Crypto currencies based on the Blockchain technology have the potential to replace the U.S. dollar as the preferred currency for global transactions, finance expert Brigitte Strebel writes in an essay for finews.first.
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The U.S. currency may have taken off immediately after the election of Donald Trump. But experts agree that if Trump implements the economic policies he heralded, not only will U.S. interest rates rise, but also the budget and current account deficit.
And that in turn over time will manifest itself in the value of the U.S. dollar, despite higher interest rates. The twin deficit of the U.S. however can only be financed with the dollar as the globally accepted transaction currency. Together with the already announced protectionist economic policy of President Trump, it will make the U.S. global currency the more volatile and increasingly unreliable. There are no valid alternatives at hand so far: euro, pound sterling, yen and yuan all lack the potential as truly global trading currencies.
«There are 705 different crypto currencies with a market cap of $12.6 billion»
Crypto currencies based on the Blockchain technology by contrast have the potential to replace the dollar as the global currency of transaction and to make the world more independent of the U.S. economic policy.
There are already some 705 different crypto currencies with a market cap of $12.6 billion, according to coinmarketcap.com. Bitcoin has the biggest volume by far, with $10.7 billion. The market will decide which one of those crypto currencies can assert itself.
Compared with the dollar, issued by the U.S. central bank, which can be transferred from debtor to creditor via the national or international banking systems, Bitcoin can be shifted directly from the buyer to the receiver via decentralized distributed ledgers.
«Central banks risk losing control over their national monetary policy»
This development has grave consequences for the national and international payment services (SWIFT) of the banks – in liking with the problems both corner shops and supermarkets face with the emergence of online shopping. Bill Gates's statement that «banking is essential, banks are not» remains pertinent and valid as such. But not only that: the central banks risk losing control over their national monetary policy.
To central banks the same applies as to banks: they have to face the challenge. As so often, the dangers also entail opportunities: for instance a way out of the dead end of excessive money supply, at least in respect to exchange rate policy. If one or several crypto currencies (it doesn't have to be Bitcoin) develops into the global transaction currency, even the north-south divide within the European Union could be bridged.
The Blockchain technology is decentralized and interconnected, much like the Internet. Greece all of a sudden has the chance to devalue its national euro versus Bitcoin. In Germany by contrast the euro would appreciate. Hence a great deal of the discrepancies within the euro zone would evaporate even without creating a fiscal union. And the EU would at least formally have saved its face and the European single currency.
«The new technology has the same explosive potential as the Internet»
This has consequences for traditional money institutions such as exchanges, clearing and settlement organizations: as intermediaries between investors and creditors they are stuck with a wholesale dilemma. As general ledger they operate the typical central data bases. If they want to survive, they have to change the business model early enough and adjust to the new decentralized technology. Join in or perish is true for banks too. And even the central banks won't escape unscathed. Those who adjust in time will have new opportunities.
The initiative by a Swiss political group aimed at shifting all rights to generate cash – even electronic assets – to the central bank, seems pretty maverick given the current speed of technological development. One thing is for sure: the new technology has the same explosive potential as the Internet. It will change banking, the financial and currency markets as well as politics.
Much like the Internet, Blockchain is no longer a mere tool: it changes business models, the finance industry and monetary policy!
Brigitte Strebel-Aerni is a certified broker at SIX Swiss Exchange. After her studies in economic policy at the University of St. Gallen, Strebel-Aerni worked as an economic expert at KOF Swiss Economic Institute, an economic think-tank based at ETH Zurich.
Subsequently, she joined the economics section of «Neue Zuercher Zeitung» and for 16 years, Strebel-Aerni was editor-in-chief of «Schweizer Bank», a Swiss banking magazine. Later, she assumed the editorial responsibility for «ICT in Finance» magazine.
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