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Three Fronts in the Global Digital Currency Wars



Jeremy Allaire is co-founder, CEO and chairman of Circle, a global financial services company that provides a platform for individuals, institutions and entrepreneurs to build businesses, invest and raise capital with open crypto technologies.

The views expressed here are his own.

The past several months have brought dramatic new technology, market and regulatory developments in the cryptocurrency sector, with major global technology and state actors pushing forward digital currency initiatives.

These new initiatives are forcing global leaders everywhere to ask what the role of digital money will be in the next decade, and are ultimately a proxy for shifts in the broader political and economic landscape that are going to re-shape the future of the international monetary system.

Deep, fundamental digitalization of the economic system is now well underway as blockchain infrastructure moves from the fringe and early adopters and into the spotlight of major nation-state actors. Synthetic, crypto-powered central bank money tokens, and the introduction of smart contracts that can represent and tokenize other real-world financial assets and contracts are on the rise around the world.

These rapid changes are leading regulators everywhere to grapple with an economic system that is beginning to mirror the open, global and connected internet of information and communications.

At the foundation of these shifts is the rapid development of public blockchain infrastructures, such as ethereum, which allow market participants to issue cryptocurrency tokens representing fiat currencies and other financial assets. This “base layer” of trusted computing, record-keeping and transaction processing can be compared to the base layer of TCP/IP and HTTP, protocols that allowed the vast global internet to come into everyday use.

There are now several competing approaches to building a new financial system on this infrastructure.

1. Open finance

The first is represented by crypto-native ecosystem players, including Circle and Coinbase, who are building fiat-backed stablecoins such as USD Coin (USDC) on top of public blockchains. These developments are enabling a broad base of developers and companies to build higher-level financial constructs such as decentralized lending and credit markets, payments services and tools for trade finance.

Regulated by existing payments banking rules in the US and EU, these private market-based approaches are growing rapidly and help to form a pillar of the open finance movement.

2. Government-run

The second approach is best represented by China’s forthcoming Digital Currency Electronic Payment (DCEP) infrastructure, which aims to build an entirely controlled, centralized and permissioned infrastructure for a digital currency version of the Chinese RMB.

While likely appropriate for the Chinese economic and political model, this approach flies in the face of the open internet ethos

and is not likely to receive much of an enthusiastic response from the broader internet development community.

3. Private consortia

The third approach, anchored in the proposed Libra Association and Libra Reserve Currency, attempts to build an “over the top” synthetic global digital currency.

Like China’s effort, the Facebook proposal creates a centralized, permissioned infrastructure for this payment system, which will radically limit how open and accessible the infrastructure becomes for developers and companies wanting to build on top of it.

Competing worldviews

In each of these approaches, we can extrapolate a fundamental worldview.

With the first, do we want an open financial system built on the public internet that allows value to move freely and easily anywhere in the world with strong privacy protection, one that enables people and companies to build financial arrangements in code, enforced by public blockchain infrastructure and enabling commerce and transaction arrangements between people everywhere? In short, do we want a global financial system built in the image of the internet?

Or, if the world embraces the Chinese approach, do we want a world with tightly controlled access to innovation in the financial system, with extremely tight controls on where capital moves and who can access the system? Such a system may enhance efficiency and global reach for the Chinese RMB. But will it mirror the tightly controlled internet that exists in China today? Will it be offered on equal terms to people and companies globally who seek to transact with China?

The worldview put forward by Facebook and Libra suggests a new global financial system that is controlled and run by the largest private companies in the world. And rather than building on existing sovereign money, the Facebook construct seeks to create a new global currency that stands above the state. Do we want a new global financial system controlled by a few private companies, where permission to participate and innovate is mediated on a closed infrastructure?

The largest governments in the world, especially those responsible for major global trade currencies, must now grapple with the innovation of public cryptocurrencies that have the reach of the global internet.

The choices they face, and the decisions that are ultimately made by relevant policymakers, will have a dramatic impact on what our future global economic system looks like.

Meanwhile, while governments study and debate these topics, bit by bit and block by block, technical innovators all around the world are using crypto to rebuild the global economic system in front of our eyes in a marvel of human ingenuity.






The Rundown

  • RBA investigates the possibility of a Central Bank Digital Currency
  • Benefits and drawbacks of developing a CBDC
  • Australian Reserve Bank (RBA) recently revealed that it simulated the use of central bank digital currency (CBDC) in a wholesale payment system based on the Ethereum network, with interesting results.


Recently, the RBA revealed that it has decided to simulate the use of a CBDC in a wholesale payments system. Their plan was to see whether a system where banks settle customer payments between themselves would be able to operate on a permissioned Ethereum-based network.

As many likely knows, a number of central banks recently started experimenting with digital currencies, with hopes of creating a working system that would soften the impact of Facebook’s Libra. However, with Libra facing regulatory issues, central banks are advancing with their own plans.

They still are not convinced that cryptocurrencies such as Bitcoin offer a real alternative to traditional money, however, they do appear to see the value in shifting towards digital money.

As the central banks of China, Sweden, Turkey, and numerous other countries are working on developing their CBDCs, the RBA revealed that it is also conducting trials and tests to see how a CBDC might affect modern payment settlement systems.


According to a recent submission to the Senate Select Committee on Financial Technology, the RBA revealed that its goal was to simulate the role and impact of a central bank digital currency in a system that would allow financial institutions to settle customer payments between themselves. Simply put, the bank wanted to see what would happen if CBDCs were given to commercial banks, which would provide their exchange settlement account balances, in exchange.10 BTC

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This way, banks would be able to exchange tokens and settle various obligations, and even redeem them through the central bank. If the system proves to be functional, it may even secure the banks’ role in a cashless society of the future.

So far, the bank seems to remain unconvinced that there is a real need for the use of CBDCs in settlement systems. However, if they were to be used, they would bring certain advantages, as the bank had discovered. For example, they would reduce the cost of payments, and improve their speed. The payments would be made in real-time, 24/7, and without the need for external payment systems.

As these systems work right now, financial institutions are required to exchange instructions with one another throughout the day, which requires more time, and increases the cost.

Switching to CBDCs would also make ‘atomic’ transactions easier to perform, although there are also downsides, such as the fact that these systems either execute all parts of the transaction or none of them. A switch to a central bank digital currency would also enable vendors to reduce settlement risks, create new kinds of programmable money through the use of smart contracts, and more.

Even so, the RBA’s head of the payments policy department, Tony Richards, believes that there are numerous downsides. He also points out that there is a risk that the bank would go through the effort of creating a CBDC only to find that users are satisfied with existing electronic payments services.

He concluded,

There is a risk that if central bank digital currencies were wildly successful, it would lead to a fundamental change in the structure of the financial system.

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The Problems with Fiat Currency & How It’s About to Go Digital



Even many of cryptocurrency’s harshest critics acknowledge that there are serious problems with fiat currencies.

Strangely, enough the most outspoken critic of government-issued currencies; former International Monetary Fund (IMF) Chief Economist Kenneth S. Rogoff, is also a foe of cryptocurrency. Rogoff even wrote a book; The Curse of Cash, in which he recommended governments abolish paper cash completely.

Rogoff’s argument is that cash is draining money away from legitimate free enterprise and into the black market. He also accuses the world’s central banks of promoting the black market by profiting from the sale of paper bills.

“And all this cash is facilitating growth mainly in the underground economy, not the legal one,” Rogoff charged in a Project Syndicate editorial. He noted that the $100 bill; which average Americans almost never see makes up 80% of the U.S. money supply. The $100 bill is the favorite medium of exchange of the world’s criminals.

Paper currency encourages violent crime by making robbery pay off and drug dealing and illegal immigration profitable; by giving criminals an easy to use means of payment, Rogoff pointed out. In The Curse of Cash; he noted that the Swedish government greatly reduced the number of bank robberies by simply lowering the amount of cash in circulation, which made such crimes less profitable.

Ironically, this is a claim that is leveled at Bitcoin and other Cryptocurrencies, that they facilitate crime when it reality cash is by far the largest method or exchange for criminals.

Is Paper Currency Obsolete?

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Rogoff is the same man who denounced Bitcoin (BTC) as “Crypto Fool’s Gold” in a 9 October Project Syndicate column. Rogoff; a Professor of Public Policy at Harvard University, is no fan of cryptocurrency but he thinks present-day fiat currencies are worse.

Interestingly enough, Rogoff believes governments will scrap present-day fiat currencies; and replace them with national cryptocurrencies (he uses the term digital currencies), in the near future. His belief seems to be that paper cash is an obsolete technology that should be abolished.

“But the long history of currency tells us that what the private sector innovates, the state eventually regulates and appropriates – and there is no reason to expect virtual currency to avoid a similar fate,” Rogoff wrote at Project Syndicate.

His prediction is that governments will simply takeover cryptocurrency. Historically, paper currencies were first printed by banks – but eventually adopted by governments because they were a superior payment technology.

The Danger when Cash Goes Away

One person who agrees with Rogoff is India’s Prime Minister Narendra Modi. On November 8, 2016, Modi demonstrated all the problems with fiat currencies by declaring 86% of the cash in his country worthless.

Modi simply went on television and told the Indian people that their two largest bills; the 500 rupee ($7.50 or £5.40) and 1,000 ($15 or £10.81) notes were instantly worthless, CNN Money reported. Not surprisingly, the Prime Minister’s action created instant panic and an immediate cash shortage.

India Cash
Indians waiting in line for Cash withdrawals, Image from CNN.

Over the next 50 days, tens of millions of Indians learned what it was like to live without cash. Some businesses resorted to barter, while some people were sleeping in lines outside banks and ATMs rumoured to have cash. Such chaos occurred because 98% of all consumer transactions in India are conducted in cash.

Modi showed the world why cash is such a lousy payment mechanism; it can be instantly destroyed or taken away. Just as a person who keeps all of her money in bills under the mattress can lose everything to theft or fire. An entire nation can lose its buying power to one government action.

The Hyperinflation Menace

A major problem with Fiat currency is the inflation problem, governments can print as much new money as they like which devalues the money already in supply. For example, after the financial crisis in 2008, the bank of England created £375billion of new money. This is an ongoing concern and one of the problems that cryptocurrencies solve completely – for example, we know that there will only ever be 21 million Bitcoin in existence.

The residents of Venezuela are experiencing the other grave danger from government currencies: hyperinflation.

Prices in Venezuela may have risen by 12,875% during 2017 and by 85% during December 2017, Johns Hopkins University economist Steve Hanke told The Economist. Hanke thinks that prices in Venezuela are doubling every 52 days.

If Hanke is right that would place Venezuela among the worst cases of hyperinflation in history. The International Monetary Fund forecast that inflation might increase by 13,000% in Venezuela during 2018.

The Venezuelan government is now printing a 100,000 bill in its fiat currency the Bolivar, The Economist reported. That bill might be worth less than 50¢ (£0.36) in US Dollars. The black market exchange rate for one US dollar (£0.72) in Venezuela is 228,000 Bolivars, Reuters reported.

Hyperinflation Graphic, Image from The Economist.

Average Venezuelans are feeling the pain, an egg now costs 10,000 Bolivars; or a day’s pay in the nation’s minimum wage, on the country’s streets, The Havana Times reported. Eggs have apparently replaced Bolivars as one of the favoured mediums of exchange in Venezuela. A single carton of eggs now costs 60,000 Bolivars – or six days the minimum wage.

The Bolivar is worthless because Venezuela’s President Nicholas Maduro destroyed the economy, and wasted the entire nation’s oil money. Not surprisingly, many Venezuelans; including Maduro himself, have become cryptocurrency geeks out of necessity.

Cryptocurrency vs. Hyperinflation

Thousands of Venezuelans are using the country’s super-cheap electricity to mine Bitcoin (BTC) and Ethereum (ETH), The Atlantic reported in September 2017. A Venezuelan can make around $500 (£359.56) or 125.4 million Bolivars a month mining Bitcoin.

Venezuelans like Bitcoin because police, criminals, or soldiers cannot seize it at gunpoint. They can also use Bitcoin to pay for items from e-commerce companies in Miami and have them shipped to the South American nation. It is even possible to buy Visa and MasterCard gift cards; that can be used at Amazon, with Bitcoin or Ethereum.

This enables some Venezuelans to purchase essential items like food, medicine, and diapers online, Atlantic reporter Rene Chun discovered. These people can live a better life than their neighbors who are bartering eggs for consumer goods in the street.

Bitcoin is now so valuable in Venezuela; that corrupt police are seizing mining rigs and rebooting them at their stations, Chun wrote. The only way cops can get paid; and feed their families, is to mine Bitcoin.

Letting Politicians Loot the Nation’s Wealth

The country’s newest cryptocurrency geek is Maduro himself; who announced the creation of an oil-backed altcoin he calls the Petro in December 2017, Al Jazeera reported. Maduro even has plans to try and get the Organization of Petroleum Exporting Countries (OPEC) to issue an altcoin.

Venezuela’s President Maduro, Image from AlaJazeera.

“I am going to officially propose to all OPEC and non-OPEC producing countries that we adopt a joint cryptocurrency mechanism backed by oil,” Maduro said.

The Petro probably will not help average Venezuelans; but it will make it easy for Maduro and his henchmen to move all the oil money out of the country, before the revolution. Whether the international community will let Maduro get away with looting Venezuela’s wealth is not clear.

The fate of Venezuela reveals what might be the greatest flaw in government fiat currencies; they make it real easy for corrupt or incompetent leaders to loot the nation’s wealth. All the dictator has to do to get more cash is to run the printing press.

The victims are average citizens who have no choice but to accept the worthless paper. The dictator and his cronies have the option of selling assets for other currencies with value and moving it to overseas bank accounts. Disturbingly, it is in the interest of the dictator to print more money; because he can exchange it for currencies with value, making the cash even more worthless.

Venezuela Demonstrates why Cryptocurrency will Supplant Fiat Currencies

Average people are at the mercy of this horrendous system because they cannot spend the tyrant’s worthless paper outside the nation. Nor do they have a good means of moving cash outside the nation, because nobody else accepts their national paper.

Cryptocurrencies enable average people to bypass government-issued Fiat which is subject to their whims – which is what makes them so valuable. The true advantage of cryptocurrency is that it allows average people the ability to make cross-border transactions with no exchange rate. That gives them spending power and money transfer capabilities once only reserved for the rich.

Rogoff and Modi are absolutely right, the problems with fiat currency will kill it off in the near future no matter what governments do. Like it or not, cryptocurrency is the future of money, and governments will ether be forced to adopt it or try to ban it which will prove futile due to it’s decentralized nature.

China’s Digital Currency Plans

Reports coming out of China say the country’s central bank is making progress with its plans to create a sovereign digital currency. However, the People’s Bank of China (PBOC) is yet to release any official timetable for the roll-out of the proposed digital yuan.

Meanwhile, commentators continue to assert that China’s digital currency plans are part of efforts to prevent the widespread adoption of public cryptos like bitcoin (BTC) as well as private virtual currencies like Facebook’s Libra. Several central banks are also making efforts to launch their own state-issued digital currencies.

No Launch Date Set for China’s Digital Currency

According to the South China Morning Post, the PBOC issued a statement on January 5, 2019 declaring that progress was being made on the development of digital yuan currency. The statement was part of the central bank’s annual work conference detailing the PBOC’s activities for the last year.

Despite providing proof of ongoing work on the proposed central bank digital currency (CBDC), the PBOC did not elaborate on a likely timeframe for the release of the digital yuan. Back in 2019, reports stated that China’s digital currency would likely launch in November 2019 but those rumors turned out to be false.

Also, details about China’s digital currency remain scarce with inside sources so far declining from providing concise commentaries about the project.

Back in 2018, Blockonomi reported that the PBOC was recruiting digital currency specialists.

Beijing Wants to Combat Bitcoin and Libra Adoption in China

Despite the dearth of details about China’s proposed digital

currency, one thing is clear — Beijing wants to counter cryptos like bitcoin and Libra. One key evidence for this assertion is that chatter about the project increased in intensity following the release of the Libra white paper back in mid-2019.

China was among the first nations to criticize the project citing monetary control concerns. At the time, Beijing railed against Libra’s plan to create a stablecoin backed by a basket of fiat currencies, saying such a digital currency could contribute to capital flight from mainland China.

The heightened chatter around China’s digital currency plans also came at a time when the government was actively promoting blockchain technology adoption. President Xi Jinping declared in October 2019 that blockchain will become a “core” technology in the country. Critics of China’s pro-blockchain stance said the country will not seek to promote the more decentralized aspects of the technology.

Various state and pollical media organizations were also waxing lyrical about blockchain utilization in China. However, this wave of positive blockchain sentiment did not extend towards crypto with the country’s government firmly maintaining its “blockchain, not crypto stance.”

As previously reported by Blockonomi, the renewed crypto crackdown saw five cryptocurrency exchanges being forced out of business. This fresh virtual currency prohibition seemed to focus on over-the-counter (OTC) digital asset trading desks.

China did remove Bitcoin mining from a list of prohibited industrial activities. However, several provinces in the country are demanding that crypto miners reduce their energy consumption during the dry season months to allow for ample power supply for retail consumers.

Central Banks Looking at Sovereign Digital Currencies

Several central banks have also come out to confirm or deny reports of developing their own CBDCs.

Stakeholders at the European Central Bank (ECB) and the European Union (EU) as a whole have also called for the creation of a digital Euro. Some policymakers argue that such a move is necessary to not only combat private cryptos like Libra but to also stay apace with China in the emerging digital economy landscape.

Escaping the Dollar: China, Russia & Others Mull Shared Digital Currency

Leaders from the countries constituting the BRICS bloc — China, Russia, India, Brazil, and South Africa — have discussed the creation of a shared digital currency that would be aimed at trade settlements and further moving the participating nations away from the long shadow of the U.S. dollar.

Reported by Russian media outlet RBC, the discussions arose out of one of the economic and political bloc’s business council meetings this week, wherein BRICS officials formally considered such an effort for the first time.

No concrete plans resulted from the dialogue, so would-be specifics are lacking for now and it’s possible the project will never take off or will do so much later after considerable changes. So don’t call it digital money just yet.

“It will not be money, we can say that it will be a paperless document flow to facilitate transactions,” argued Nikita Kulikov, who was present at the council meeting.

Whatever happens, it is significant that the BRICS nations have even considered the possibility of creating their own blockchain settlement system, as they comprise some of the world’s most influential emerging economies and are collectively home to more than 3 billion people. If BRICS has considered a shared digital currency, then others will too, and the consequences of that could be deep and long-lasting.

Dawn of De-Dollarization: Russia as Case Study

Efforts to “de-dollarize” have been growing on the world stage recently, and nowhere has that dynamic been clearer than in Russia, with the country’s participation in the aforementioned BRICS discussions being just the latest happening in its campaign to transcend the dollar’s significance.

For example, various proposals for state-backed digital currency efforts have been put forth in Russia over the past two years, all of them made against the backdrop of Russia’s top leaders wanting ways to give the country more freedom from USD and Western trade sanctions.

Last summer, Andrey Kostin, the head of major Russian bank VTB, charted out a path for how the nation could use fewer dollars in international transactions. Since then, related ideas have rolled in from Russian officials about how cryptocurrency tech could play a role in the country’s de-dollarization drive. Proposals have ranged from gold or oil-backed crypto to a stablecoin pegged to the Russian ruble.

“[A]n oil-backed cryptocurrency would allow oil producing countries to avoid any financial and trade restrictions that have become excessive in recent years,” former Russian energy minister Igor Yusufov said in October 2018. One month later, State Duma finance committee chairman Anatoly Aksakov proposed the creation of the “crypto-ruble” that would be backed by Russia’s central bank.

Relatedly, Russian officials have also participated in discussions with colleagues from the Eurasian Economic Union (EEU), which Russia heads up along with Armenia, Belarus, Kazakhstan, and Kyrgyzstan, to create a shared digital currency for the bloc that could be launched as early as 2020.

As Alexey Moiseyev, Russia’s deputy finance minister at the time, explained of the EEU initiative:

“The number of [domestic firms] currently under sanctions keeps increasing, and we hear threats that more sanctions will be introduced. So we have to react by creating reliable systems of international payments that are not pegged to the U.S. dollar.”

In a similar vein, Chinese officials have said a large motivation behind their ongoing digital yuan effort is to further entrench China’s monetary sovereignty — an implicit swipe at the specter of the U.S. dollar.

Between even just Russia and China then, there is certainly the political will within BRICS to push ahead on work that could help them move away from USD. It remains to be seen if the bloc will take the matter forward, but the entire affair could be a key geopolitical thread to watch going forward.

Central Bank Digital Currency Efforts Explode Ahead of China Crypto Launch

If you told someone on Wall Street or a central bank official ten years ago that there would be sovereign digital currencies, they likely would’ve laughed. But, these digital currencies are becoming reality. And quick.

Central Banks Going All-In On Crypto?

CoinDesk reported that the Banque de France has just doubled down on its digital asset ambitions. A job opening published in the middle of last month mentioned the central bank’s need for an analyst with experience in crypto-economics, game theory and public or private blockchain.

The report also noted that France’s monetary authority is looking for an individual to research the use of blockchain in traditional banking.

The same CoinDesk released the abovementioned report, the Bank for International Settlements (BIS) revealed that it would be onboarding a key individual: Benoit Coeure, outgoing member of the executive board of the European Central Bank.

Coeure, who previously called Bitcoin an “evil spawn of the financial crisis,’ will be leading the BIS’ Innovation Hub, which is a new branch of the banking entity that has made cryptocurrencies one of its primary focuses.

While the BIS announcement regarding this news made no mention of cryptocurrency, the BIS has supported central bank digital currencies in the past. Agustín Carstens, the head of BIS, said earlier this year:

“Many central banks are working on it; we are working on it, supporting them.”

These latest tidbits of news come just a few weeks after a report revealed that Canada is considering its own cryptocurrency. Per previous reports from this outlet, an internal slide deck presented to Bank of Canada Governor Stephen Poloz revealed a proposed central bank digital currency project.

The proposed coin would be widely available,” an eventually mandatory alternative to paper fiat, would be able to collect information about consumers, and would combat the “direct threat” of Bitcoin and other decentralized and “unbacked” money systems.

Response to China

While it may be a coincidence that all this work towards central bank/fiat-backed digital currencies is happening at once, it seems that it’s in response to those that are currently ahead of the game: the Chinese government and the People’s Bank of China.

Just last month, China’s President Xi Jinping told the Chinese people that they should start adopting blockchain as a “core technology” to bolster an array of industries, including healthcare and finance.

Also, the past months have seen reports reveal that China is on the verge of launching a dual-layered digital money system that may have the potential to become the nation’s primary medium of exchange.

The Race for Digitization

It is likely that we’re going to see a sort of “blockchain arms race” take place over the next couple of years, which will see countries and companies all over the globe duke it out for how best to use this technology.

There will likely be a focus on centralized cryptocurrencies due to the value they provide; the aforementioned Bank of Canada slide deck mentioned that banknotes are quickly becoming obsolete and expensive, while decentralized cryptocurrencies have begun to pose a threat to monetary policy.

This impending arms race will be of utmost importance, analysts have asserted, with Anthony Pompliano, formerly of Facebook and currently of cryptocurrency investment firm Morgan Creek Digital asserting that the United States would “gain a [monetary/economic] advantage” and “capture the imagination of hundreds of millions of people” if it launched a digital money system before China did.

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ANALYSIS: The Global Game of Coins Heats Up



China’s digital currency project continues to move ahead aggressively, with a new paper from the People’s Bank of China suggesting that a core design is complete. Whatever stage of development the currency is actually in, it’s clear that China wants the world to see it as ahead of the curve in the digital currency race. 

In other parts of the world, crypto companies face a never-ending game

of regulatory arbitrage. Deribit is moving from the Netherlands to Panama, citing a new burden from AMLD5 compliance. In the U.S., New York wants to give its crypto regulators (even) more teeth while Illinois recognizes the legality of blockchain-based contracts.

Topics Discussed:

  • PBoC paper claims “top-level” design of cryptocurrency is complete
  • Zuck leaves out Libra in Facebook’s 2030 vision
  • Deribit leaves the Netherlands for Panama due to AMLD5 compliance concerns 
  • New York Gov. Andrew Cuomo wants to give NYDFS more teeth
  • Illinois recognizes legality of blockchain-based contracts


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