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Bitcoin as a National Currency

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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

Economy

The Blazing Revival of Bitcoin: BITO ETF Debuts as the Second-Highest Traded Fund

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It seems like bitcoin is as resilient as a relentless pandemic: persistent and refusing to stay down. Not long ago, the crypto-giant lost more than half of its valuation in the aftermath of a brutal crackdown by China. Coupled with pessimism reflected by influencers like Elon Musk, the bitcoin plummeted from the all-time high valuation of $64,888.99 to flirt around the $30,000 mark in mere weeks. However, over the course of the last four months, the behemoth of the crypto-market gradually climbed to reclaim its supremacy. Today, weaving through national acceptance to market recognition, bitcoin could be the gateway to normalizing the elusive crypto-world in the traditional global markets: particularly the United States.

The recent bullish development is the launch of the ProShares Bitcoin Strategy ETF – the first Bitcoin-linked exchange-traded fund – on the New York Stock Exchange. Trading under the ticker BITO, the Bitcoin ETF welcomed a robust trading day: rising 4.9% to $41.94. According to the data compiled by Bloomberg, BITO’s debut marked it as the second-highest traded fund, behind BlackRock’s Carbon fund, for the first day of trading. With a turnover of almost $1 billion, the listing of BITO highlighted the demand for reliable investment in bitcoin in the US market. According to estimates on Tuesday, More than 24 million shares changed hands while BITO was one of the most-bought assets on Fidelity’s platform with more than 8,800 buy orders.

The bitcoin continued to rally, cruising over the lucrative launch of BITO. The digital currency rose to $64,309.33 on Tuesday: less than 1% below the all-time high valuation. In hindsight, the recovery seems commendable. The growing acceptance, albeit, has far more consequential attributes. The cardinal benefit is apparent: evidence of gradual acceptance by regulators. “The launch of ProShares’ bitcoin ETF on the NYSE provides the validation that some investors need to consider adding BTC to their portfolio,” stated Hong Fang, CEO of Okcoin. In simpler terms, not only would the listing allow relief to the crypto loyalists (solidifying their belief in the currency), but it would also embolden investors on the sidelines who have long been deterred by regulatory uncertainty. Thus, bringing larger, more rooted institutional investors into the crypto market: along with a surge of capital.

However, the surging acceptance may be diluting the rudimentary phenomenon of bitcoin. While retail investors would continue to participate in the notorious game of speculation via trading bitcoin, the opportunity to gain indirect exposure to bitcoin could divert the risk-averse investors. It means many loyalists could retract and direct towards BITO and other imminent bitcoin-linked ETFs instead of setting up a digital custodianship. Ultimately, it boils down to Bitcoin ETFs being managed by third parties instead of the investor: relenting control to a centralized figure. Moreover, with growing scrutiny under the eye of SECP, the steps vaguely intimate a transition to harness the market instead of liberalizing it: quiet oxymoronic to the entire decentralized model of cryptocurrencies.

Nonetheless, the listing of BITO is an optimistic development that would draw skeptics to at least observe the rampant popularity of the asset class. While the options on BITO are expected to begin trading on the NYSE Arca Options and NYSE American Options exchanges on Wednesday, other futures-based Bitcoin ETFs are on the cards. The surging popularity (and reluctant acceptance) amid tightening regulation could prove a turn of an era for the US capital markets. However, as some critics have cited, BITO is not a spot-based ETF and is instead linked to futures contracts. Thus, the restrain is still present as the regulators do not want a repeat of the financial crisis. Nevertheless, bitcoin has proved its deterrence in the face of skepticism. And if the BITO launch is to be marveled at, then the regulations are bound to adapt to the revolution that is unraveling in the modern financial reality.

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Economy

Is Myanmar an ethical minefield for multinational corporations?

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Business at a crossroads

Political reforms in Myanmar started in November 2010 followed by the release of the opposition leader, Aung San Suu Kyi, and ended by the coup d’état in February 2021. Business empire run by the military generals thanks to the fruitful benefits of democratic transition during the last decade will come to an end with the return of trade and diplomatic sanctions from the western countries – United States (US) and members of European Union (EU).  US and EU align with other major international partners quickly responded and imposed sanctions over the military’s takeover and subsequent repression in Myanmar. These measures targeted not only the conglomerates of the military generals  but also the individuals who have been appointed in the authority positions and supporting the military regime.

However, the generals and their cronies own the majority of economic power both in strategic sectors ranging from telecommunication to oil & gas and in non-strategic commodity sectors such as food and beverages, construction materials, and the list goes on. It is a tall order for the investors to do business by avoiding this lucrative network of the military across the country. After the coup, it raises the most puzzling issue to investors and corporate giants in this natural resource-rich country, “Should I stay or Should I go?”

Crimes against humanity

For most of the people in the country, war crimes and atrocities committed by the military are nothing new. For instances, in 1988, student activists led a political movement and tried to bring an end to the military regime of the general Ne Win. This movement sparked a fire and grew into a nationwide uprising in a very short period but the military used lethal force and slaughtered thousands of civilian protestors including medical doctors, religious figures, student leaders, etc. A few months later, the public had no better options than being silenced under barbaric torture and lawless killings of the regime.

In 2007, there was another major protest called ‘Saffron Uprising’ against the military regime led by the Buddhist monks. It was actually the biggest pro-democracy movement since 1988 and the atmosphere of the demonstration was rather peaceful and non-violent before the military opened live ammunitions towards the crowd full of monks. Everything was in chaos for a couple of months but it ended as usual.

In 2017, the entire world witnessed one of the most tragic events in Myanmar – Again!. The reports published by the UN stated that hundreds of civilians were killed, dozens of villages were burnt down, and over 700,000 people including the majority of Rohingya were displaced to neighboring countries because of the atrocities committed by the military in the western border of the country. After four years passed, the repatriation process and the safety return of these refugees to their places of origin are yet unknown. Most importantly, there is no legal punishment for those who committed and there is no transitional justice for those who suffered in the aforementioned examples of brutalities.

The vicious circle repeated in 2021. With the economy in free fall and the deadliest virus at doorsteps, the people are still unbowed by the oppression of the junta and continue demanding the restoration of democracy and justice. To date, Assistant Association for Political Prisoner (AAPP) reported that due to practicing the rights to expression, 1178 civilians were killed and 7355 were arrested, charged or sentenced by the military junta. Unfortunately, the numbers are still increasing.

Call for economic disengagement

In 2019, the economic interests of the military were disclosed by the report of UN Fact-Finding Mission in which Myanmar Economic Corporation (MEC) and Myanmar Economic Holding Limited (MEHL) were described as the prominent entities controlled by the military profitable through the almost-monopoly market in real estate, insurance, health care, manufacturing, extractive industry and telecommunication. It also mentioned the list of foreign businesses in partnership with the military-linked activities which includes Adani (India), Kirin Holdings (Japan), Posco Steel (South Korea), Infosys (India) and Universal Apparel (Hong Kong).

Moreover, Justice for Myanmar, a non-profit watchdog organization, revealed the specific facts and figures on how the billions of revenues has been pouring into the pockets of the high-ranked officers in the military in 2021. Myanmar Oil & Gas Enterprise (MOGE), an another military-controlled authority body, is the key player handling the financial transactions, profit sharing, and contractual agreements with the international counterparts including Total (France), Chevron (US), PTTEP (Thailand), Petronas (Malaysia), and Posco (South Korea) in natural gas projects. It is also estimated that the military will enjoy 1.5 billion USD from these energy giants in 2022.

Additionally, data shows that the corporate businesses currently operating in Myanmar has been enriching the conglomerates of the generals and their cronies as a proof to the ongoing debate among the public and scholars, “Do sanctions actually work?” Some critics stressed that sanctions alone might be difficult to pressure the junta without any collaborative actions from Moscow and Beijing, the longstanding allies of the military. Recent bilateral visits and arm deals between Nay Pyi Taw and Moscow dimmed the hope of the people in Myanmar. It is now crystal clear that the Burmese military never had an intention to use the money from multinational corporations for benefits of its citizens, but instead for buying weapons, building up military academies, and sending scholars to Russia to learn about military technology. In March 2021, the International Fact Finding Mission to Myanmar reiterated its recommendation for the complete economic disengagement as a response to the coup, “No business enterprise active in Myanmar or trading with or investing in businesses in Myanmar should enter into an economic or financial relationship with the security forces of Myanmar, in particular the Tatmadaw [the military], or any enterprise owned or controlled by them or their individual members…”

Blood money and ethical dilemma

In the previous military regime until 2009, the US, UK and other democratic champion countries imposed strict economic and diplomatic sanctions on Myanmar while maintaining ‘carrot and stick’ approach against the geopolitical dominance of China. Even so, energy giants such as Total (France) and Chevron (US), and other ‘low-profile’ companies from ASEAN succeeded in running their operations in Myanmar, let alone the nakedly abuses of its natural resources by China. Doing business in this country at the time of injustice is an ethical question to corporate businesses but most of them seems to prefer maximizing the wealth of their shareholders to the freedom of its bottom millions in poverty.

But there are also companies not hesitating to do something right by showing their willingness not to be a part of human right violations of the regime. For example, Australian mining company, Woodside, decided not to proceed further operations, and ‘get off the fence’ on Myanmar by mentioning that the possibility of complete economical disengagement has been under review. A breaking news in July, 2021  that surprised everyone was the exit of Telenor Myanmar – one of four current telecom operators in the country. The CEO of the Norwegian company announced that the business had been sold to M1 Group, a Lebanese investment firm, due to the declining sales and ongoing political situations compromising its basic principles of human rights and workplace safety.

In fact, cutting off the economic ties with the junta and introducing a unified, complete economic disengagement become a matter of necessity to end the consistent suffering of the people of Myanmar. Otherwise, no one can blame the people for presuming that international community is just taking a moral high ground without any genuine desire to support the fight for freedom and pro-democracy movement.

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Economy

The Covid After-Effects and the Looming Skills Shortage

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coronavirus people

The shock of the pandemic is changing the ways in which we think about the world and in which we analyze the future trajectories of development. The persistence of the Covid pandemic will likely accentuate this transformation and the prominence of the “green agenda” this year is just one of the facets of these changes. Market research as well as the numerous think-tanks will be accordingly re-calibrating the time horizons and the main themes of analysis. Greater attention to longer risks and fragilities is likely to take on greater prominence, with particular scrutiny being accorded to high-impact risk factors that have a non-negligible probability of materializing in the medium- to long-term. Apart from the risks of global warming other key risk factors involve the rising labour shortages, most notably in areas pertaining to human capital development.

The impact of the Covid pandemic on the labour market will have long-term implications, with “hysteresis effects” observed in both highly skilled and low-income tiers of the labour market. One of the most significant factors affecting the global labour market was the reduction in migration flows, which resulted in the exacerbation of labour shortages across the major migrant recipient countries, such as Russia. There was also a notable blow delivered by the pandemic to the spheres of human capital development such as education and healthcare, which in turn exacerbated the imbalances and shortages in these areas. In particular, according to the estimates of the World Health Organization (WHO) shortages can mount up to 9.9 million physicians, nurses and midwives globally by 2030.

In Europe, although the number of physicians and nurses has increased in general in the region by approximately 10% over the past 10 years, this increase appears to be insufficient to cover the needs of ageing populations. At the same time the WHO points to sizeable inequalities in the availability of physicians and nurses between countries, whereby there are 5 times more doctors in some countries than in others. The situation with regard to nurses is even more acute, as data show that some countries have 9 times fewer nurses than others.

In the US substantial labour shortages in the healthcare sector are also expected, with anti-crisis measures falling short of substantially reversing the ailments in the national healthcare system. In particular, data published by the AAMC (Association of American Medical Colleges), suggests that the United States could see an estimated shortage of between 37,800 and 124,000 physicians by 2034, including shortfalls in both primary and specialty care.

The blows sustained by global education from the pandemic were no less formidable. These affected first and foremost the youngest generation of the globe – according to UNESCO, “more than 1.5 billion students and youth across the planet are or have been affected by school and university closures due to the COVID-19 pandemic”. On top of the adverse effects on the younger generation (see Box 1), there is also the widening “teachers gap”, namely a worldwide shortage of well-trained teachers. According to the UNESCO Institute for Statistics (UIS), “69 million teachers must be recruited to achieve universal primary and secondary education by 2030”.

From our partner RIAC

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