Russian State Officials have announced its intention to issue a crypto currency version of the rouble. The virtual currency will be redeemable for paper currency or be accepted as deposits into Russian banks. Converting any existing currency into a crypto currency on the face it seems an ideal mechanism to reduce the costs of handling currency; no more expensive cash distributors, tellers, or merchants requiring delivery of ‘suitcases’ of paper currency, counterfeiting is stopped dead in its tracks.
Likewise, the instantaneous nature of the rouble transfers will permit worldwide usage of rouble denominated transactions and allow the crypto-rouble to be increasingly used as a global currency and eroding the dominance of the US dollar and Chinese renminbi. These advantages extend to reducing the costs of consumers to use roubles digitally, no more banking fees, no more check fees, no more debit/credit card fees.
All in all, the prima fascia case for conversion to the crypto-rouble may seem straight forward. However, behind the legacy banking system is an extensive network of Russian banks and support facilities that are drastically affected. Using a crypto drastically reduces the need for these services and it will substantially reduce or completely negate the need for whole support industries centred around the movement of physical currency or its lending.
Last but not least, the biggest and most dramatic effect on the Russian banking environment is the curtailing of the central banks much loved ‘fractional reserve lending’. Banks by their very nature lend more than they have in real currency. Roubles come into existence and go out of existence through the internal and external ledgers of the Russian banks and its Central Bank through this fractional lending.
If each and every rouble is now accounted for on a blockchain, this system ends, central banks will not be able expand their currency supply which is traditionally how they allowed their banking systems to make their revenues and corresponding profits.
If the Russians create their own DIY, home produced, crypto as a nation state it does not make the traditional problems of centralised control over money supply disappear. How do you stop a centralised authority inflating (debasing) their own money supply and repeating history? How do we wean central banks off of the habit of kicking the ‘addicted to debt’ can down the road again?
Over 2000 years of history have now shown us that the temptation for any central authority (with control over the money supply) to use this as a means for perpetuating their political control and existing status quo is far too great a temptation for them to be ultimately trusted to manage their own money supply – a Russian ‘pseudo-crypto’ is not truly distributed and not decentralised and is therefore very likely to repeat the mistakes of the past. A truly decentralised control of the money supply as offered under the senior free market crypto currencies offers a more viable solution.
It is very clear here that in the recent Russian statements that either the effects of blockchain currencies have not been well thought out … or that they possibly have been and that the decision by the Russian government to offer their ‘own’ crypto-rouble is a challenge the world banking system with a state backed crypto currency. Only time will tell…
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