Authoritarian Cryptocurrencies Are Coming

["Dave Farber" <farber () gmail com>]

Begin forwarded message:

> From: Dewayne Hendricks <dewayne () warpspeed com>
> Date: October 18, 2017 at 9:28:54 AM EDT
> To: Multiple recipients of Dewayne-Net <dewayne-net () warpspeed com>
> Subject: [Dewayne-Net] Authoritarian Cryptocurrencies Are Coming
> Reply-To: dewayne-net () warpspeed com
>
> Authoritarian Cryptocurrencies Are Coming
> Russia and China see a new way to completely control their financial systems.
> By Leonid Bershidsky
> Oct 17 2017
> <https://www.bloomberg.com/view/articles/2017-10-17/authoritarian-cryptocurrencies-are-coming>
>
> With Russia and China both embracing the idea of sovereign cryptocurrencies, it's time to ask a simple question: Why 
> is a technology threatening to decentralize money so attractive to highly centralized, authoritarian regimes?
>
> Last weekend, Argumenti i Fakti, a pro-government newspaper, quoted Russian Communication Minister Nikolai Nikiforov 
> as saying President Vladimir Putin had ordered the swift launching of a "crypto-ruble." According to the report, 
> Nikiforov said the currency would use "Russian cryptography" and would be impossible to "mine" like bitcoin because 
> it would be "a closed model with a definite volume of regulated emission." This follows statements by Central Bank 
> Governor Elvira Nabiullina and Finance Minister Anton Siluanov, who stressed the need for the Russian state to bring 
> cryptocurrency emission and use under control.  
>
> Nikidforov's vague description of the crypto-ruble sounds similar to recent unofficial Chinese proposals. Yao Qian, 
> deputy director of the People's Bank of China's technology division, has discussed a central bank-issued electronic 
> currency for which commercial banks would administer "wallets." Other Chinese officials and state-affiliated 
> researchers have also echoed the idea. 
>
> To those who believe bitcoin's main innovation is the exclusion of a central authority -- a peer-to-peer system in 
> which transactions are validated by "miners" -- the interest of China and Russia is baffling. But those governments 
> aren't looking to give up control to the blockchain. On the contrary, they are trying to figure out how to lower the 
> cost for a centralized issuer to control everything that's going on in the financial system. 
>
> The electronic money we use today is produced by private banks: It is, essentially, their liabilities to each other. 
> As a recent Bank of International Settlements paperpointed out, "Cash is the only means by which the public can hold 
> central bank money. If someone wishes to digitize that holding, he/she has to convert the central bank liability into 
> a commercial bank liability by depositing the cash in a bank." Cash, however, has disadvantages for both central 
> banks and governments. For one thing, it's costly to print, mint, distribute and destroy. Changes to the banknotes 
> and coins can take years to administer. Theft and robbery are risks. At the same time, cash is anonymous; criminals 
> and tax evaders depend on it.
>
> All these problems and some others -- such as the time lags in a traditional electronic payment system as money moves 
> between banks -- can be solved if a central bank can issue its own cryptocurrency and have transactions registered in 
> a bitcoin-like distributed ledger, verified by central bank-approved agents. If that sounds like a version of the 
> traditional banking system, there is, potentially, a big difference thanks to the verifiers' more limited role than 
> that played by commercial banks. "With a lower entry hurdle to becoming a transactions verifier in a distributed 
> system than to becoming a member bank in a tiered system, we would expect more intense competition in the provision 
> of payment services," Bank of England's John Barrdear and Michael Kumhof wrote in a paper last year. "To the extent 
> that existing systems grant pricing power to member institutions, this should ensure that transaction fees more 
> accurately reflect the marginal cost of verification."
>
> The costs of running a monetary system would go down, payments between companies and individuals would speed up, and 
> transactions would become traceable by governments, above all for tax purposes. Nikiforov talked of imposing income 
> tax on the conversion of crypto-rubles into ordinary rubles unless their owner can show how the digital currency was 
> obtained.
>
> [snip]
>
> Dewayne-Net RSS Feed: http://dewaynenet.wordpress.com/feed/
> Twitter: https://twitter.com/wa8dzp



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