The following comments are based on nation states having a decentralised cryptocurrency either by way of market forces, or a radical shift in government policy towards accepting it as legal tender. It’s also on the basis of multiple decentralised cryptocurrencies existing globally and with free or preferential trade agreements existing between those adopters.

Quick point on market saturation, this is when a business has exhausted their potential in that jurisdiction i.e. market. By entering new jurisdictions, new markets open up, thereby allowing new avenues of enrichment. Governments that advocate free market capitalism,  work on the same principle, advocating for their domiciled companies to enter those new markets and in turn create additional tax revenue streams.

Opportunities

  • Forex among adopters of the same cryptocurrencies will no longer be required. Small and Medium sized Enterprises (SMEs) will have a huge boost in entering international trade previously off limits due to currency risk.
  • Exchange rate fluctuation will be a thing of the past, thus also encouraging private investor confidence when travelling and investing into new regions.
  • Traditionally weaker economies with weak currencies can benefit from a more stable currency thus increasing the potential for their SMEs to expand into wealthier nation states.
  • Private industry, especially construction, education and health care providers from wealthier nation states can improve the economic productivity of weaker nation states. Thus leading to an quicker overall regional wellbeing.
  • Nation states become more reliant on one another thus reducing the risk of armed conflict.

Threats (and unintended consequences)

  • Increased competition between users of the same cryptocurrency, could lead to high inflation rates in some regions. This is because service and product providers in one region could have greater demand in a cross border jurisdiction.
  • Governments nor a central bank would be able to control inflation by changing the interest rate and the supply of money.
  • Decentralised cryptocurrency will be in direct competition with the traditional currency e.g. British Pound. It’d create an intra-country forex problem and essentially means the government and central bank being in direct competition with corporations that adopt a decentralised cryptocurrency. My brain is not able to compute the consequences.
  • Government and corporate conflict. Consider a government seeking to increase taxes as part of their budgetary policy to pay for public services yet a business’s revenue stream increasingly coming from a lower tax jurisdiction. Could that company easily migrate to the lower tax jurisdiction? Could migration be made easier due to technology and a better skilled global workforce? Yes.
  • If governments no longer create currency, what are the consequences of private individuals and corporations creating currency? Consider, energy companies that clearly have a monopoly on controlling energy supply now moving into mining cryptocurrencies? How would you tax that? That’d also begin the road to disempowering governments and empowering corporations.
  • As cryptocurrencies are finite there’s a risk of mercantilism; nation states or more realistically corporations hoarding cryptocurrency, encouraging export (thus new money in) and limiting imports (thus reducing money out). The complete opposite of a free market.
  • Traditional economic blocs could opt to use a select number of cryptocurrencies among each other to manage international competition in trade and to maintain strategic positions.
  • It will encourage labour mobility as nation states will find it more difficult to focus on a particular sector of their economy thus encouraging migration and loss of talent. For example, a government of country A would find it difficult to subsidize the agricultural sector, as a company in country B with lower costs would be able to sell into Country A with little or no economic friction. Putting up trade barriers within a bloc that is using the same cryptocurrencies wouldn’t be practical and will undermine the bloc’s alliance.

Ask an economist, whom I refer respectfully as philosophers of money and commerce, about a single currency system with a central bank such as with the Euro, and that’s more than enough to create a plethora of hypotheses. Now throw in a decentralised cryptocurrency that in itself is created by technology using electrical power, it’s probably enough to say we risk creating Frankenstein’s monster, not of the economy, but the economist. Of course I jest.

I don’t think any national government will allow such a development. Nor do I think the public would advocate it, knowing the serious potential consequences of it. Therefore, the only outcome I see progressing is a centralised cryptocurrency with the current cryptocurrencies falling by the wayside, and I wouldn’t be surprised if some cryptoassets suffer an astronomical collapse as regulation is extended.

I leave you with a quote:

He who controls the money supply of a nation controls the nation.  James A. Garfield

If you enjoyed this article you may also like: https://adlestateplanning.co.uk/blockchain-and-bitcoin-a-hegemonic-shift-in-data-centralization-and-currency

Mohammad Uz-Zaman MA DipFA PETR is an international wealth manager who holds dual accreditations across wealth management and trust planning. He advises high-net worth (HNW) individuals how best to protect their family and structure their estate for the benefit of successive generations. Mohammad is also an associate member of the Society of Trust and Estate Practitioners (STEP).

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