National Cryptocurrencies: An Innovation No One Really Wants
Updated: Aug 6, 2019
Since the advent of Bitcoin and altcoins, each year that passes brings with it a slew of rumours and leaks regarding the development of national cryptocurrencies — public blockchains designed for use in a single country, alongside or potentially even replacing the fiat currency in question. There are two ways this could theoretically happen: independent developers create a currency which becomes so popular a government adopts it, or the government in question researches and develops a currency of their own. The latter has happened already in one case, albeit without much in the way of results thus far. It is worth mentioning that although these currencies can be stablecoins — tokens pegged 1:1 with the fiat currency they are linked to — this is not a requirement. Similarly, many stablecoins exist that are not national cryptos.
It is fair to say that in the nine years blockchains have existed thus far, no such national crypto has taken hold or seen anything resembling widespread adoption, and as it happens many anticipated national blockchains have not yet come to fruition and perhaps never will. This article will forward a specific cause for this, but first we will look at five notable existing, upcoming or speculated national cryptocurrencies to get a view of the field at present.
Laying a loose claim to the world’s first national currency, Auroracoin emerged just after the first large awareness phase of Bitcoin, in early 2014. Iceland’s government has long been hostile to cryptocurrency, but its citizens have some of the lowest trust levels in banking institutions and likely as a result they have comparatively high levels of interest in blockchain technology and cryptocurrencies. A pseudonymous developer adopting the name of “Baldur Óðinsson” (the Norse god Thor’s brother), initially developed the currency as a Litecoin clone and distributed half of the coins to all registered Icelandic citizens. Seen broadly as a novelty, only 10% of Icelanders ever claimed their Auroras and the price crumbled rapidly. It is not endorsed by Iceland’s central government, quite the opposite in fact — ministers have gone on record as saying they suspect Auroracoin may even be a scam — a claim for which some evidence does exist.
The country’s socialist government led by President Nicolás Maduro has launched its own national cryptocurrency and is trying to compel vendors to accept it, despite a total lack of international exchanges which accept Petro. This is not surprising, as the currency was created primarily to avoid the sanctions imposed by the US and others which have hammered its economy. Initially marketed as a stablecoin of sorts, pegged to the value of the nation’s oil reserves, it has been suggested that upon listing on exchanges it would be left to market speculation.
In a bizarre move, Maduro’s government in August 2018 devalued their national fiat currency, the bolívar, by 95% and pegged that to the Petro. So now we have a fiat currency pegged to a cryptocurrency (supposedly) pegged to oil. This has not done wonders to undermine the stereotype that socialists do not understand economics. Petro may be the first official national cryptocurrency, but it has not set much of an example for others to follow.
United Arab Emirates: Emcash
As part of a broader strategy of making Dubai a smart city with strong blockchain integration, emCredit has designed a cryptocurrency to be rolled out to citizens with an accompanying wallet app called emPay. This had been reported as early as October 2017, but specific details are few and far between and no launch date has been set. It is speculated that emCash will act as a stablecoin tied to the dirham, and point-of-sale station manufacturer Pundi X is developing systems to allow crypto purchases in stores. The rollout seems to be very much in the works, and could see a 2019 launch.
In the summer of 2018 financial publications pushed hyperbolic declarations that the Public Bank of China would launch their own cryptocurrency, and that it would likely be bigger than Bitcoin in short order. There is some evidence that the PBOC might move in that direction: it is regularly reported that the central bank is testing a model for a potential crypto-yuan and most notably they released a memo in October 2018 discussing the potential for such a state-backed currency, stating that it would have to be tested on a small scale first. That is common practice for policy implementations in China: testing changes on the city level, then the province level, and eventually the national level should success be had. The evidence against this is the lack of any emerging news on such a small-scale test. The country’s social credit system, by comparison, was announced in 2014, began testing in Jinan in 2017 and is expected to go into broad effect in 2020. Given the likely similar scale between this and a national cryptocurrency, that would suggest we will not see such a rollout for half a decade or so. Combined with the almost-complete saturation of payment platforms Alipay and WeChat pay in China’s many megacities, it is entirely possible that we never do see a state-backed crypto-yuan.
The prospect of a “Crypto Ruble” may be even more speculative. The Russian Ministry of Finance and Central Bank have been discussing the concept since 2016, but since then there have been conflicting reports ranging from top officials calling the idea “technical hooliganism” to Vladimir Putin directly ordering research towards such an end. The most concrete information on the subject came this year, when the State Duma Committee on Financial Markets announced it was considering a ruble-pegged stablecoin. Again, nothing tangible has come from this and the currency would still be victim to devaluation compared to the US dollar, for which many stablecoins already exist.
Are national currencies the future?
No, probably not. We are still in the very early life cycle of blockchain technologies, but the experiments with national currencies to date do not inspire confidence, nor does the clearly perceptible hesitancy of the governments who consider them. The US Federal Reserve has repeatedly stated they are not interested in the idea of a national currency at all, which does not present much of a surprise. It’s fair to say that most governments either do not want national cryptos, or at least do not want to expend the resources necessary to establish them, perhaps suggesting their research points against it.
As for citizen interest, Iceland showed us that most people didn’t accept their currency when it was free, and the market reinforced this when its price and volume crumbled. Even cryptocurrency advocates have little interest in such a development, as they are fundamentally antithetical to the central point of blockchain technologies as they emerged with Bitcoin. Indeed, why would citizens want a currency with all the complications and risks of crypto, with none of the benefits to privacy or freedom of choice? With all of this in mind, it is little wonder the hype on national cryptos has dropped off dramatically for one simple reason: it has become apparent that nobody wants them.