Will Governments and Central Banks Recognize Cryptocurrency?
When times get rough, it is good to have someone in authority who can help the financial system adapt to shocks. Monetary policy includes many tactics that help to regulate and stabilize the economy. If all money were in private crypto networks, these tools would not be available, and we would be on our own. Many central bankers around the world are looking closely at cryptocurrency to learn and see if some of the advantages can be adopted into central bank digital currencies.
Many hope that this research is accelerated. If the central banks of the world wait too long to create widely acceptable cryptocurrencies, much of the population will increasingly put their confidence in these private currencies that innovative programmers think up. Of course, it is fine to have these private cryptocurrencies, but it would also be comforting to know that the central banks are also leading and innovating money so that the dependency on the private sector for crypto is not exclusive.
The pressing question when it comes to the value of money is this – who do you have more confidence in – governments, the precious metals industry or computer programmers’ algorithms?
The Safety Net of Monetary Policy
Investors are increasingly spreading their bets. Although theoretically extremely secure, there are a growing number of interesting stories about how things can go wrong in crypto.
The Canadian founder of the QuadrigaCX crypto exchange died with the passwords to hundreds of millions of dollars of investor funds which no one can access now. The Turkish crypto exchanges Vebitcoin and Thodex were both shut down after instability and fraud, prompting the government to ban the use of crypto for payments. And elsewhere in South Africa, the largest crypto exchange collapsed after the family of the founders disappeared with $3.6 Billion in Bitcoin.
Whenever such incidents happen investors are left high and dry, volatility explodes and there are questions aplenty about the ability to improve and perhaps regulate crypto.
I am hopeful that the central bankers of the world come together quickly to provide leadership in the age of crypto. Even though the efforts of innovative, private crypto innovators are remarkable and should continue, I would hope that we can also have cryptocurrencies backed by central banks upon which the tools of monetary policy can be used.
Call me old-fashioned, but should serious instability ever set in, it would be nice to have someone in the government to call for help. Otherwise, we are on our own. It might also help us come to grips with the environmental aspect of crypto which consumes an enormous amount of energy. I believe that having both unregulated and regulated cryptocurrencies and coexisting exchanges will improve acceptance, innovation, stability, and a better future for crypto.