One of the virtues of digital currencies has been the lack of regulation over them. it was pronounced by libertarians that simply removing the state from money would magically make everything work. In their eyes, allowing the market to function unhindered is the key to success. But, as we’ve seen, this is certainly not the case. The volatility of Bitcoin has been perfectly predictable. Not just by the unregulated nature of the currency, but by manipulations by large coin holders to influence the price. Needless to say, the experiment in an unregulated currency has been a failure.
Seeing this inherent flaw, regular banks are beginning to step into the cryptocurrency realm. Most notably has been Venezuela who has launched their own cryptocurrency out of the central bank. The Petro will be backed by a combination of oil, gold, and diamonds. This makes it the first cryptocurrency that is back by a physical object. Venezuela intends to use it to circumvent the sanctions which have been placed upon it by the US. Becuase of US control over the world’s reserve currency, they have a say over transactions carried out in it. Financial transactions carried out using digital currency with block-chain technology is beyond their control. Venezuela is also suffering from hyperinflation as a result of the sanctions as well. This means the Venezuelan currency has little value outside of the country, which is bad for trade.
The hope is that Venezuela can use this new currency as an alternative means of payment. They’ll be able to use it to more efficiently and effectively import the goods they need. The US will have no jurisdiction over their purchases because they circumvent US banks and US currency. How successful this will be, remains to be seen. Personally, I’m not optimistic about it. President Nicolas Maduro says that it will attract investments from Turkey, Qatar, the United States and Europe.
On the other side of the world, the digital currency Ripple has signed a deal with the central bank of Saudi Arabia. It’s just paved its way closer than ever to the traditional financial sector.
“What’s the significance you may be wondering, seeing as the banks were speculating? Well, Ripple is being rolled out by Banco Santander in four countries for Q1 2018. The U.K. branch confirmed its plans to work with American Express. Using Ripples blockchain technology. Ripple had access to Dubai’s UAE Exchange and made a deal with Lianlian International. Not just that, but Western Union is planning on testing XRP transfers.” (Source)
The technology used for transactions is what Saudi Arabia seem to be interested in. What seems to be the potential use is cross-border transactions that manage to avoid trade barriers and commerce costs. This will no doubt lead to those who make the transactions save money.
What’s significant here is that “Ripple has promoted itself as the blockchain equivalent of traditional financials. In contrast, Bitcoin and others have marketed themselves as deregulated and decentralized currencies.”
Ripple can also avoid the volatility that plagues other digital currencies because the majority of it is owned by the parent company. With this, they have the ability to regulate its price. The fluctuations in price have gone from $3.84 to $1.12.
I think this shows some clear trends:
1. This certainly shows that traditional banking institutions are taking advantage of the non-traditional aspects of the currencies.
2. Regulation has proven to be far more effective at stabilization than the market. Which is what capitalists want after all.