The battle for control over the future of money

“Bitcoin Pile Stock Image” by Crypto360 is licensed under CC BY 2.0

It’s no secret that governments and central planners of all stripes have long detested the rise of private money and independent digital currencies. They have tried to stifle the burgeoning crypto industry from the moment it attracted mainstream attention. For years, they have continued to add regulatory hurdles and threaten crypto holders and investors, as well as companies in this space, with unreasonable tax burdens and unrealistic disclosure requirements that come with hefty fines.

An existential threat

The reason behind this hostility is plain as day. If a government can no longer force its citizens to exclusively use its own money, and if they are allowed to freely choose alternatives for themselves, it’s only a matter of time before they realize all the shortcomings and practical disadvantages of fiat money. And once a state loses control over the currency, it won’t take long before it loses control over everything else.

This threat of an emerging independent financial system that could counter and prevail over the monopoly of nation-states was already severe a couple of years ago, when Bitcoin and other cryptocurrencies entered the mainstream. Now, however, this threat is existential for states across the world. The ability to pay and to transact in an efficient way that requires no third party and guarantees privacy and transparency was already a very strong selling point for millions of ordinary people, but there’s so much more that the industry has to offer now, with the rise of sub sectors like Decentralized Finance (DeFi), and the technological progress that accelerated massively once the investment interest picked up. There’s a real, solid and truly sustainable infrastructure being built around payments, settlements and banking services that directly challenge not just the state’s dominance over the currency, but also the role of traditional banks and other financial institutions that are under its control.

In this new system, stablecoins, namely a subset of cryptocurrencies whose value is pegged to a real-world asset, such as the USD, play a crucial role. They go well beyond serving basic needs such as payments or trading, as they are essential to the development of DeFi applications. Central planners and regulators understand this very well, which is why so many of the latest regulatory attacks are focused on bringing stablecoins under the control of central banks. As Coindesk reports, in the US, “In 2020, the Financial Action Task Force (FATF) said stablecoins share the same potential money laundering and terrorist financing risks as other cryptocurrencies and called for revised AML/CFT standards. Later in 2020, the STABLE Act was introduced in the U.S. Congress, requiring stablecoin issuers and institutions to become licensed members of the Federal Reserve system and follow the appropriate banking regulations.”

“If you can’t beat them join them”

Despite the fiery rhetoric, the scaremongering campaigns trying to paint the crypto space as dangerous and as a home for criminals, terrorists and tax evaders, and the practical steps already taken to hamper its growth, it is clear that the decentralized nature of this entire industry makes it simply impossible to defeat with a top-down approach or even with brute state force. Shutting down one project, no matter how large or widely used, only ensures that another one will take its place.

Recognizing this fatal flaw in their strategy, many governments and central bankers seem to have adopted a new approach: “If you can’t beat them, join them”. In a congressional hearing in mid-July, Fed Chair Jerome Powell didn’t mince his words in explaining his reasoning in favor of a US Central Bank Digital Currency (CBDC): “You wouldn’t need stablecoins; you wouldn’t need cryptocurrencies, if you had a digital U.S. currency”.

And it’s not just the US that is entering the fray. Many nations and their central banks are exploring or even already developing their own digital currencies, in complete opposite spirit of the crypto ethos. These projects envision digital versions of the existing fiat currency, designed to be totally centralized and under the absolute control of the central bank, enabling it not only to track transactions and to tear down whatever privacy walls are left standing, but also to create money and to transmit monetary policy decisions much more efficiently than today.

An unwinnable war

All this may sound like the ideal scenario from a central planning point of view and it did give rise to serious concerns in the crypto community. Indeed, on the surface and from a short-term perspective, all these regulatory threats and attempts by states to hijack the crypto revolution can have a severe impact on the sector and hamper its progress, as well as slow down adoption rates for various cryptocurrencies and other applications.

Sure, the introduction of an oppressive tax regime might deter some investors and push them back into conventional asset classes. The fear of privacy protections coming to an end due to strict disclosure requirements might prove to be a deal breaker for some crypto users who value the ability to transact without interference and without being tracked and monitored. And the prospect of a “respectable” and “trusted” digital currency alternative, backed by a nation like the US, could attract some interest from mainstream investors and ordinary citizens who were so far too reluctant to enter the crypto space, due to a lack of understanding or a lack of trust in the idea of private money.

However, all these efforts are ultimately set to fall short. In fact, they are designed to fail, as they all ill-conceived, short-sighted and naive. The arrogance of central planners is evident in the fact that they are trying to defeat the crypto revolution without understanding what made it possible in the first place and what ensures its survival. The core strength of this industry is the concept of decentralization, as well as the idea of free competition. Without these two essential building blocks, any attempt to compete with a real crypto application is doomed.

Investors, savers and ordinary citizens will inevitably realize from their own direct experience that the centralized approach is inferior in all the ways that truly matter. Fiat money, whether digital or physical, fails in the most important functions that money is supposed to serve: medium of exchange and store of value. For the former function, cryptocurrencies have an indubitable edge, while for the latter, physical precious metals have the upper hand, as they have done for centuries. Projects that can combine the two, will very likely play a crucial role in the future in the decentralized denationalization of money.

Claudio Grass, Hünenberg See, Switzerland

This article has been published in the Newsroom of pro aurum, the leading precious metals company in Europe with an independent subsidiary in Switzerland.

This work is licensed under a Creative Commons Attribution 4.0 International License.

© Claudio Grass, Hünenberg See, Switzerland 2021