Showing posts with label IMF. Show all posts
Showing posts with label IMF. Show all posts

October 20, 2017

The next generation of currency wars - Private vs. State-backed Crypto

By Tho Bishop - October 20, 2017 (mises.org)


Recently Russia announced that it will be unleashing a CryptoRuble, just a week after Vladimir Putin strongly criticized Bitcoin and other private cryptocurrencies.  When announcing the move, Minister of Communications Nikolay Nikiforov acknowledged that it was in part inspired by the aim of getting ahead of other governments:

"I confidently declare that we run CryptoRuble for one simple reason: if we do not, then after two months our neighbors in the EurAsEC will".

In doing so, Russia is following the lead of another country that too has become hostile to private crypto, China. Last July the People’s Bank of China became the first central bank to announce it had developed a crypto-prototype that it plans to offer alongside the traditional renminbi.

That the first forays into state-backed cryptocurrency comes from two countries with a history of restricting a free and open internet is not surprising. While Bitcoin originated as a way to opt out of government control of money supply, increasingly governments see the underlying technology as a way to increase their control of the economy.


"For example, if the government plans to subsidize certain farms, say some corn farms, to support this sector of agriculture, they can directly add a certain amount of money to the wallets of some farms, for instance 100 million dollars and program this money to be sent to certain fertilizer merchants at a certain time, and that each can only spend maximum of 10 million dollars per year, and in this way, they can make sure that the farmers won’t squander the windfalls, and that this money won’t flow to other sectors, for instance, the stock market or real estate market.

Even though this kind of monetary policy is bound to fail, from the perspective of government officials, CBDC provides them a better tool. For them, with the help of the CBDC, they can plan and manage the economy better".

Not to be left behind, the IMF – who some analysts, such as Jim Rickards, believe is prepared to step up to replace the US dollar as the next global reserve currency – recently opened the door to issuing their own cryptocurrency in the future. While some crypto-advocates have naively celebrated recent comments by Christine Lagarde on the future potential of digital currency, such praise simply reflects the increasing awareness of technocrats that the finance is changing and they must be prepared for it. Considering central banks around the world have continued to advance their war on cash, it is not surprising to see Lagarde and others come adapt to the concept so quickly.

Exchange Regulation


The usefulness of state-controlled crypto is why we should expect increased scrutiny and regulation on private cryptocurrency exchanges.

It's been reported that the Chinese government, which shutdown private crypto-exchanges in September, is looking into reopening exchanges with increased regulation. Russia, too, is working on exchange regulation, rather than an outright ban.  This apparent change in direction may be the consequence of China’s exchange ban resulting in an increased use of peer-to-peer platforms in the face of the government crackdown. 

For the same reason that government prefers regulated bank accounts to cash and safes, state officials may recognize the benefit to propping up licensed exchanges. Already we have seen numerous cryptoexchanges be willing to collect and hand-over sensitive customer information in exchange for government-issued licenses. Much like banks, these exchanges are increasingly being enlisted as tax collectors for government.

Calm Before the Storm?


While this loss of privacy may outrage Bitcoin’s initial supporters, it’s understandable why many current holders may be perfectly happy with these developments. After all, while much of Bitcoin’s initial appeal was its usefulness in black markets, a major reason for its astronomical rise in value is its increasing appeal among average customers who were never all that concerned with financial services regulation. Not only has it helped its appeal as an investment, but also its daily use. Japan, for example, saw a major surge in retailers accepting Bitcoin once a firm regulatory framework was implemented.

It is worth wondering whether this harmony between government and consumers will continue, however, once state-controlled crypto truly ramps up.

After all, we’ve already seen government rely upon traditional boogeymen of terrorists, drug dealers, and other criminals as justification for their increased control. The increasing use of Bitcoin by hackers and extortionists provides a modern-day twist to these age-old scare tactics. Is it all that difficult to foresee a scenario where governments attempt to freeze all regulated exchanges in the aftermath of some terrorist attack or other scenario? Or go one step further, and legally mandate replacing a privately-held asset for a government-issued currency?

The example of China demonstrates the inherently decentralized nature of Bitcoin will likely always ensure a degree of functionality beyond the reach of government. At the same time however, the increased popular appeal of crypto-currency also means increasing reliance on third-party services, and fewer individuals securing their investments in private wallets.  Since the most popular – and thus most lucrative – exchanges and other services have an inherent incentive to maintain a good relationship with legal authorities, it is easy to see how this easily plays to the benefit of government officials.

Already within the industry debate is raging between those who prioritize “efficiency” and mainstream appeal – even at the expense of crypto's decentralized-origins. Luckily, Bitcoin’s original Austro-libertarian ethos means that we are likely to see major industry influence pushing back on state-control.

A Preemptive Strike for Monetary Freedom 


In the meantime, this is yet another reason why what little political capital libertarians on monetary policy have should not be wasted pursuing moderate reforms such as forcing the Fed to embrace rules-based monetary policy. There is no hope to ever transform the Federal Reserve into a useful – or even non-harmful – institution. That hope does exist, however, in crypto.

As future monetary policy is soon to become a major topic of conversation as President Trump rolls out his Federal Reserve nominations, it would be a major loss for the cause to not see Senator Rand Paul and other Fed-sceptics use the opportunity to push discussion about the need for competition in currencies. Further, the recent surge in states that have legalized the use of gold and silver for the payment of debt means there has never been a stronger political case for the elimination of legal tender laws and the taxes imposed on alternative currencies like Ron Paul proposed when in Congress. Such a move now could help set the stage for America being a true safe haven for private crypto in the future. 

Doing so may give the cryptocurrency industry the freedom to give us a fighting chance to truly end the Fed, and their clones around the world.

Tho directs the Mises Institute's social media marketing (e.g., twitter, facebook, instagram), and can assist with questions from the press. 

October 16, 2017

Why IMF wants to enter crypto market with its own coin

By Darryn Pollock - October 16, 2017 (cointelegraph.com)

Christine Lagarde, IMF Managing Director, has had many positive things to say about the potential of digital currencies and their disruptive model, but she has now added that the IMF would not rule out creating its own version of it.


Recently, Russia entered the decentralized digital currency space with its ‘CryptoRuble’ and it could be that organisations, as well as states, see the value of digital currencies, but ones that they can control and issue.

About to see massive disruptions


The IMF head has said before that she pictures her organisation playing a crucial role in regulating cryptocurrencies globally, but in a positive manner as she seems to be on the side of Bitcoin.

Lagarde is of the opinion that Global financial institutions are taking risks by not watching and understanding emerging financial tech products, and that are already starting to shake up the financial services and global payments system.

"I think that we are about to see massive disruptions," Lagarde said at the IMF Annual Meeting in Washington D.C.

IMF to develop its own


Remarking on something that the IMF has already created, comparing it to digital currencies, Lagarde said that the IMF would not rule out developing its own cryptocurrency in the future.

She pointed to the IMF's Special Drawing Right (SDR), a currency the IMF created to serve as an international reserve asset, that could incorporate technology similar to cryptocurrencies.

"What we will be looking into is how this currency, the special drawing right, can actually use the technology to be more efficient and less costly," she said.

The IMF is looking to make its way into the crypto space, and with their hopes of regulating it, Lagarde says it makes sense simply due to the cross border nature of it.

"My hope is that we can participate in that process because I see that as a very cross-border process," she added.