Over the past month, and have accelerated plans involving national cryptocurrencies. Israel and Russia are also reportedly seriously considering creating crypto versions of their currencies since at least last year. Sweden might not be far behind.
So-called “rogue nations” are taking advantage of decentralization, but they’re not the only ones exploring the idea of state-backed currencies.
“You can imagine that instead of giving you a piece of paper saying the Bank of Israel on it, I can send you a piece of digital code that was issued by a central bank,” an Israeli finance official told in December.
Bridge Over Troubled Water
A cryptocurrency sponsored by a state or central bank offers governments several potential benefits, including more efficient ways to conduct monetary policy. In theory, a state-backed coin would be little different from traditional fiat currency in that both would be backed largely by the government that issued them, particularly if they are pegged to the state’s fiat currency.
But the countries using or actively considering their own cryptocurrencies have more specific, and pressing, reasons for doing so. For Venezuela, which has faced skyrocketing inflation, U.S. sanctions and a political crisis for several years, its petro, unveiled last December, was an attempt to create a more stable measure of value linked to the country’s oil reserves. However, skepticism about the cryptocurrency has been widespread both within and without the nation so in August the nation devalued its fiat bolivar currency, essentially creating a new “” pegged to the petro instead of the other way around.
On Monday, Venezuelan President Nicolas Maduro , meaning all financial information must be denominated in the petro and the fiat currency. The country is also considering to create a central cryptocurrency bank.
In similar fashion, Iran is looking at a cryptocurrency as a way of evading U.S.-led sanctions against the nation, which have contributed to a decline in the value of its fiat currency, among other economic hardships. A report from an English-language newspaper in the country says a was finalized this week and will be considered in September.
Crypto purists can take some comfort in the idea of so-called “rogue nations” taking advantage of decentralization, but they’re not the only countries exploring the idea of state-backed currencies.
Russia plans to make its cryptocurrency exclusive, too. Moscow would ban all other digital currencies after the issuance of a “cryptoruble,” . “This mustn’t be a private currency, but the one, which is issued by the state, controlled by the state and enable (sic) to provide circulation of digital money in light of the digital economy,” Oleg Fomichev, Russia’s deputy minister of economic development, told the state-run news outlet last year.
One example of state control: Russia would apply a 13 percent tax when users convert its crypto to fiat, according to RT.
‘Only as Good as Its Administrators Are Wise’
State-backed cryptocurrencies aren’t just useful for evading international sanctions or crippling black markets, however. Nations with weaker fiat currencies conceivably could use cryptos to provide an alternative to bitcoin () or other nations’ money. Doing so could help stave off what a senior International Monetary Fund official called “,” in which the widespread use of a foreign currency limits the ability of countries to control the economy using the official one.
However, the same rules that govern other cryptocurrencies apply to state-sanctioned ones, hence the skepticism surrounding the Venezuelan petro. “If a group of individuals have publicly shown themselves incapable of providing good stewardship over paper money, why would anyone think their stewardship practices would change when managing digital money?” Dash spokeswoman Amanda B. Johnson told . “It is entirely accurate to say that a cryptocurrency is only as good as its administrators are wise.”