Global Bitcoin Economy - 4 Arguments

Global Bitcoin Economy

Global bitcoin economy thesis: The central banks of China, Japan, India and Russia are considering the implementation of national digital currencies. Is the world ready for a global economy that is not bound by borders and does not need to go through third party intermediaries? Furthermore, what implications would this have on the United States dollar as the world's reserve currency?

1) Background/Rationale

National digital currencies could benefit the countries that implement them.  For example, Japan's national currency is currently facing downward pressures due to a declining population and low birth rates leading to deflation. By shifting towards a digital currency, it would increase the money supply without having to print more physical currency.  Initial reports of  Japan's  Reserve Bank exploring the possibility of a digital currency yielded positive results.

Another example is in Venezuela where there has been hyperinflation due to political instability, which is leading citizens to acquire assets like bitcoin as an alternative store of value.

The main issue with creating national digital currencies is that they would undermine the dollar's role as the global reserve currency.

2) Argument/Empirical Evidence

While it is unlikely that these countries will abandon their national currencies in favor of a digital currency anytime soon, there are significant factors to suggest this could eventually happen. One factor is China's very low household savings rate--only around 3%. This shows that there is a significant opportunity for China to shift its citizens spending patterns, should they be incentivized to do so.

According to Quartz Media, "The People's Bank of China (PBOC) has the authority to release digital currency" The PBOC also announced last year during their annual conference that blockchain technology has "breakthrough applications" for currency issuance and settlements, citing China's Hyperledger project.

Since then, PBOC officials have publicly stated that they are exploring the possibility of issuing their national digital currency in a controlled manner to minimize potential risk factors. For example, PBOC Vice Governor Fan Yifei stated in an article published in 2017 that the digital currency would be "convenient, efficient, and safe."

Another factor is the U.S.'s increased efforts to crack down on capital outflows.

The three major regulations implemented by the government are:

1) establishing scrutiny over foreign purchases of domestic companies; 2) requiring banks to report international wires of $50,000 or more; 3) limiting use of American bank-issued credit and debit cards in Cuba, Iran, North Korea, Syria and other countries. These restrictions have greatly reduced China's ability to use the dollar when conducting trade with its partners. As a result, China has publicly signaled that they will not longer price oil in dollars but instead price it in their own currency (RMB).

In the past few years, China has been encouraging its citizens to keep more of their assets in domestically focused financial assets. For example, it is estimated that 16% of China's massive forex reserves are held as bitcoin. This shows a significant shift from holding them as dollars to holding them as digital currencies on a blockchain. One report showed that since 2015, the PBOC's payments department has been carrying out tests with blockchain technology and cross-border interbank payments using digital currency. Furthermore, they have also established a dedicated research team with members who represented the PBOC at several global forums such as those organized by the Bank for International Settlements (BIS).

Another major factor is Russia's plan to fully replace the U.S. dollar with a digital version of their own currency in response to the U.S.'s sanctions on Russia and Iran that has caused them to lose access to major parts of the international financial system. Hyperinflation in Venezuela is another reason for considering a national digital currency because one coin can currently be worth more than $10,000 USD even though its official rate is around 3,000 bolivars per dollar.

Outline of Argument

Issue: There is a great deal of interest in the concept of creating national digital currencies. This would allow countries to divorce themselves from the need for U.S. dollars while also giving them more flexibility in conducting trade with other countries that do not rely on the dollar for this purpose either.

Argument:

1) Countries like China, Russia and Iran are beginning to show significant interest in issuing their own national digital currencies thus removing the need for using the dollar when it comes to conducting international trade.

2) There are significant factors suggesting this could happen such as China's very low household savings rate, increased crackdowns by U.S. on capital out and Russia's plans to replace the dollar in oil transactions.

3) These reasons are not exhaustive but provide a good start to discuss why there is momentum in this area.

Conclusion

This essay outlines the three main reasons why countries around the world may seek to issue their own national digital currencies. The benefits of doing do in terms of trade flexibility, removing the need for using U.S dollars when conducting international business and creating an avenue where they can keep more money at home instead of sending it abroad are clear incentives for nations to create their own national digital currencies. As such, it follows that central banks would want to explore how they can implement these new technologies into their systems so that they too can benefit from the many advantages that come with them thereby making digital currencies a permanent fixture in the global economy.

https://bitcofun.com/global-bitcoin-economy/?feed_id=2311&_unique_id=61c97ba688bd5