State involvement in cryptocurrencies. A potential world money?

Abstract

This article is about the role that states play in the research and development of cryptocurrencies and their underlying technology. Some states, for instance China, are about to launch their own state-backed cryptocurrency perhaps due to the potential of this new type of digital money to become world money. To support this argument, Marxist monetary theory is deployed to show that cryptocurrencies could be conceived as potential digital commodity money, a new and incorporeal type of commodity money with intrinsic value but without use value. Lacking a natural form, it could potentially have only a “formal” use value: direct exchangeability with all other commodities. If states manage to actualise this potential by issuing their own cryptocurrencies and making them legal tender money, cryptocurrencies could function as international means of payments and means of hoarding perhaps more efficiently than credit money. In the case of China, this means that this new digital money would have a chance of competing with the US dollar as international reserve currency.

Notes

Notes

1 Some examples of non-blockchain DLTs, like the software of the cryptocurrency IOTA and the one of the open-source distributed ledger platform Corda, can be found here: https://medium.com/blockstreethq/before-blockchain-there-was-distributed-ledger-technology-319d0295f011.

2 The term “quasi world money” was originally deployed by Makoto Itoh to describe central banks' credit money competing to be world money (Lapavitsas 2013, 104).

3 It should be borne in mind that in some existing literature, both academic and non-academic, the term “digital currencies” is used to refer to the DLT/blockchain-based, legal tender currencies that are being researched and/or developed by institutions such as central banks. In other words, to refer to cryptocurrencies, specifically permissioned ones issued by central banks.

4 There are several contemporary authors who have addressed the field of economics through the ideas of Marx, many of them focusing especially on finance and monetary issues. Some examples are de Brunhoff 2015 [1976]; Weeks 1981; Harvey 2018 [1982]; Foley 1986; Itoh 1988; Itoh and Lapavitsas 1999; Saad-Filho 2002; Fine and Saad-Filho 2016 [2004]; Patnaik 2009; Lapavitsas 2013.

5 Cryptography avoids the double spending problem in a digital currency, i.e. the hacking of the software to use many times the same units of the currency, or other kinds of attacks. In the digital world, the double spending problem is particularly difficult to solve without an intermediary, because digital currencies are ultimately series of digits in a string of binary code (Zimmer 2017, 311). Thus, Bitcoin's big innovation is that it is a decentralized digital currency that solves this problem through cryptography, being able to be trusted just through its own software, and guaranteeing its safe and proper functioning.

6 To read more about the “digital abstraction” and the materiality of the digital world, see Blanchette (2011a, 2011b).

7 Although gold has never ceased to have a role as the original money commodity that is increasingly hoarded in times of crisis.

8 In 2012 SWIFT had already been used to sanction Iran, but it is in 2019 when Iranian banks are completely disconnected by order of the USA.

9 SPFS system was created in 2014 to protect Russia from a potential disconnection of SWIFT. This happened when Barack Obama's administration, after imposing different types of international sanctions to Russia due to the conflict in Ukraine, was thinking of expelling Russian banks from the SWIFT system. At that moment, Russian authorities decided to create SPFS just in case the disconnection was carried out.

10 A failed example of this is the Petro, the cryptocurrency that the Venezuelan government created in 2018 trying to overcome the commercial and financial sanctions that the USA has been imposing on the Latin American country, and as a desperate solution to try to refloat an economy that is sinking.

11 In 1971, Richard Nixon suspended direct convertibility of US dollar to gold, which was already unnecessary.

12 An Initial Coin Offering is the creation and sale of a new cryptocurrency. This is the official statement of the People's Bank of China banning ICOs, in Chinese: http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/3374222/index.html

13 This is the double level system proposal of Fan Yifey, in Chinese: https://www.yicai.com/news/5395409.html

14 More about the path that money follows depending on its type in Lapavitsas (1991).