by Fernando Sanchez
7 months ago
Crypto rises again, and where you least expected it. Central banks had up to now dug in their heels and firmly opposed any association, or even a hint of acceptance about the existence of digital currencies. But that’s all changing in 2020.
Accepting the inescapable crypto reality
There’s a rather old adage that goes if you can’t beat them, join them – and as crypto rises again, central banks are again proving the point. The first known appearance of this proverb is in a 1932 edition of the Atlantic Monthly magazine, although it probably goes back a lot further than that.
That adage still holds true today, almost a century on, as central banks are increasingly joining the crypto ranks worldwide.
Previously self-declared arch-nemesis and opponents of the crypto regime, centralized financial entities appear to have broken their lines of defense of the status quo and are rolling out their own digital currencies.
Does this mean that ‘real’ money will soon be replaced with digital assets?
Yes and no, and this is a good thing, depending on your point of view.
Money is nothing but a medium of exchange to transfer goods and services. But money, in itself, is largely worthless. It is simply a piece of printed paper or cheaply made coin used as a token to represent the transaction.
Yet, despite its apparent insubstantiality, few things stand shoulder to shoulder to absolute reality today to the extent that cold hard cash does. From bankers to retailers, craftspeople selling their wares or agents of the nefarious underworld, the undeniable reality of money speaks loud and clear. Today’s world is bound by monetary ties, and cash flows like lifeblood around these binds.
But what if one were to shuffle these mortal coils, as Hamlet would put it? Can we do it? Should we do it? Would we be better off without the very thing that enslaves us from birth?
The banks’ point of view
In a “traditional” financial market environment, the management of money relies on centralized banking done through a single financial institution – the Federal Reserve System in the United States, for instance, the Bundesbank in Germany, and so on. Officials within these organizations place a value on the country’s currency based on market demand, fluctuations and other economic factors, and print more or fewer banknotes to regulate the flow. In short, these entities exert absolute control over money. And he who holds the purse strings …
Digital does away with the centralization part, which is not to the banks’ liking, as that tight control ebbs away into the hands of those who were previously bound by the banks’ draconian rules. That is, you and me.
So why would financial titans want to loosen their grip on money?
Digital assets have risen from a niche of relative obscurity back in 2008 to quasi-mainstream status today. Banks shunned them, deemed them to be “worthless, fake money, scams,” and many other similarly derogatory terms in an effort to smite them down. And while it is undeniable that some cryptocurrencies did prove to be so, digital assets march relentlessly on, prompting banks to change their strategy.
Central banks, and social media giants for that matter, are developing their own currencies at an accelerated pace. Even entire countries are aiming to do away with “real” money in the near future, moving on to become cashless societies.
China will soon launch its Digital Currency And Electronic Payment (known as “DC/EP”), whose goal is to digitize some of the money in circulation. Notably, the system will also enable easier trackability of these assets.
Central banks insist that these solutions are designed to reduce issues like money laundering or counterfeiting, but a strong factor driving these projects is to retain control over financial assets. Banks simply do not want to relinquish the that traditionally tight dominance they have enjoyed for so long.
The outcome of these projects is yet unknown, as is the effect that digital assets will have on society.
But one thing is clear. The future is near, and the future is digital.