Blockchain Technology will enable Cryptocurrency to provide the world with a new Global Digital Reserve Currency

Blockchain Technology will enable Cryptocurrency to provide the world with a new Global Digital Reserve Currency

For many years there has been much discussion amongst world leaders regarding the need, or otherwise, for a new Global Reserve Currency.

The United States has, not surprisingly, argued that things are just fine as they are. Others, primarily China, continue to argue that a new reserve currency ‘that is disconnected from individual Nations’ is needed.

In years gone by many of the world’s leading fiat currencies were guaranteed against what was known as the ‘Gold Standard’. This meant that holders of Bank Notes could trade them in and receive their value in actual gold. This mechanism was implemented to stabilise currency values and build confidence. As confidence in fiat currencies grew, and the amount of gold held fell in relation to the amount of currency issued, currencies withdrew from the gold standard. This withdrawal was progressive and did not cause a loss of confidence in the fiat currencies nor their collapse.

Until recently cryptocurrency has been viewed, at best, as an augmentation to fiat currencies rather than a possible replacement for them. However, given Blockchain’s inherent qualities of security and transparency, once regulatory hurdles are overcome crypto’s appeal will broaden and the benefits it provides will see it eventually replace cash.

One of the hurdles oft mooted against the establishment of a Digital Reserve Currency (DRC) ie. that it will need underpinning, is flawed and in any case can be circumvented by programming in a structured Reserve Price guarantee. This guarantee will allow confidence in the DRC to build and, after a predetermined number of years, it will be removed allowing the DRC to float free much in the same way fiat currencies achieved their disengagement with the gold standard.

Another argument against the establishing of a DRC is that people like to hold hard cash. Today however in countries around the world the use of cash is fast disappearing. More and more, people are using internet banking facilities to manage their finances, and are increasingly even moving away from contactless bank/credit cards to using Apps on their mobile phones to make payments. Globally people are already becoming comfortable with the idea of not holding actual cash, ipso facto what’s the difference between an online bank account holding your money digitally rather than an out and out digital currency that is managed online.

In 2017 China placed a blanket ban on cryptocurrencies, crypto exchanges, and the mining of Bitcoin. However, since that time it appears a new story is emerging. In the past months President Xi Jinping has strenuously urged software developers in China to concert their efforts to develop Blockchain Technology. China has also made it known that they are developing a National Digital Currency. China says this is to facilitate easier inter-bank settlements however this is like saying you will only use your car for taking your children to school!

In isolation the above may be plausible, but when we see that China has since 2015 been reducing its foreign exchange reserve by US$250,000,000,000 per year it is not a large jump to believe that it is positioning itself for the introduction of a DRC in the near future. This all seems to fit nicely with Deutsche Bank’s recent speculation that cryptocurrencies will replace current fiat currencies by 2030. At the above mentioned rate China would, conveniently, at the current rate of disposal hold only minimal foreign exchange reserves by that time.

We also note that France is set to commence testing its Digital Euro currency Q1 2020. With Japan, Sweden, Estonia, Russia, and Dubai already having their own National cryptocurrencies and other countries considering the option how long will it be before we begin to see central banks collaborating over the establishment of a new Global Digital Reserve Currency.

As cryptocurrency acceptance grows and it continues its move into the mainstream as a legitimate resource Blockchain Technology too will continue its growth as it will provide the transparent and secure base that all areas of finance will require. The largest hurdle this developing field will encounter is the shortage of developers sufficiently skilled to develop the myriad projects which will be needed. Chainlify’s Blockchain-as-a-Service Platform will open the floodgates.

By Glyn Craig on 19 December, 2019

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