Are Cryptocurrencies the Future of Global Economy?

There have been a lot of big news stories about cryptocurrencies,
especially Bitcoin, in the last year

Currencies that are managed using blockchain technology are becoming more and more widely accepted and known about, and there are certainly more than a few people now wishing they had gotten involved in them earlier! Cryptocurrencies have also started to be traded in a similar way to conventional currencies.



 

Some Governments Mistrust Cryptocurrencies

In order for cryptocurrencies to become widely adopted, and integrated into economics on a serious level, it would require policymakers to become properly comfortable with the concepts. At present, this isn’t really the case, with even some of the countries that were big early adopters of cryptocurrencies on a popular level like South Korea seeing the potential for things to go badly wrong, and warning the population not to go all in with things like Bitcoin.

Some governments have an even stronger dislike of cryptocurrencies, for instance there has been a long running war between the Federal Bank of China and the Bitcoin industry, and cryptocurrency brokering isn’t legal in every country.

This reticence is likely because, as in many other fields, technology has advanced faster than the understanding needed at a policy making level to make good decisions about how to best leverage it. Making economic strategies that include cryptocurrencies is going into untested waters for governments, and this is not something that risk-averse economists would ever advise, even if it does open up some exciting possibilities.

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Businesses Could Reap Rewards

However, economics is only managed by governments – it is driven by businesses and consumers, and in many cases, cryptocurrencies have a strong appeal to these. Regulatory issues can, however, make it difficult to launch complex business structures that could really make the most of cryptocurrencies, and this is where the fact that laws and regulations all over the world don’t yet really know how to handle cryptocurrencies causes obstacles.

There is, for example, a lot of potential for groups of nations that trade together a lot but have different currencies, such as Caribbean island nations, to streamline how they do business very significantly by making better use of blockchain and cryptocurrencies, because this would cut out all of their local currency conversion headaches when trading.

While there is a long-term initiative to do this in the Caribbean, supported by various local banks, technology companies and governments, it is a very complicated thing to implement from a legal point of view and this will mean it will be a long time before the businesses and customers will start to see the benefits of technology that actually already exists.

Countries Benefiting from the Crypto Industry

In other countries, governments and businesses are getting involved in the industry itself and creating jobs and boosting their own economies. A good example is Norway, who have something of a boom in cryptocurrency data centres.

However, just because these countries want to build expertise in the growing industry, doesn’t necessarily follow that they would support other types of investment into making cryptocurrencies have a more significant presence in the mechanics of the global economy.

As you can see, there are some deep seated and difficult issues that are likely to mean that if cryptocurrencies do ever even begin to become a major economic force, it will take a lot of work to get there.


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Author Morocco World News 
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Iran, China Seek to Loosen Dollar’s Grip on Global Markets

Iran, China among those trying to end dominance of the U.S. currency

A small but growing number of countries are stepping up efforts to wean themselves off the dollar, aiming to chip away at the U.S. currency’s decadeslong dominance.

Iran last week became the latest when it pledged to replace the dollar with the euro in its foreign currency accounting.

China introduced the world’s first yuan-denominated oil contracts last month, part of a continuing effort to raise its currency’s global profile, while Venezuela launched a bitcoin-like cryptocurrency earlier this year. Russia has ramped up its gold reserves to diversify away from the dollar. Still, none of these new efforts has threatened the dollar’s global role.

Some analysts say the governments moving against the dollar may be trying to capitalize on growing unease among many nations, including U.S. allies, over recent or perceived shifts in U.S. trade policy, Washington’s approach to global alliances, and conflicting signals from the Trump administration about its preference for a strong dollar.

Share of countries anchoring their currencies to the dollar:

Increased uncertainty on those fronts could eventually fuel additional efforts to create an alternative to the dollar. For now, however, the attempts are unlikely to succeed, analysts and economists say, just as previous efforts had little or no success.

“The U.S. has been using financial sanctions very aggressively so, of course, countries like Russia and Iran will do what they can to move away from the dollar,” said Kenneth Rogoff, a professor at Harvard University and the former chief economist of the International Monetary Fund.

For other nations, boosting use of their currency would require substantial changes in policy. China’s yuan, for example, is unlikely to increase its tiny share in global transactions until Beijing removes longstanding curbs on foreign investment, an effort that could take many years, analysts said.

The dollar’s dominance looks secure. Nearly 60% of all countries, accounting for 76% of the world’s gross domestic product, had exchange rate regimes that were in some way anchored to the dollar in 2015, Mr. Rogoff’s research found.

The U.S. currency is involved in nearly nine out of every 10 transactions in the daily $5.1 trillion foreign-exchange market, data from the Bank for International Settlements showed. The dollar makes up nearly two-thirds of the $11.42 trillion in foreign exchange reserves held by central banks.

Over recent decades, there has been “a stunning rise in the dominance of the dollar,” Mr. Rogoff said.

Shares of central bank currency reserves:

In fact, most nations would agree that there is a global benefit to doing business in one main currency, since it is easier and cheaper for companies to conduct international business and for investors to buy and sell commodities.

The euro gained traction internationally after its introduction in 1999, with a rise in cross-border lending denominated in the currency. But when the eurozone’s sovereign debt crisis raised the specter of countries defaulting on their debt, the chances of it supplanting the dollar were dashed.

In 2009, the euro peaked at 28% of global FX reserves. In most recent data, the single currency made up around 20%, though some analysts expect that to move higher as the European Central Bank winds down stimulus and reverts to more traditional monetary policy.

The dollar’s 6% decline over the past year reflects in part confusion over the Trump administration’s policies on trade and other issues, said Barry Eichengreen, professor of economics at the University of California, Berkeley.

Administration officials have also at times offered conflicting signals on whether the U.S. favors a strong dollar, breaking a decades-old precedent of officials saying that a strong currency is in the country’s best interest.

In January, U.S. Treasury Secretary Steven Mnuchin said a weaker dollar in the short term would be good for U.S. trade. Several days later, he said his comments had been taken out of context and reiterated that, in the long run, a stronger dollar “is a sign of the economic success of the U.S.”

Iran’s recent efforts aren’t its first attempt to back away from the U.S. currency. And former Venezuelan and Iranian presidents Hugo Chávez and Mahmoud Ahmadinejad once cheered earlier declines in the value of the dollar, suggesting oil would be priced better in euros.

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Yet oil markets are still overwhelmingly priced in U.S. dollars, as are nearly all other raw materials. The Iranian rial has dropped by more than three-quarters against the dollar since then, declining 14% since the beginning of this year alone, leaving citizens lining up to exchange rials for foreign currency in the capital city this month. The Venezuelan bolivar has lost almost all of its value over the same period.

China’s efforts to use the yuan to create an oil benchmark that will rival those in New York and London “look to be a non-starter,” the Council on Foreign Relations said in a report. In February, the yuan made up just 1.6% of domestic and international payments, according to financial transactions firm SWIFT. As a share of currency reserves, the yuan represents 1.2%.

Those attempts would likely be more successful if officials removed capital controls, as currencies that foreigners can save and invest efficiently are always preferred for international transactions.

“China’s bond market is just way too small to support a truly global renminbi,” said Benn Steil, CFR’s director of international economics.

 


Here at Dollar Destruction, we endeavour to bring to you the latest, most important news from around the globe. We scan the web looking for the most valuable content and dish it right up for you! The content of this article was provided by the source referenced. Dollar Destruction does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products or other materials on this page. As always, we encourage you to perform your own research!

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Author: Mike Bird and Ira Iosebashvili
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