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Since its inception in 2008, cryptocurrency has risen to fame all around the world. There are countries, governments, and individuals who have less favorable opinions on cryptocurrency, and there are those who are excited about the prospect of a new world ran on digital assets. No matter where the opinion lies, it’s clear that cryptocurrency has made a significant impact on the world and has shaped locals and global economies.
As cryptocurrency has become more popular, governments have been forced to recognize this impact and decide whether they want a slice of the pie for themselves, or whether they should ban the pie (so to speak) due to the risk of negative consequences from the nascent industry.
Government interest or interference in the cryptocurrency industry has taken many forms. Some countries have opted to pass laws or offer to fund innovation in the space, hoping their country can lead the way for the new technology. Other countries have opted to regulate cryptocurrency to make it an unattractive endeavor in their country. And there are countries who have put themselves somewhere in the middle, such as Japan. Japan has opted to have a cautious attitude towards cryptocurrency in order to protect its citizens from the consequences of a volatile industry, but at the same time allowing and promoting growth in the industry.
Then there are the countries who have looked at the world’s cryptocurrency markets and decided that they could create something similar themselves, their own state-backed cryptocurrency.
Why a Country Would Want a State-Backed Cryptocurrency
For many people, the concept of a government-issued cryptocurrency is at odds with the very nature of crypto. Bitcoin and the vast majority of cryptocurrencies that have followed are all about decentralization, trustless verification, cutting out the middlemen and doing away with a central authority. These values run contrary to the principles of government which is all about central authority and a hierarchy of trust in which the government sits at the top. In essence, cryptocurrency is often considered anti-establishment and the government IS establishment. So why would a government even want its own cryptocurrency?
In short, governments don’t care about what Bitcoin or crypto means to the people, they care about the technology and how it works. Just because cryptocurrency does decentralize the control over currency, it doesn’t mean the government can’t set the rules for the process and how cryptos are issued. A government cryptocurrency is more of a centralized blockchain currency than it is a true cryptocurrency, in most cases. Most of the confusion here lies in what people think a cryptocurrency is vs what the creator’s goals are. We’ve seen this recently the JPM Coin.
In February 2019 JPMorgan launched its own “cryptocurrency” called JPM Coin. This caused a sort of causal debate in the crypto industry since JPMorgan’s CEO Jamie Dimon has been an outspoken critic of Bitcoin, once referring to it as “a fraud”. So an enemy of crypto has now created his own cryptocurrency? Not quite. JPM Coin may be a digital currency, it doesn’t operate publicly and it’s centralized.
Which Countries Have Issued Their Own Cryptocurrency
While the United States and countries in the European Union don’t seem in any rush to create their own state-issued a cryptocurrency, many other countries have.
Isracoin (ISR) is am Israeli cryptocurrency powered by a Scrypt algorithm and launched in 2014. There was much excitement about Isracoin initially with the website stating:
“Globally ranked 39th largest economy out of 190 countries, Israel has one of the highest levels of centralization of wealth and assets, with about 20 families controlling most of the industry and 5 banks controlling a whopping 93% of banking assets in the country. Isracoin will help change that.”
However, Isracoin stopped trading in February 2015 and has faded into obscurity since.
In 2015 CNBC ran the headline “Ecuador becomes the first country to roll out its own digital cash”; however, since the idea’s inception in 2014, the media and Ecuadorians haven’t taken much interest in the state-run cryptocurrency. In December 2017 Ecuador’s National Assembly urged the government to decommission the digital cash due to low uptake and the government agreed, giving users until March 2018 to withdraw their assets.
In November 2016 it was reported that Senegal may become the first country to create a cryptocurrency based on its national currency. The cryptocurrency was co-created with Senegal bank, BRM. BRM CEO hailed the cryptocurrency as “a great leap forward for Africa”
In February 2018 Venezuela launched its own cryptocurrency called Petro which is supposed to be backed to the country’s oil and mineral reserves. The cryptocurrency was launched to help the country’s free-falling national currency and bypass US sanctions.
Many other countries have either tried or flirted with the idea of a central bank issued a cryptocurrency, just last week it was announced that Afghanistan and Tunisia’s central banks are looking to issue a Bitcoin bond. There was a lot of buzz around government issued cryptocurrencies around 2014 when cryptocurrencies were really taking off and there was a lot of excitement in the space.
However, not all countries are looking at a state-ran cryptocurrency as a direction they want to go in. In March 2019, France announced that it won’t launch a national cryptocurrency anytime soon. Pauline Kalfon, who spoke on the issue didn’t sound enthusiastic about it but also implied that the reluctance was more about lack of current viability than outright disinterest, stating:
“France’s central bank may not be the best entity to drive forward such a digital currency project, which would sit within the prerogatives of the European Central Bank.
“Having said this, Banque de France could seize technological leadership by following European Central Bank guidance.
“It is clear that a European-level project would be very complex and challenging governance-wise, requiring alignment and the political consensus of all relevant stakeholders from each Member State.”
Kalfon went on to say that she believes that the cryptocurrency battle should be fought by corporations and not governments. It’s hard not to see the reasoning in this statement. Governments can’t afford to take as many risks as corporations since their failures can have widespread consequences and may cause destabilization to the state.
This is less of an issue for states that already have stabilization issues like Venezuela. Since Venezuela is already in a bad way economically, they need to take risks, risks may be the only thing that can save its economy at this point. Failing economies are more accepting of radical changes and more flexible to change than strong economies.
For the rest of the world, a state-issued cryptocurrency is just too risky. It makes more sense to allow the corporations to assume that risk and governments can use the lessons learned from these endeavors to create their own government cryptocurrency when the time is right and the risk of failure is low.
It’s likely that we’ll see more governments look to state-issued cryptocurrencies in the future, but for the time being, we may experience a lull where not much activity is happening in the space. As we learn more about how cryptocurrencies operate on a larger scale, governments and corporations will have a better understanding of how to successfully implement a government-issued cryptocurrency.