The Group of 7 (G7) accounts for nearly two-thirds of global wealth and almost half of the global nominal GDP. G7 members include the United States, Canada, Japan, Italy, France, Germany, and the UK. Consider central banks response to bitcoin. Although the bitcoin and cryptocurrency market cap is approaching $600 billion at the time of this writing (CoinMarketCap), this amount is still rather minuscule compared to the $263 trillion of net wealth belonging to the G7. However, due to the remarkable growth in cryptocurrency activity, especially in 2017, will the central banks of G7, China, and the European Union give it more serious consideration?
Andrew Sheng, China Banking Regulatory Commission’s chief advisor stated just a few months ago that “Central banks cannot afford to treat cyber currencies as toys to play with in a sand box”. Obviously, Andrew’s statement is a bit of an exaggeration. The banking sector has given bitcoin and cryptocurrency some attention, especially the blockchain technology. However, are bitcoin and cryptocurrencies a legitimate threat to the traditional financial transaction system controlled so tightly by the world’s central banks? John McAfee, perhaps most famous for his creation of the McAfee anti-virus software, has asserted that the “Fed will disappear”. This seems like an outrageous claim, but McAfee’s views and opinions are still valued and respected by a number of people in the crypto community.
Central banks have enormous power and control over the circulation of fiat currency. The daily circulation of fiat currency is around $5 trillion. The current circulation in the bitcoin and cryptocurrency market is nowhere even close to this amount, but it’s growing rapidly. What banks should be concerned with most is that there’s a significant amount of money that’s circulating without their approval or involvement.
China, along with a number of other developed countries, has been working to develop a state-backed cryptocurrency. Canada has introduced the Rivermont Crypto Fund. This fund will start by investing in bitcoin and ethereum and then gradually expand its investments into other cryptos, and maybe even a few ICOs. Canada has also been working on its own version of cryptocurrency, called MintChip since 2012.
Estonia, a super-technologically advanced country, has attempted to introduce Estcoin, its own digital currency. Estonia is a very internet-friendly country offering numerous free public wifi-hotspots. The country believes that free internet should be considered a basic right of its citizens. European Central Bank (ECB) President Mario Draghi was quick to state that no EU member should try to introduce its own currency. This might be an example of central banks showing resistance against digital currencies because they might perceive them as a threat to their financial ecosystem.
Russia and Holland have begun to show interest in blockchain and cryptocurrencies by launching their own projects. As we get ready to enter into 2018, it should be reasonable to assume that more countries and their governments will try to get involved in the cryptosphere. The current chair of the US Federal Reserve, Janet Yellen, has refused to acknowledge bitcoin or cryptocurrency as “legal tender”. However, the former chair of the US Federal Reserve, Ben Bernanke, remarked that virtual currencies “may hold long-term promise”. What’s interesting to note here is that Bernanke made that statement back in 2013, when bitcoin or cryptocurrency, in general, did not seem to be as much of a threat to the global dominance of central banks.