Within the modern nation-state system, it’s always been a tradition that governments issue their own currencies. These sovereign currencies were backed by state power and issued by the country’s central bank. In almost every country in the world, competing currencies are banned in spaces other than foreign exchange markets. However, cryptocurrencies are forcing us to reconsider how we understand currency says St. Louis Federal Reserve President James Bullard.
“The current situation could be described as a drift toward a non-uniform currency in the US,” Bullard said in his delivery at an academic conference held on Friday. Although seemingly inevitable, he argues that most consumers and businesses will not like this change. It would create an environment where “many types of currency trade simultaneously at a variety of prices in a local market.” Whereas previously these transactions would be considered “illegal or quasi-illegal,” they have now been forced into the spotlight as regulators scramble to devise a proper solution.
The President was largely critical of cryptocurrencies during this speech. However, he admitted they are tackling an “important social problem” despite “pushing us in the wrong direction.”
Bullard seems to suggest that the abundance of competing currencies would create ‘confusion’ among businesses and consumers. However, this claim is unrealistic in today’s digital economy. Conversions between different currencies are almost instant nowadays, which means that the burden won’t be on businesses to convert funds.
Bullard seems to understand the profound implications of cryptocurrencies but arguably fails to grasp the technological leaps that come with them. He imagines these currencies competing given today’s conditions. However, Bullard should imagine a world where stablecoins, various cryptocurrencies, and actual sovereign currencies are interchangeable. This kind of future is not only possible, but is actively being worked on by many exchanges, custodial services, and cryptocurrency projects.
The Reserve President isn’t the only one to criticize digital assets, either. A couple of months ago, the President of the European Central Bank dismissed Bitcoin during a meeting. They’ve also gone after Facebook’s Project Libra as well. Overall, it seems that the central bankers and regulators need to ‘catch up’ to the cryptocurrency space. Not the other way around.
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