In May 2023, Australian economist Paul Sheard published a book, The Power of Money, explaining how governments and banks create money. Things have moved on since then in the world of cryptocurrency, and it is the little understood international politics of money that need clearing up now.
Public interest continues to centre upon instruments such as bitcoin and its cryptocurrency imitators, whose huge price swings attract headlines. These are not currencies, however, but “risk assets” as Sheard noted during a recent event at the Foreign Correspondents’ Club of Japan in Tokyo.
The focus should be upon developments in the United States, China, Japan and Europe, where the battle for currency domination is accelerating via the issue of stablecoins – a private-sector cryptocurrency whose value is pegged to another asset, typically a fiat currency – and also central bank digital currencies (CBDCs). Both innovations could influence the global balance of currency power as well as domestic economic issues.
Pilot programmes in the use of stablecoins are spreading across the Asia-Pacific. Interest is also growing in CBDCs, with the region becoming a centre for digital payments innovation, Tobias Adrian, director of the International Monetary Fund’s (IMF) monetary and capital markets department, said during a seminar in Tokyo last week.
The politics of cryptocurrencies are intriguing. Bitcoin and other such instruments came into the world with their innovators wishing to bypass the existing system of sovereign currencies because they distrusted governments and central banks. By using blockchain technology to enable fast and cheap financial transactions instead of bank-to-bank exchanges, the belief was that such obstacles could be overcome.
Instead, holders of bitcoin and similar digital assets found that the value of these instruments was wildly volatile, even though their restricted issuance seemed to promise stability. Stablecoins linked to collateral holdings of US dollars and other sovereign securities seemed to provide an answer, even if they shifted control of monetary policy from official authorities to corporate and financial entities.
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Hong Kong charts new phase as digital asset hub with policy blueprint, says FSTB chief Chris Hui
Hong Kong charts new phase as digital asset hub with policy blueprint, says FSTB chief Chris Hui
