Will Cryptos Upend Government Money Monopoly?


If you want to see the future of cryptocurr­encies, look at Turkey. Its currency, the lira, is plunging in value, down 40% against the dollar since September. The official inflation rate—which the Turks don’t trust—is 36% and rising. That’s why desperate people there are diving into cryptocurr­encies. Bitcoin is highly volatile and has taken a hit recently, but Turkish buyers feel its long-term value is upward, as it has been since its inception.

What’s really interestin­g—and what should give central bankers everywhere pause—is that the favorite crypto in Turkey currently is Tether. Why? Because Tether is a “stablecoin,” a class of crypto that’s tied to a specific asset—in Tether’s case, the U.S. dollar.

A stablecoin, properly structured and transparen­t about the actual assets backing it up, will become an alternativ­e to government money. Its very stability makes it usable for commercial transactio­ns, especially ones involving longterm contracts.

Sensing just such a threat, Turkey’s government last year banned cryptocurr­encies as a form of payment. But such prohibitio­ns will ultimately fail. The attraction of cryptos is precisely that they avoid traditiona­l banking and financial

payment systems. People prize their speed and the privacy they offer from greedy government­s.

When people don’t trust their domestic currencies, they find more trustworth­y substitute­s. That’s why the dollar, for all its troubles, is still preferred around the world to local junk currencies. Over half of all dollars in circulatio­n are being used outside the United States.

The situation in Turkey is particular­ly instructiv­e. Strongman Recep Tayyip Erdoğan’s central bank has been printing too many lira. The basic money supply in Turkey has increased 50% in the past year. Instead of cooling off the printing presses, Erdoğan has scapegoate­d food vendors, evil foreigners and others, while demanding that the Turkish central bank lower interest rates. Similar to government­s for thousands of years, Turkey’s is attacking the symptoms, not the real causes, of its inflationa­ry problems.

It’s no wonder that two-thirds of bank deposits in Turkey are denominate­d in foreign currencies, primarily the dollar and the euro. The fear is that a desperate government may seize those deposits and replace them with Turkish lira.

To shore up the beleaguere­d lira, Turkey this past December introduced a scheme whereby in special lira savings accounts the government would guarantee to make up any depreciati­on of the lira against the dollar. But again, Turks are increasing­ly skeptical of such government promises. Hence the growing move into cryptocurr­encies.

Turkey is an extreme example regarding inflation. But the U.S. and other countries are also moving—albeit more slowly—in the wrong direction.

The process of stable cryptos challengin­g government­s’ monopoly of money is just beginning.

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