The Crypto (R)Evolution?
As if Covid-19 and climate change weren’t already not enough, the world is witnessing an equally profound disruption of currencies and payment systems, with far-reaching implications just beginning to be understood.
Although there are reportedly more than 6,500 such offerings, Bitcoin is the most widely recognized cryptocurrency, already accepted as legal tender in El Salvador and the Ukraine. You can soon buy a Tesla with Bitcoin, while MasterCard, Visa, PayPal, Square, and many others are leading the charge to expand Bitcoin payment and trading options. Indeed, Square founder Jack Dorsey refers to Bitcoin as the ‘native’ currency of the Internet – and a catalyst for financial empowerment amongst those poorly served or disenfranchised from the traditional banking sector.
Although not purely crypto (which runs on blockchain technologies), a related example of such empowerment is the Community Fair Food Market in Halifax, organized by Hope Blooms, a youth-led non-profit which has embraced their own form of digital coin in order to fight poverty and hunger. As the CBC has reported, participating families receive twenty ‘Hope Bloom Market Coins’ weekly to purchase fresh food at reduced prices, and the response has been highly positive.
Such grassroots initiatives are accelerating around the world, particularly in developing countries where governments and traditional banks are mired in corruption and/or disfunction. Crypto platforms further enable the transferring of resources across countries in more efficient and affordable manners than the wire transfers of yesteryear.
Of course, along with community activists come opportunistic marketers and more nefarious, criminal elements seeking to exploit disruption for financial gain. With respect to the former, Kim Kardashian (with her 250 million social media followers) was recently admonished by the head of the British Financial Conduct Authority for her promotion of a speculative crypto offering, adding that it may well have been ‘the single biggest audience reach in history’ for a financial promotion. American Treasury Secretary, Janet Yellen has criticized Bitcoin as ‘extremely inefficient’, citing inherent volatility and widening security risks.
In light of such volatility, South Korea has sought to clamp down on a widening youth epidemic of crypto-gambling, while China has seen enough – seeking to enforce an outright ban of almost all forms of crypto-activities. The Chinese reaction is telling in this regard as crypto dynamics fundamentally challenge national sovereignty and state authority. China would instead prefer its own digital currency, as a virtual complement to the national yuan that would remain firmly under state control.
And therein lies the dilemma for OECD countries and much of the rest of the world – namely how to balance the empowering and entrepreneurial aspects of crypto-innovations with heightened disruptions and widening systemic risks?
For now, at least, Canada seems content with a wait-and-see approach. The Bank of Canada has researched options for a digital currency, exploring various models with Canadian universities as well. A recent report from the Bank of International Settlements (an international entity owned by predominantly western central banks) declared that cryptocurrencies are a threat to the public good, preferring instead digital variants controlled directly by central banks within each country.
Sensing a challenge to the global prominence of the US dollar, the Biden Administration has appointed several, reputable crypto skeptics to key government posts. Congress has also become increasingly engaged in the topic, seeking to devise a new regulatory regime that, in fairness, at least some elements of the fledging crypto-community welcome as a means of increased stability and legitimacy.
As platform companies, notably Facebook, seek their own digital payment schemes, it is entirely possible and evermore likely that within a decade, the world could see an uneasy co-existence of two broad types of financial instruments for payments and exchange: traditional national currencies (in physical and digital formats), and a multiplicity of digital and crypto variants that enjoin local initiatives and global communities in endeavours both legal and otherwise.
As with Covid and climate change, countries will struggle to balance and reconcile innovation and stability on the one hand, and national interests and global coordination on the other hand. For a myriad of developmental and national security reasons, Canada’s next Parliament should make an expansion of crypto-literacy – for elected officials, public servants, and the populous at large, an urgent priority.
Jeffrey Roy is professor in the School of Public Administration at Dalhousie University (roy@dal.ca).
