Garratt, Professor of Economics at the University of California at Santa Barbara went on record saying he believes that it is only a matter of time before a government-issued digital coin appears. As a Federal Reserve executive, Garratt was formerly a vice president with the Bank’s New York Money and Payment Studies Division.
Speaking at the current MIT “Business of Blockbchain” conference in Boston this week, he pointed out how the currently circulating cash in Sweden’s economy, seen as a function of Sweden’s GDP, has declined noticeably over the last few years. Cash is now under 1.2 percent of Sweden’s GDP. “So cash is really disappearing in Sweden. It’s not accepted at many businesses and many banks won’t deal with cash anymore,” Garratt said.
While many find it easier to believe that should such a P2P virtual currency appear, it would most likely simply complement fiat currency. It could just as easily, however, replace fiat currency, were the citizenry sufficiently behind it, very much like modern day Sweden.
“I think there is a likelihood that some type of digital central bank money will become available in the reasonably near future because I think it’s a natural progression. It’s something that’s been talked about for a long time,” Garratt added. He worked as a “digital currency technical adviser” to the Bank of International Settlements (BIS), Switzerland.
The BIS, whose mandate centers on fostering ties between central banks all over the globe, has also been investigating what a future dominated by cryptocurrencies would look like, assuming the citizenry moved wholesale to the digital coins.
To some commentators, cryptocurrencies and state control just don’t mix. Garratt points to the fact that cash is also fundamentally a P2P process. “It might sound strange to think about the central bank providing something that allows anonymity from itself, but that’s what cash is,” Garratt told those gathered at MIT. “So, it’s not such a crazy thing.”
A state-backed digital currency would also bring good news for many. Lower income users who employ banking services are typically penalized for their frequent, small transactions. Banking fees would be obliterated with a state cryptocurrency. Huge improvements in efficiency as well as UX effectiveness are also a given in the event of a government virtual currency emerging. The Riksbank, Sweden’s central bank, is investigating the possibility of issuing virtual currency to enable mobile payments. In 2015, Ecuador received loads of press for creating a world first state-backed digital currency, dubbed Sistema de Dinero Electrónico.