Authoritarian Governments Announce Their Own Cryptocurrencies

16. October 2017.

“Cash, however, has disadvantages for both central banks and governments. For one thing, it’s costly to print, mint, distribute and destroy. Changes to the banknotes and coins can take years to administer. Theft and robbery are risks. At the same time, cash is anonymous; criminals and tax evaders depend on it.

All these problems and some others — such as the time lags in a traditional electronic payment system as money moves between banks — can be solved if a central bank can issue its own cryptocurrency and have transactions registered in a bitcoin-like distributed ledger, verified by central bank-approved agents. If that sounds like a version of the traditional banking system, there is, potentially, a big difference thanks to the verifiers’ more limited role than that played by commercial banks. “With a lower entry hurdle to becoming a transactions verifier in a distributed system than to becoming a member bank in a tiered system, we would expect more intense competition in the provision of payment services,” Bank of England’s John Barrdear and Michael Kumhof wrote in a paper last year. “To the extent that existing systems grant pricing power to member institutions, this should ensure that transaction fees more accurately reflect the marginal cost of verification.”

The costs of running a monetary system would go down, payments between companies and individuals would speed up, and transactions would become traceable by governments, above all for tax purposes. Nikiforov talked of imposing income tax on the conversion of crypto-rubles into ordinary rubles unless their owner can show how the digital currency was obtained.”

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