Block-chain currencies were never intended to be a tradeable commodity.And what is their role in this (keeping currencies volatile)? I thought crypto had nothing to do with national governments.
Block-chain progenitors and purists will assert that in order for the technology to achieve its goal, its exchange-value must remain as close to static and stable as possible, in order for it to be used as a “Store of Value”.
Keeping the exchange-value of Block-chain currencies volatile, is the *ONLY* way that Governments anxious to protect the integrity of their fiat currencies can defend against the threat Block-chain poses to their tax and tariff regimes.
National Governments with their own Central Bank (the U.S., Canada, U.K., Australia – to name a few), and quasi-Federal Super-States with a shared Central Bank (umm… The Eurozone/ECB) all create their own money.
Out of thin air.
(I know I’ve explained that at length, on more than one occasion around here, so unless there is a specific request for me to explain it again (I’ve probably explained it already in this thread actually… But can’t be arsed to check…), I’ll move on.)
Critically then: it is this facility to create money out of nothing that gives National (/Quasi-Federal) Governments their power.
*ALL* of their power.
Just look at the disempowered Greek, Portuguese, Italian, Irish and Spanish “National” (for the time being…) Governments, and their inability to respond *INDEPENDENTLY* to the successive financial crises of the last decade-and-a-half.
The United States of America has taken this basis of power to its furthest extreme, ever since it coerced the major economies of the World (with Russia and China notably excepted) to sign-up to the Bretton Woods System
in the closing phases of World War Two.
Ensuring that most of the World’s major commodities (especially oil…) would and could only be traded internationally using the U.S. Dollar, conferred a *MAJOR* Economic advantage on the U.S.
By 1944, the U.S. was in a position of Economic dominance that was unparalleled in Human History. Completely untouched by the devastation of nations, cities and economies that had shattered Europe and Asia, and in receipt of all the cash that the formerly dominant economies of Great Britain, France and the Soviet Union had to pay for the “Help” that the U.S. supplied during WWII…
…There was nothing to prevent the U.S. from dictating Economic terms to Western Europe, Canada, Australia and Japan.
Indeed, when it seemed especially advantageous to the U.S. to halve (West!) Germany’s WWII Reparation Debts…
There was nothing that Nations desperately needing those reparation repayments could do to oppose it.
The U.S. was busy rebuilding the West-German Economy
in order to use that Semi-Nation as a Forward Operating Base abutting the Evil (/Communist) Eastern Bloc. Why would the U.S. be ploughing billions of dollars of Marshall Plan funds into West Germany, only for those dollars to be funnelled out to those nations devastated by the War Germany started?
So how exactly did the U.S. exercise and maintain its Economic dominance with the Bretton Woods System?
Well, thanks to the “Lend-Lease” arrangements the U.S. had pursued with its “Allies” during World War Two, by the end of it, the U.S. Government owned/controlled two-thirds of the World’s gold.
This because Lend-Lease payments were made in gold bullion… Obviously.
Nobody has ever accused USAmericans of being stupid when it comes to Materialism… And with Nazi bombs devastating the Economic and Social fabrics of Europe and Asia, there was no way that the U.S. was going to accept the U.K.’s, France’s and the Soviet Union’s fiat
currencies in exchange for the War Materiel it supplied.
Because if the “assistance” supplied didn’t get the job done, then any Sterling, Franc and Rouble notes used to purchase U.S. supplies, wouldn’t have been worth the paper they were printed on.
*ONLY* gold was acceptable currency.
So because the U.S. was in possession of two-thirds of the World’s gold bullion by 1944, it was able to demand its (still current) “Allies” acquiesce to the U.S.’s “Bretton Woods System”. And whilst the War was still underway, those “Allies” had no alternative but to complying with the demand.
(Though the Soviet Union eventually told the U.S. to “Get Lost!”, shortly after WWII concluded…)
Alright. So with the “Bretton Woods System” in place, only the U.S. Dollar retained “convertibility [to gold]” status. All other participant currencies could only be converted to U.S. Dollars.
This gave the United States the ability to use money it could freely print, to stipulate and control pricing on all key commodities (especially oil…), and the bulk of its trade with participating nations.
And what this *REALLY* meant was that the U.S. could keep (effectively) “writing checks” that would never be cashed, for as long as Foreign Treasuries continued to stockpile those “checks” in their Reserves.
Right up until 1971, when having pissed away all its gold on successive Imperial Adventures (not least of all in South-East Asia), President Nixon had no option but to unilaterally declare and end to the “Bretton Woods System”
, and the U.S. Dollar became just another fiat
So after 1971, pretty much the Whole World (certainly any parts of the World that counted), was now running on money backed solely by Government fiat
. Individual currencies were now only worth what those Governments were perceived to be worth.
International payments were still by and large settled using U.S. Dollars, because… Well… What else could be used? Especially as physical currencies (including large-denomination “Bearer Bonds”
) were being used less and less, in favour of digital currency transactions. (You can’t attach a gold bullion bar to an Email…)
But whilst certain fiat
currencies became less-and-less useful for Foreign Trade, they still remained the source of National Government’s fundamental Economic power, because of something Jesus said a couple of thousand years ago:
”Show me the coin used for the tax.”
And they bought him a denarius.
Then he said to them, “Whose head is this, and whose title?”
They answered, “The Emperor’s.”
Then he said to them, “Give therefore to the Emperor the things that are the Emperor’s, and to God the things that are God’s.”
- Matthew 22: 19-21 (NRSV)
Governments can *ONLY* levy and raise taxes on their own (fiat
The U.S. Government won’t accept Sterling or Euros as tax payments; nor will the U.K. Government accept U.S. Dollars as payment for domestic taxation.
The most that any National Government can ever attempt to do, is implement ”Capital Controls”
as residency-based measures, to try and regulate flows into and out of that Nation’s ”Capital Account”
So now here we are at the whole point of this response:
Given all the above, what effect do you imagine it would have on National fiat
currencies, if consumers and businesses alike start using Block-Chain currencies instead of National currencies?
Governments cannot tax transactions carried out using Block-Chain.
Governments have no oversight on Block-Chain holdings and transactions.
What happens to a Government’s tax revenues, if its Citizens all start using Block-Chain currencies as a medium with which to exchange value
Block-Chain currencies are terrifying the life out of Government Economists and Central Bankers.
But I’ll raise the Threat Level even further:
Governments are not overly-concerned by consumers using a massively-increasing variety of Block-Chain currencies. Particularly as for the Time being, those consumers are looking to “Get Rich Quick”, by trading those Block-Chain currencies as commodities in and of themselves.
Those consumers are still heavily invested in the Exchange-Rate between their Block-Chain currency of choice, and National fiat
currencies. And since any Central Bank can “print” however much of its own currency it feels like doing, Domestic Treasuries can buy and sell huge volumes of Block-Chain “commodities”, as, when and why-so-ever it feels like doing so.
(And the main “Why” would be to keep the price of the Block-Chain currencies volatile, thereby attacking their ability to be used as a ”Store of Value”
The greater threat is posed by…
Consider what might happen if a major Global bank (let’s use Citibank, for ease of alliteration…) created its own Block-Chain currency: “CitiCoin”.
To begin with, the bank may “award” its customers “CitiCoins” in the same way airlines “reward” customers with “Air Miles” (or other institutions use schemes like ”Nectar Points”
Just as those airlines retain total control over the use (and value) of their “Air Miles”, the bank retains complete control over its “CitiCoin” “Economy” (what the “coins” can be exchanged for).
Credit Card companies like American Express already do this, only they use their own “Points” scheme, rather than “AmEx-Coin” (for the time being…).
“Points” I build up when Holywoman trashes my AmEx card, are always presented to me as “redeemable” when I purchase something from Amazon, for example.
OK. Now move forward to the point where holders of “CitiCoin” are allowed to spend those coins with each other.
A supplier who banks with Citibank might very easily allow other CitiCoin holders to spend/redeem their CitiCoin holdings in exchange for whatever goods or services the supplier is offering.
Now elevate that to the situation where all and every supplier and customer in a specific and entire Supply-Chain banks with Citibank.
What is there to prevent the entire End-to-End transactional flow through that Supply-Chain being conducted in CitiCoin?
It would certainly eliminate Foreign Exchange fees for International Supply Chains. And it would also eliminate Government oversight and any ability to levy taxation and/or tariffs on those transactions.
And *THAT* is why National Governments are terrified by Block-Chain technology, and why they are doing their best to maintain the perception of Block-Chain currencies as inherently volatile commodities…
…Rather than viable alternatives to Nationally-issued fiat
Still sitting comfortably?