Bitcoin is dead – long live digital currencies

Bitcoin is dead – long live digital currencies

At a recent conference in Abu Dhabi on blockchain technology and the financial sector, the governor of the central bank of the United Arab Emirates met with the Saudi Monetary Authority about the possible launch of a currency as part of a revolutionary joint venture. the two countries.

It is to be hoped that the potential currency to be studied by both is an improvement of Bitcoin, the most well-known cryptocurrency – but which has also become one of the most controversial phenomena of the financial world.

The traditional sages of the financial world unite to criticize Bitcoin and do not mince their words. Martin Wolf, the respected financial commentator of the Financial Times, recently said: "It's a fraud, of course." A European banker has called it "a damaging cause of the financial crisis".

Nouriel Roubini, the futuristic economist who would have predicted the global financial crisis, was even more vehement. "The cryptography markets are the mother of all price-manipulation scams run by greedy lunatics who are only concerned about maximizing their funny cash profits," he recently tweeted.

A look at the graphs suggests that there is something in their reviews, especially regarding Bitcoin. Bloomberg has produced a graph showing the recent volatility of the price of crypto shares compared to other historical "bubbles" in global financial markets, such as the 17th century tulip madness and the railway boom. American nineteenth century, among others.

The Bitcoin peak stands out above them as the highest rise and the biggest fall. On an ephemeral summit of more than $ 20,000 per unit a year ago, it is less than $ 5,000 and many experts are calling for an end.

Bitcoin reviews are not necessarily against all cryptographic currencies. Instead, they emphasize the environmental cost of Bitcoin: it takes a huge amount of electricity to "extract" Bitcoins; they emphasize the anonymous and opaque nature of Bitcoin trading, which means that it is the ideal motto for money launderers and other criminals; they also highlight the extreme volatility of botched trading, exacerbated by the emergence of other forms of cryptocurrency.

A central banker said that Bitcoin was a "combination of a bubble, a ponzi sheme and an environmental disaster".

As expected, such attributes have attracted the interest of central bankers and regulators around the world. Some countries – including Saudi Arabia – have declared the Bitcoin trade illegal. In others, regulators have acted aggressively to control markets and fight money laundering and other abuses.

Some experts have agreed that it would be better for central banks to adopt some cryptocurrency techniques for their transactions with other major players in the global financial scene.

Roubini, for example, despite his hostility to Bitcoin, recently argued for a form of "central bank digital currency" (CBDC) that could help minimize the risk of credit breaks and credit bubbles and facilitate flows. commercial and financial

The initial enthusiasts of the cryptocurrencies would no doubt be amazed at the idea that the central bank takes up their ideas. After all, the idealistic motive for Bitcoin and the other cryptos was to escape the control of central bankers and their so-called fiat currencies.

Some experts have agreed that it would be better for central banks to adopt some cryptocurrency techniques for their transactions with other major players in the global financial scene.

Frank Kane

But, especially on the basis of Bitcoin's experience, it is obvious that the cryptography market needs to be regulated and controlled.

It is in this context that the recent Saudi and UAE initiative must be seen. Any currency resulting from joint studies would not constitute a monetary unit for current transactions, but rather an instrument backed by the blocking chain to be used in transactions between the central banks themselves and the main players in the financial systems of the two countries. .

This could create even closer ties between the UAE and Saudi Arabia and perhaps even a form of association between the two central banks.

Those with a long memory will remember how discussions on a pan-GCC central bank were interrupted, partly on the rivalry between different cities competing for the new organization. If the house is in the "cloud", who could complain?

• Frank Kane is an award-winning business reporter based in Dubai. Twitter: @frankkanedubai

Disclaimer: The opinions expressed by the authors in this section are theirs and do not necessarily reflect the views of Arab News.