The 21st Century Digital Currency Arm’s Race: America’s Only Hope?
So, let’s be clear: 56.7577° N, 86.4196° W and 40.4230° N, 98.7372° W. In the former geographical coordinates, Bitcoin is free of banking regulation. However, in the latter, Bitcoin is not free from banking regulation.
The case grows increasingly murky in 32.9043° N, 110.4677° E, otherwise known as China. Perhaps the geographical coordinates of 35.1234° S, 71.5720° W – that is Chile – will keep with their recent history of laissez-faire economic policies and be kind to Bitcoin.
Or maybe one with bitcoins would be best off at 18.1667° S, 178.4500° E, far away from civilization in Fiji.
Although it might be difficult to know where Bitcoin’s safehaven will be, one thing that is becoming clearer is that those societies which do not adopt decentralized virtual currencies will not play a very important role in the molding of the world in the 21st century. The US, for example, has been its own worst enemy in its approach to decentralized virtual currencies. There is a lesson to be learnt for the US in the Canadian decision on virtual currencies like Bitcoin.
Just this Thursday a top anti-money laundering US regulator said that the US is not working to clamp down on virtual currencies, though authorities expect exchanges and administrators for digital cash to comply with the same rules that apply to other financial institutions, what seems to be a guilty before-proven-innocent solution.
The regulators’ comment comes on the heels of charges brought against Liberty Reserve, a virtual currency site that is alleged to have laundered approximately $6 billion. Moreover, the Department of Homeland Security seized an account of keystone Bitcoin exchange Mt. Gox, alleging that it and a subsidiary were conducting transactions “as part of an unlicensed money service business.”
With this past March came FinCen’s proclamation that it would apply money-laundering rules to virtual currencies amid growing concern that the equivalent of digital cash would be used to fund illicit behavior. This move strapped millions of dollars of overhead on many Bitcoin firms, placing them under the same umbrella as money-order providers Western Union.
So, thrust onto their lap was registration with government, internal safeguards, bookkeeping requirements and mandatory reporting for transactions of more than $10,000.
“Any financial institution and any financial service could be exploited for money-laundering purposes. What is important is for institutions to put controls in place to deal with those money laundering threats, and to meet their … reporting obligations,” Ms. Shasky said. Ms. Shasky, who took over the top spot at FinCen in September 2012.
The Liberty Reserve case marks the first time the Treasury had invoked the 2001 Patriot Act against a virtual currency in an effort to choke off Liberty Reserve from the US financial system.
“With this action, we were not painting with a broad brush against an entire industry. I do not think that is fair to any industry in any situation, let alone this one,” Ms. Shasky said.
The US is losing the digital currency race.
When Fred Ehrsam pitched his bitcoin-based startup Coinbase to more than a dozen Silicon Valley investors – you know, the ones who are supposed to know tech – he got blank stares. The reception in China has been much different. There, he doesn’t have to spend an entire meeting explaining the concept of digital money. Instead, he gets to tell them about his business.
“They said, ‘We’re sold on digital currency; we just want to know if you’re the right people,’” Ehrsam told International Business Times pacing from a windy San Francisco rooftop. “It was a very different starting point.”
Virtual currencies have been around in China. In fact, more than 100 million people on social network QQ have used the Q coin for over 10 years. Eventually, the Chinese government cracked down on it. Moreover, China’s state-run China Central Television, or CCTV, ran a half-hour-long documentary on bitcoin, leading to a spike in the world’s second largest economy of downloads of apps for processing and “mining” bitcoins.
Bitcoin still has lots of room to grow, as it has been heavily concentrated in North America in its incipience. To be sure, North Americans have lots to lose should they lose this digital currency arm’s race to, in particular, China.
What does it say about the global economic landscape that, in even China, where the ‘people’s currency’ is touted as playing a central role in the redefining of the global economic system, Bitcoin is gaining popularity.
An HSBC forecast projected that come year 2015, the yuan will be one of the three most used currencies in global trade, in league with the dollar and euro. China also already has agreements with Russia, Vietnam, Thailand, and Japan allowing trade to be settle din yuan instead of dollar.
Circulation of Global Payments – January 2013 SWIFT DATA
1. Euro 40.17%
2. U.S. Dollar 33.48%
3. British Pound 8.55%
4. Japanese Yen 2.56%
5. Australian Dollar 1.85%
6. Swiss Franc 1.83%
7. Canadian Dollar 1.80%
8. Singapore Dollar 1.05%
9. Hong Kong Dollar 1.02%
10.Thailand Baht 0.97%
11.Swedish Krona 0.96%
12.Norwegian Krone 0.80%
13.Chinese Yuan 0.63%
14.Danish Krone 0.58%
15.Russian Ruble 0.56%
The West is embracing the rise of China. London, Paris and Zurich have all made bids to be a preferred partner of China. Bloomberg reported that the Bank of England was poised to be the first Group of Seven nation to sign a currency-swap with the People’s Bank of China.
But, it is China’s history of currency manipulation that renders its’ currency untrustworthy. Since China oversees the yuan under strict government controls, its mission of decoupling from US dollar debt can be seen in the management of its own currency.
Certainly, the Chinese people remember that, before 2009, the central government prohibited the export of the currency and its use in international transactions. They have experience with currency controls, and so they appreciate a diverse portfolio. That is why the Chinese are buying gold in record amounts, as well as silver, and also why they are taking to Bitcoin. The US is behind in these departments, just as they are behind in science and math in schools. One of the US’s only hope is to pioneer decentralized virtual currencies, just like it pioneered and dominated the credit card industry.