The United States might be losing the race to develop the next generation of financial technology. The nation might be in danger of finding itself hopelessly behind international competitors in the contest to harness the power of cryptocurrency and blockchain.
Anybody that researches cryptocurrency and blockchain technology quickly discovers that most of the research is being overseas or in international financial centers not in America. Tellingly neither of the two biggest cryptocurrencies out there was developed on American soil.
- Bitcoin was probably invented by an Australian. Although two Americans including Elon Musk have denied being the altcoin’s creator Satoshi Nakamoto.
- Ethereum was invented by a Canadian who is based in Switzerland – Vitalik Buterin.
More importantly, most of the new cryptocurrency research efforts are centered in places like Switzerland, Singapore, Estonia, Moscow, London, Lichtenstein, and Toronto. What is even more bothersome is that the central bank of the People’s Republic of China, the People’s Bank of China (PBOC) is heavily involved in cryptocurrency research but we have not heard a peep about it out of the U.S. Federal Reserve.
Even the staid old lady of Threadneedle Street; the Bank of England, has been quietly researching cryptocurrency but the Fed has not. Instead, William Dudley; the CEO of the Federal Reserve Bank of New York, told CNBC reporters that the Fed is starting to think about cryptocurrency. Disturbingly there’s no evidence that the Fed’s crypto research has gone beyond remarks to reporters.
Will China Win the Cryptocurrency Wars?
The Fed’s lack of interest is scary because the PBOC might be close to bringing out its own cryptocurrency. The People’s Bank has a team of researchers developing such an instrument, The South China Morning Post reported. China is developing the next generation of financial technology, while America is still playing with its printing press.
“The development of digital economy needs central bank-issued electronic currency more than ever,” Yao Qian the head of cryptocurrency research at the PBOC told reporters in Beijing on 4 November. “It’s crucial to speed up the research and issuance.”
One has to wonder if the United States will end up like Japan in World War II. The Japanese invested their money and resources in last generation technology; battleships, which ended up on the floor of the ocean. The United States invested in nuclear research and invented the atomic bomb, which killed tens of thousands of Japanese.
Will it take Americans using Chinese or British cryptocurrency for all their transactions to get the Fed to realize what is going on? What’s truly scary is that things might be about to get far worse, because some U.S. politicians have a solution to the problem: ban Cryptocurrency.
Would the US Congress Ban Cryptocurrency?
The U.S. Senate’s Committee on the Judiciary held a hearing on bill S 1241 which is entitled Modernizing AML Laws to Combat Money Laundering and Terrorist Financing on November 28, 2017. There has been speculation that S1241 would ban the ownership or use of cryptocurrency in the United States.
Some cryptocurrency advocates think a provision in S 1241 would make cryptocurrencies illegal in the US by making them comply with anti-money laundering laws or AML, Cryptocoins News reported. A group called Abolish the BitLicense charged that S 1241 will make digital currencies illegitimate transactions.
Disturbingly there is some high-level support for such thinking. Nobel Prize-winning economist and Colombia Professor Joseph Stiglitz told Bloomberg Television that he thinks Bitcoin should be banned.
“It seems to me it ought to be outlawed,” Stiglitz said of Bitcoin. “It doesn’t serve any socially useful function.”
“The main use of Bitcoin has been to circumvent tax authorities and regulation,” Stiglitz said. Stiglitz also falsely claimed the U.S. government had effectively shut down Bitcoin, which is not true.
Strangely enough, Stiglitz is an advocate of phasing out paper cash and adopting the digital currency. Unfortunately, he does not say where the new financial technology will come from.
How is America supposed to develop digital currency if the efforts to develop one are suppressed? Will the U.S. end up going begging to the PBOC or the Bank of England for help in deploying digital currency?
The United States might soon be helplessly behind in financial technology. If that occurs America’s days as the world’s richest nation and New York’s reign as the global financial capital will be over. Instead, the U.S. will end up a backward second-rate power. America will be totally dependent on other nations for financial services; just as Japan was totally dependent on the U.S. military for defense for decades.
America needs a massive government effort to develop digital currency and fund cryptocurrency and blockchain research now. Without one, the U.S. is doomed to relying on other countries for its financial technology.