The 2008 financial crisis was an eye opener for the markets and a stark realization that, whilst regulatory oversight and central bank monetary policy continues to dictate the direction of currencies through the apparent independent manipulation of interest rates, markets remain exposed to government pressures. That brings into question, not only the independence, but also the entire foundations of fiat currency, ultimately leading to the current resentment felt towards central banks over the world.
Adding to the resentment towards central banks has been the post-Global Financial Crisis austerity measures and unprecedented quantitative easing that has pegged back growth and currency appreciation with wage growth and job creation are the victims of monetary policy through the last 8-years. Obviously, the pre-crisis wealth that had been enjoyed by so many, not just the elite, did not contribute to central banks’ affection by the public.
It’s not the first time that the global economy had been in the doldrums, though it was certainly the worst seen in more than a generation. Regulators and central banks were as much to blame as those in the hunt for the extra Dollar, all of which ended in tears.
So, it’s perhaps not surprising that there has been a push for an alternative, with the evolution of cryptocurrencies coinciding as a result one of the worst financial crisis in history.
Governments historically had the power to print money, but following the economic shock at the Bretton-Woods Conference in 1945, world’s leaders decided to take steps to bring an end to unprecedented government printing of money. The U.S Government was leading the way by establishing the gold standard, which eventually collapsed in the early 70s with U.S President Nixon’s fiscal policy reforms. Hindsight is certainly a wonderful thing and today, Nixon’s push to bring down the gold standard continues to be linked more to the U.S government’s desire and need to print Dollars to meet the ever increasing obligations of the U.S government.
Since the collapse of the gold standard, the debate over the concept of fiat money has developed into a hot topic, with governments looking to protect their corner, whilst the rest of the world looked for an alternative for Fiat money and such a discovery has been no mean feat, with a viable alternative in the form of cryptocurrencies more than four decades after the Gold standard, if we consider the collapse of the gold standard as day zero.
With no tangible value assigned to fiat currency, currencies no longer linked to gold or even silver as the value today comes more to being the trust in governments. These governments looking to retain value in their respective currencies than there being an actual determinable value assigned, with the trust element fundamental to the principal of fiat currencies.
In the wake of the global financial crisis, the trust that had been instilled in governments had ultimately been wiped away. Unsurprisingly, the more savvy entrepreneurs looked to introduce an alternative, which led to the evolution of cryptocurrencies, with Bitcoin the first of its kind.
What has fueled the appetite for cryptocurrencies, since the establishment of Bitcoin back in 2008?
The devaluation of currencies by central banks since the global financial crisis has certainly led to the belief that the days of fiat currencies are now numbered. Bartering networks that have been established in the wake of the financial crisis are a reflection of just how much the voting population of nations are distrusting of their respective central banks and governments.
The U.S government is not alone in keeping the Dollar printing presses alive, with the ECB also having played its part in the rising demand for an alternative, which today spells Cryptocurrency.
Interestingly, central banks are beginning to wake up to a cold harsh reality, with most, if not all, governments now facing the prospect of an end to the freedom to print money to make ends meet and maintaining control over monetary and fiscal policy as we know it today.
Bitcoin may have been the first, but there are a multiple number of alternatives now available in the cryptoworld and one could argue that the Bitcoin and the alternatives are no different to the U.S Dollar and other fiat currencies traded today, but with one distinct difference, a lack of oversight and control by central banks and governments.
It’s perhaps not surprising that, within the cryptoworld, there is a heightened degree of sensitivity to possible regulatory oversight, the very foundations of cryptocurrencies being decentralization.
Even less surprising is news of central banks looking to get on the bandwagon. As Singapore’s central bank is one of a few that has been developing blockchain functionality, Singapore’s central bank also aiming to be the first to introduce a tokenized version of the Singapore Dollar. For now however, central banks are looking generally to develop blockchain-based solutions to deter the general populous from moving away from what some continue to call a “Cryptocurrency Bubble.”
We’ve only recently heard that the Chinese government has banned initial coin offerings, some members of the Chinese government suggesting that the ban is temporary, while the SEC in the U.S has also raised its eyebrows, along with other central banks, at the rapid rise of cryptocurrencies in the last year in particular. One does question whether such brow-raising reactions are in the interest of the very people invested into cryptocurrencies, or in the interest of self-preservation.
For now, cryptocurrency valuations continue to be given in fiat currency equivalents and that will provide governments and central banks with some degree of comfort, but, when considering how rapidly cryptocurrencies have evolved and how certain governments have already begun to recognize the likes of Bitcoin as legal tender, the Dollar – cryptocurrency standard may well be a stepping stone to the end of fiat currencies, which have certainly been a failure when considering the fact that the Dollar, the market’s benchmark currency, has slumped more than 90% since the early 20th century.
Bubble or no bubble, an alternative to fiat currencies is inevitable and if governments and central banks don’t get on the cryptocurrency bandwagon, a collapse of governments may well follow, as the world looks for a decentralized financial system that will ultimately be what the internet became for advertising and media companies, just on an unprecedented scale.