Although recent press reports may contend otherwise, not all central banks are opposed to the notion of cryptocurrencies. The World Economic Forum released a report back in April that revealed that there are several ongoing central bank led projects that involve blockchain technology in support of what is called a Central Bank Digital Currency (CBDC). The financial press, however, has only fastened on three of these projects that are resident in Venezuela, Russia, and Iran. The general theme is that cryptos could enable a new financial network, free of global sanctions. Today’s news is that Iran has announced its own national cryptocurrrency, to be a form of stablecoin backed by gold.
It was a revelation back in April when the World Economic Forum reported that several crypto projects, driven by central banks, were in progress. At the time, we reported that: “It appears that Canada, England, Singapore, and France are leading the pack in efforts to find ways to deploy distributed ledger technology to gain efficiencies within their own operating environments. The primary effort seems to be focused upon the possibility of a central bank digital currency (CBDC), managed by a central bank and redeemable “for their respective domestic fiat currency”.” Sweden and South Africa were also cited.
As for the “Big 3”, as designated by the press, Venezuela started down this road many years back with the government issued crypto token named “Petro”, to be backed in some fashion by the nation’s oil reserves. The program never got off the ground, as most observers felt the entire project was a major scam perpetrated by a corrupt and ineffectual government. Its original intent was to bypass international sanctions, but that capability has never been tested. Per one critic:
The petro serves as a case study for other regimes to learn what not to do.
The focus then shifts to Russia and Iran, who presumably had been in discussions to develop a mutual crypto system that would once again offer a way around financial sanctions that blocked access to the SWIFT financial messaging system. Roughly a year back, it was said that Vladimir Putin was very interested at the time, but has since lost interest. The project now remains on some distant back burner.
Not to be outdone, however, Iran has continued in the background to develop its own form of CBDC. Per one news report: “On Saturday, July 13, Tehran-headquartered Mehr News Agency reported that the country’s first cryptocurrency issued under permission of the Central Bank of Iran (CBI) is set to be unveiled.” Shahab Javanmardi, an official with the Iran Chamber of Commerce, Industries, Mines and Agriculture, a non-profit institution established to facilitate economic growth and development in the country, gave these additional details:
- “The indigenous digital coin will be mined by a consortium of private Iranian IT firms in accordance with the agreement of the CBI;
- The Iranian cryptocurrency is backed by gold but its function is similar to foreign rivals, and
- The domestically encrypted money is to ease optimal use of Iranian banks’ frozen resources.”
The U.S. Dollar is currently the “reserve” currency of the world due to the stability and reliability of the U.S. economy and its governing infrastructure. Major commodities and trade credits are denominated in USD. Generally, a country must maintain two months worth of USD reserves, based on current trade data, in order to trade with other nations. For these reasons and others, the U.S. government can influence policy decisions in other nations, but opposition has been growing over the past decade. The Dollar has gone through a long period of devaluation, after the Gold-linkage was dropped. The enormous rise in debt and deficits only exacerbates the current situation.
While the debate continues over reserve currency status for the United States, the evolution of cryptocurrencies coincides with the apparent need for something other than the USD to represent a better store of value, independent of central bank manipulation. Last week, the Foundation for Defense of Democracies (FDD), a right-wing think tank based in Washington, DC, published a report to inform U.S. policymakers of the threat posed by national crypto programs like CBDCs that could circumvent the constraints of modern day sanctions.
The report took a broad look at CBDCs and issues with China trade agreements and concluded:
Washington, therefore, must understand the benefits and threats posed by new financial technologies, maintain the integrity of global finance, and cultivate the expertise and influence to lead in what is becoming an international crypto race.
Crypto advocates are speculating that this FDD report is what put a thorn in President Trump’s backside and which was the cause behind his recent anti-crypto, anti-Libra tweet-diatribe. Whatever the case, a new type of currency war may be on the horizon, one that puts cryptocurrencies in the direct line of fire. Times could get more interesting