The last decade will be remembered as the era in which virtual currencies became mainstream. No longer just for in-the-know techies, digital cryptocurrencies have not only helped mint a crop of new millionaires and billionaires but have also inspired citizens across the globe to hold virtual currency as an investable asset and dream of a future in which all transactions are carried out digitally, securely, and anonymously by using decentralized virtual currencies.
Well, it seems that proponents of a global economy driven by digital currencies, particularly those in Asia, may not have to wait too long for some of their dreams to come true. However, the future of digital currency is less likely to look like the futuristic utopian fantasy of early privacy-obsessed cryptocurrency advocates and more like the administrative-minded, enforcement-focused desires of buttoned-down central bankers and government bureaucrats.
The recent announcement that China is in the process of developing and implementing a digital currency is a major event. With the United Arab Emirates, Russia, Iran, Venezuela, Senegal, Ecuador, Japan and Sweden among countries that have already rolled out or are contemplating instituting some version of a sovereign, domestic, digital currency administered by their national government, China is hardly alone in this endeavor. Still, the idea that the the world’s second-largest economy is exploring the possibility of launching its own virtual currency administered by its financial authorities is nothing to scoff at.
Proponents of virtual currencies have long posed the argument that the payment systems currently in use are not only outdated and inefficient, but will eventually be replaced by decentralized, private, digital forms of payment that will reduce transaction costs and time lags while increasing transparency and security. While these advocates may find joy in learning that governments have been paying attention all along, much to their chagrin, the reality is that for sovereign-government-backed virtual currencies to exist they will have to comply with 21st-century government regulatory demands and concerns.
Thus some of the most loudly touted features of privately developed digital currency will have to be compromised. For example, it is hard to imagine that Chinese government officials and agencies tasked with monitoring and enforcing anti-money-laundering and currency-control statutes will share the same penchant for privacy and anonymity that state-weary libertarian-minded techies did when developing their private currencies. Even more obvious, the existence of any virtual currency that is developed, backed, or sponsored by a government is a direct contradiction to the ethos of decentralization embodied by the last decade’s crop of private virtual currencies.
China’s yet-to-be-seen foray into virtual currency will have major repercussions for its citizens, regional and global actors, and existing privately developed virtual currencies. Undoubtedly, if launched, Chinese citizens (who thanks to apps like WeChat Pay are already familiar with making cashless digital payments) will participate in the first major experiment toward a truly cashless, digital-payment-driven economy. Not to be left behind, regional and other global actors will not only embark on their own experiments but also have the opportunity to learn from China’s challenges and successes in implementing such an endeavor.
If successfully implemented in China and replicated across the various Asian economies accounting for more than 4.6 billion of the world’s nearly 8 billion people, one must wonder what might become of privately developed virtual currencies like Bitcoin, Ethereum and others that have dominated the virtual-currency landscape up to now. It is not hard to imagine that any government eager to promote and protect its new sovereign virtual currency could enact legislation, regulations or edicts that would make all transactions and dealings in private virtual currency illegal and thus obsolete.
While the 2010s were the decade of privately developed virtual currencies, the 2020s could be the decade of sovereign-backed digital currencies. The Chinese government’s decision to explore its own virtual currency is already monumental, and if it ultimately moves forward it will be a global game changer. The future of global currencies may very well rest firmly in China’s hands.