“The public sector sees the difficulty in every opportunity; the private sector sees the opportunity in every difficulty.”
Okay, that’s not precisely what Winston Churchill said.
But it is more or less what Axel Weber said this week.
And he would know. He used to be the president of Germany’s central bank. These days he’s the chairman of Swiss bank UBS.
Weber dared his public sector colleagues to come up with their own cryptocurrencies.
“Whilst the official sector very often looks at the risks of these new means of payment, the private sector tends to look at the opportunities they offer,” Weber told the Financial Times.
Weber suggests central banks should launch their own cryptos and regulate these markets.
Not so long ago the head of the International Monetary Fund (IMF), Christine Lagarde, similarly urged the world of finance to embrace the future.
Cryptocurrencies’ existing problems are ‘technological’ and can be overcome. Cryptos could even displace central banks once they’re adopted globally, Lagarde argued.
Sounds a bit like Lagarde and Weber are trying to sound the alarm in a non-panicky way.
Maybe they’ve seen Russia and China enthusiastically pursuing cryptocurrencies and are nudging their colleagues in the West to do the same.
Western countries could miss out on reshaping the global economy if they miss the boat on cryptocurrencies.
Why crypto technology is the future
I’m not entirely sure which central banks Axel Weber wants to pursue digital currencies.
A lot of them are already developing their own versions of cryptocurrency as we speak!
Russia is on the verge of launching its CryptoRouble, Sweden is working on the e-krona, while China, Tunisia and Estonia are also known to be developing their own digital currencies.
As with anything, some countries need more encouragement than others.
For Scandinavian countries virtual currencies may be a logical next step in the development of their digital economies. Card and mobile payments are rapidly replacing cash as residents’ most favoured payment method.
Maybe Weber was primarily addressing his former colleagues at the German central bank who are more reluctant to immerse themselves in the world of cryptos.
Germany is much more a cash society than Scandinavia. Not strange, then, that its central bank would rather improve existing payment systems than jump on the crypto bandwagon.
Even so, it looks more and more likely that cryptocurrency, or at least the technology behind it, is the future.
Weber’s current employer, Swiss bank UBS, is at the forefront of the crypto revolution in banking.
A host of major banks, including UBS but also Barclays and HSBC, are creating their own digital coin with the catchy name utility settlement coin.
This coin, which will be used for processing transactions and settling payments between banks, is supposed to make the system safer, faster, and cheaper.
But the benefits of adopting crypto technology are unlikely to be limited to banks. Society as a whole could profit.
“Using public blockchains, transactions can be made quicker, cheaper and without the involvement of any third parties,” writes Oscar Jonsson in Forbes.
“Today, an international transfer requires several days and multiple institutions: banks, clearinghouses and SWIFT. Transactions with cryptocurrencies, such as Dash and Litecoin, cost between 1-2 cents and take seconds or minutes.”
As someone who regularly sends money abroad, I can only welcome this development because of its positive effect on international bank transfers.
However, there’s another dimension to this story. The rise of cryptocurrencies could have a big impact on international politics as well.
How cryptos could change the world order
It’s not surprising that global powers like China and Russia are taking the lead in the race to launch national cryptocurrencies.
These countries have a vested interest in doing away with the current set-up of international politics and finance.
Why? Because the world order is heavily skewed in favour of western nations.
Practically all the major institutions in global finance are western inventions: the IMF, World Bank, the Bank for International Settlements.
Western countries created them and the rest of the world joined later. It puts the West at a clear advantage.
The US dollar’s role as global reserve currency makes global finance western-centric and the global payments system SWIFT is a western creation.
All of these things have made it easy and effective to impose financial sanctions on countries like Russia and Iran. Restricting access to SWIFT can have a devastating effect on economies, that’s what makes it such a powerful threat.
Cryptocurrencies could be about to change all of this and shake up the balance of power.
“When trust is guaranteed by a protocol instead of financial institutions, mostly based in the West, the capability of the West to leverage economic power is reduced, which has been a key component of its grand strategy since the Second World War,” Jonsson explains.
“Decentralised protocols are impossible for one state to sanction.”
If a number of countries succeed in bringing their own versions of cryptocurrency to the market and make them a viable payment method, it could change the balance of power.
The emergence of an alternative to the current global payments system could substantially reduce the power of the West.
After all, countries like Russia may no longer be as vulnerable to western financial sanctions when it’s got other ways of trading with the world.
“The core impact of blockchain technologies is a powerful decentralisation.
“For centralised incumbents — the US dollar as the world’s reserve currency, the financial system, predominantly governed by Western financial institutions — their leverage is poised to decrease.
“For revisionist states, cryptocurrencies can be an attractive alternative to speed up this process.”
No wonder it’s full speed ahead for China and Russia when it comes to cryptocurrencies.
I’m sure President Xi Jinping and President Putin would prefer to end the West’s hegemony in global finance today rather than tomorrow.