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Economy

Bitcoin as a National Currency

Luis Durani

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In recent months, Bitcoins have been all the rage especially as the crypto-currency has begun to climb in value. The spike has once again shone a light on the digital currency as a potential alternative to fiat currencies, which currently is witnessing all kinds of volatility thanks to Brexit, central banks’ thirst for printing, and massive deficit spending. While many investors see a positive future for the alternative currency, the true test of Bitcoin will be if a nation adopts the currency. The adoption of Bitcoin as a national currency will bring with it a plethora of financial securities but at the cost of eliminating the ability of central banks to print currency endlessly.

What is it?

Bitcoin was born out of a desire for online payments to be conducted among peer to peer systems with the elimination of a third party or middleman such as Paypal. Since its inception, Bitcoin has evolved into a myriad of entities ranging from being an investment vehicle, digital currency, community, and more importantly, the potential to be an alternative monetary system. It’s in this last point where Bitcoin’s greatest potential lies, if the trend continues; it could forever change how people and government conduct business.

Is it Money?

Despite making headlines, Bitcoin is still unknown to many. A study conducted by the Coin Center has found that 2/3 of Americans have no knowledge about the digital currency and of those that did know, 80% never have used it. This is one of the major impediments for Bitcoin in its quest to become an established currency. When Bitcoins are mentioned, the primary concern for people is whether or not it is money? Many people think of it more as a credit than actual currency such as Dollars, the Euro, Rubles, etc. In order to better understand if Bitcoins are money, one must understand how money is defined. Money is primarily defined by the following characteristics:

Durability – Be able to withstand wear and tear. Thanks to technology, Bitcoin as a digital unit of currency can, in theory, last into perpetuity.

Divisible – Ability to divide into small units allowing consumers to purchase products at any price. Bitcoin is more divisible than any existing currency, allowing users to go into thousandths place for a transaction, if need be.

Scarce – Must be limited and not so easily obtained. Unlike fiat currency, which is not capped and can be printed endlessly (as it is now around the world), Bitcoin production is capped at 21 million, at which point no more will be produced. This fact alone makes Bitcoin more stable than gold which is not firmly capped and supplies remain somewhat unbounded depending on mining activity.

Portable – Is it easy to carry? Due to its digital nature, Bitcoins can be carried on phones, tablets or computers anywhere and anytime.

Acceptability – Must be widely accepted as a medium of exchange. This is currently one of the uphill battles for Bitcoin. It is gaining momentum globally but as a relatively new currency, it needs to continue to increase its recognition. Nevertheless, relative to many minor currencies of weaker economic nations, Bitcoins appear to be accepted more so.

Stability– The value of the currency must remain relatively constant over long periods of time. As a new currency with few investors, Bitcoins liquidity is more volatile due to the effect of every transaction on the digital currency’s price, but with time this issue will subside as more investors and users partake into the currency decreasing its precariousness. In addition, the upper cap of Bitcoin production will serve as an anchor for price stability due to the fact that no more can be created. In theory, this parameter would invalid many national currency, if not all. The US Dollar, perhaps one of the most trusted and strongest currencies, has lost almost 100% of its value in the last several decades.

Thus, by the six generally accepted measures defining a currency as money, Bitcoins appears to fit the mold.

Lessons Learned

The 2008 financial crash as well as the economic uncertainty that has followed in the past decade has caused many to begin questioning the financial systems and philosophies that govern them around the world. As a result, shifts to populist leadership have begun to take root in many countries as well as the call for overhauling their respective economic systems. The confidence crisis will not be solved by any one leader or system but rather how money is handled in these respective countries. Under the current global monetary system, established in Bretton Woods and its subsequent modifications, all the nations in the world have fiat currencies. Fiat currencies are monies that are backed by the promise of the government that issues it and nothing else. This greatly diverges from what use to be practiced where currency was anchored to some tangible commodity that had an intrinsic value such as gold and/or silver. The root cause, albeit perhaps a simplified explanation herein, of many economic crises is due to use of fiat currency. Fiat currencies are not secured to anything, thus allowing central banks to scheme for ways to “alter” its value. Their tools of choice are printing more and using the additional money created out of thin air to “eliminate” any debt and deficit spending but such free reign to produce money comes at a dire consequence; devaluation or inflation. Inflation is an indirect tax on a nation’s population. Unrestricted spending leads to massive currency printing, which eventually is paid for by the citizens through inflation that can go unchecked sometimes as history has demonstrated in Weimar Germany, Zimbabwe, and now Venezuela, to cite a few extreme cases.

Enter Bitcoin. The implementation of Bitcoin as a national currency will yield immense benefits for a nation over time. While many countries dread ceding financial authority of their currency, the benefits of Bitcoin implementation as national currency will outweigh the costs for all countries but especially third world nations with smaller economies. Most economies around the world ultimately operate based on the consumer’s confidence, which has been eroding ever since the 2008 financial downturn. Bitcoin remedies the issue of public trust in the economic system. With smaller nations, the adoption of Bitcoin will allow them to restore not only their public’s confidence but attract foreign investments because there is a source of stability in the country; business loves stability. No longer can a nation’s currency be devalued by social welfare, war, debt, or redistribution of wealth especially to help ensure political ambitions. But pursuing such a policy does not come without costs. A national adoption of Bitcoin renders a nation impotent when it comes to the ability to control reserves, printing additional currency, or any other type of monetary policy.

Such surrender of financial ability forces a paradigm shift for governments in how they operate. The ultimate benefit is for a nation’s citizen, government can no longer squander hard earned tax money on fruitless projects, redistribution to other segments of society in order to secure votes and influence, and send money to finance projects for corporate or foreign allies at the cost of running up the national debt with no remorse. Legislators complacent in the status quo system view the separation of currency and state as anathema to the concept of government due to the fact that it reduces their ability to carry out spending, sometimes massively, without checks. In addition, the thought of such a radical departure is only viewed as such due to the fact that nations were technologically unable to do so until now thanks to the advancement in computing as well as blockchain technology.

The adoption of Bitcoin as an official currency by any nation actually demonstrates that government’s adherence of fiduciary responsibility to its citizens. In doing so, a government handicaps itself in being able to run to the printing press and debase their currency all the while reducing citizen’s wealth through inflation. Instead, the government returns to what it should be doing, which is justify every item in a budget as well as balance it. This in itself will cause a government to become more transparent and reduce corruption greatly as well as strengthen democracy.

Challenges

Perhaps the biggest challenge will be the ability of government to borrow. This will hamper economic growth due to the fact that government and business have become acclimated to artificial growth by the government increasing its debt holdings especially in recent decades, therefore creating economic expansion that was never wholly justified or possible without careless financial management. This shift will have a detrimental effect on citizens and nations alike.

Another downside to an adoption of Bitcoin by one or a few nations is the surrender of a powerful weapon, devaluation of currency. The continual back and forth bickering between the US, China, EU, etc. about currency devaluation is only possible when central banks control a fiat currency, once a nation surrenders that ability, they are no longer able to fight on equal footing against a fiat currency-based nation. This could have negative effects in the interim for such a nation’s industries when it comes to exporting goods. Finally, the establishment of Bitcoin will have a large effect on the concept of credit as is known in its current form. Markets will need to devise a new way for credit creation in a world absent of fiat currency and what it means to have credit.

Conclusion

As Bitcoin continues to grow in popularity and garner more attention by investors, everyday users and even politicians, the inevitable reality of Bitcoin becoming a national currency is on the horizon. Such a currency contains the potential to prevent the financial roller coaster that is being observed in nations such as Venezuela and Zimbabwe. Yet, in the interim, early adopters will face many challenges and impediments as they transition into a Bitcoin-based monetary system but such bumps will pay off in the long term.

Luis Durani is currently employed in the oil and gas industry. He previously worked in the nuclear energy industry. He has a M.A. in international affairs with a focus on Chinese foreign policy and the South China Sea, MBA, M.S. in nuclear engineering, B.S. in mechanical engineering and B.A. in political science. He is also author of "Afghanistan: It’s No Nebraska – How to do Deal with a Tribal State" and "China and the South China Sea: The Emergence of the Huaqing Doctrine." Follow him for other articles on Instagram: @Luis_Durani

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Economy

Russians Need to Strategise Trade with Africa

Kester Kenn Klomegah

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Russian business lobbying groups, together with about 40 business and industry heads, have shown interest in exporting their products to markets in Africa but found it difficult to access facilitation procedures in some of the countries.

To understand some of the processes and procedures, Nonna Kagramanya, the Vice President of Delovaya Rossia (Business Russia), moderated a special seminar to constructively discuss emerging issues and possible solutions on various foreign economic tracks. Representatives of governments, development institutions, private businesses as well as Southern and Eastern African diplomats attended the event.

She said despite the relatively small trade turnover with African countries, Russian companies were very interested in establishing stable long-term contacts with African partners.

As a first step, Ms. Kagramanya proposed the creation of a permanent discussion-line for all interested participants of the seminar to discuss a set of priority problems and barriers when working with Africa.

Polina Slyusarchuk, Head of Intexpertise (St. Petersburg-based African focused Consultancy Group), questioned whether Russia has a broader Africa policy or long-term strategy in there.

“Today, Russia wants to deepen its understanding of the business climate and explore trade and partnership opportunities in Africa,” she underscored.

While meetings organised between Russia and Africa have to be used to discuss thoroughly how to trade, efforts should be made to remove or lessen some of the barriers for mutual benefits. Now Russia’s main goal is to decide what it can offer that foreign players haven’t yet been made available in the African market.

Contributing to the discussion, the General Director of Intelnexus, Anatoly Yakimenko, introduced the participants to the opportunities for the development of Russian-African business cooperation, noting the favourable and hindering factors in the African market.

He stressed the need for potential exporters of Russia to adopt high-tech production and solutions to expand initiatives for more effective positioning of high-tech companies in Africa.

The Deputy Director of the Department of Asia, Africa and Latin America of the Ministry of Economic Development of the Russian Federation, Alexander Dianov, spoke about the non-financial support measures for Russian companies operating within the department.

“Currently, there are 10 intergovernmental commissions between the Russian Federation and African countries,” he said.

At the same time, he said: “There are trade missions only in four African countries, and if you take sub-Saharan African countries, the trade mission operates effectively only in South Africa. It is obvious that there is something to work on in terms of developing the infrastructure to support Russian businesses. If there is a serious request from the business community, we are ready to expand the geography of our presence.”

A representative of the Russian Export Centre (REC) in Africa, Dmitry Suchkov, drew the attention of companies to the need for in-depth analysis of national programmes of economic and investment development of African countries.

He spoke about the initiatives of the Coordinating Committee for Economic Cooperation with Sub-Saharan Africa.

Natalia Zaiser, the Chairperson of the Board of the African Business Initiative, pointed to the problems of ensuring security and stable “rules of the game,” as well as the need to identify five priority areas of business cooperation on the medium and long term perspectives for individual countries.

Representatives of the embassies of Rwanda, Tanzania and South Africa spoke about the integration processes on the African Continent, the potential of regional markets and national development initiatives.

Members of diplomatic missions also noted the greatly unrealised potential of cooperation between Russia and African countries, and interest in attracting investments in infrastructure, education and many other sectors.

They called for a wider interaction between African business circles and Russian businesses.

During the discussion, the participants mentioned high import duties, complicated certification procedure, high cost of products, expensive logistics, security and guarantee issues, and information vacuum as some of the barriers to Russian-African trade and economic cooperation. However, the participants agreed on the need to develop a comprehensive strategy for Russia to work with Africa.

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Economy

Curating a Vision with Young African Entrepreneurs

Jenni Jostock

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How can young people be involved in creating a future of work that is decent, equitable and bright? This November I was fortunate enough to take part in an event with this mandate at its heart.

The Youth Entrepreneurship and Self-Employment Forum (YES Forum) in Dakar, Senegal was co-organised by the ILO and our partners in the Global Initiative on Decent Jobs for Youth. It was a collaborative effort supporting young entrepreneurs in the region, and it was a joy to see this vision becoming real during the two-day event – with young entrepreneurs shining at different stages of the YES Forum.

More than 30 young entrepreneurs took on active speaking roles across the discussion sessions, a “Dragon’s Den” style pitching competition, and the Marketplace. This Marketplace offered participants the opportunity to float in between booths and to have one-on-one interactions with the presenting entrepreneurs and organisations.

The vibrant tone was set at the very start, with all participants given hand-made, customised notebooks, the product of an all-female team led by entrepreneur Ndey Fatou Njie for her business TIGA Gambia. TIGA Gambia is now an all-around fashion and accessories retailer, but originally zoomed in on providing locally-inspired swimwear – a large market gap that Ndey spotted and filled!

Not only were the TIGA Gambia notebooks a showstopper, they were also a colourful and popular extension of the empowering message of the YES Forum.

The innovative and vibrant spirit of entrepreneurs in their element was palpable all through the Forum, but shone particularly during the networking lunch and the Marketplace. It was difficult to lure the participants back into the plenary after these events, because they were so busy talking, forging synergies and building contacts.

While the young entrepreneurs embraced their speaking opportunities to the fullest, they also created a wonderfully inclusive setting that allowed everyone’s successes to be seen and recognised. I was particularly touched when the pitching competition winner, Malick Diouf, CEO of LAfricaMobile, immediately called his three competitors onto the stage to congratulate them on their incredible work.

Malick was humble about his win but his company deserves a special shout-out. LAfricaMobile serves as a digital bridge between African media publishers and organizations wanting to disseminate their content to the African diaspora. As a comms aficionado I was particularly impressed by how effortless their SMS service is in helping the African diaspora connect to what is going on in their home countries.

All in all, the YES Forum left a lasting impression on me for two reasons: Firstly because of the level of mutual support and cooperation that the young entrepreneurs showed, and secondly because the Forum truly catered for these young entrepreneurs and allowed them to share their stories and to explore collaboration. I believe it will leave a lasting result – of stronger alliances and greater empowerment.

Mariama Johm, founder of Afri Taste, a Banjul health joint that combats fruit and vegetable waste, summed up the atmosphere in her remarks during the Young Global Entrepreneurs panel: “I am glad we have the youth actually speaking here. We, young entrepreneurs, want to speak and let policymakers hear from us – not only here, but we want to make governments take into consideration what we are saying and that they should not make decisions on our behalf.”

ILO

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Economy

Easing US-China trade tensions could save millions of jobs

MD Staff

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Millions of jobs in the Asia and Pacific region have been put at risk by conflicts over trade, despite a recent agreement not to escalate tit-for-tat tariffs by the United States and China, according to a new regional UN report.

The 2018 Asia-Pacific Trade and Investment Report, issued by the UN’s development arm in the region, ESCAP, suggests that an escalating “tariff war” and resulting drop in confidence next year, could cut nearly $400 billion from the global gross domestic product, drive regional GDP down by $117 billion.

“As production shifts take place and resources are reallocated across sectors and borders due to the trade conflicts, tens of millions of workers may see their jobs displaced and be forced to seek new employment,” said Mia Mikic, the head of Trade, Investment and Innovation Division at ESCAP.

That said, the report also noted trade tensions have already had had a major impact, resulting in disruptions to existing supply chains and dampening investment. Trade growth slowed after the first half of 2018, and foreign direct investment (FDI) flows to the region are also expected to continue on a downward trend next year, following a 4 per cent drop overall this year.

In such a scenario, regional investment will be key to creating new economic opportunities, says Ms. Mikic, adding that “complementary policies” such as labour, education and retraining, and social protection measures must be placed high on the policymaking agenda.

This is also critical for ensuring progress on implementing the Sustainable Development Goals (SDGs), she said.

ESCAP has also called on countries to take full advantage of all existing initiatives to strengthen regional cooperation, including a new UN treaty on digitalizing trade procedures and enabling cross-border paperless trade in the zone.

‘Trade war’ has no winners

The report has also underscored that neither China nor the US can win a “trade war”, explaining that “both will see significant economic losses from continuing conflict.”

It also finds that implementation of mega-regional trade agreements such as the Regional Comprehensive Economic Partnership, among the Association of South-East Asian Nations (ASEAN) and its six partners – Australia, China, India, Japan, New Zealand and the Republic of Korea – could offset much of the economic losses from trade tensions.

The 2018 report estimates that implementation of such agreements could boost exports by 1.3 to 2.9 per cent and add 3.5 to 12.5 million jobs in the Asia-Pacific.

ESCAP, or the Economic and Social Commission for Asia and the Pacific is largest among UN regional commissions. Its 53 member States and 9 associate members span a geographic area from the Pacific island of Tuvalu in the east to Turkey in the west, and Russia in the north to New Zealand in the south. The region is home to nearly two-thirds of the world’s population.

In addition to countries in the Asia-Pacific region, ESCAP’s membership also includes France, the Netherlands, the United Kingdom and the US.

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