Q&A Of The Day – Could Governments Switch To Cryptocurrencies?
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Today’s entry: @brianmuddradio Do you see a possible scenario where the US Gov. switches to crypto currency in an attempt to avoid its ridiculous $30t debt in some kind of way? China being against it makes sense because of that.
Bottom Line: There’s currently zero chance that any existing cryptocurrency would or could be used as the reserve currency of the United States, or that we could avoid defaulting on obligations through doing so... though two of the top four holders of Bitcoin are governments – one of which is the United States. Also, China’s stance and chosen path forward is highly instructive in this conversation. That’s because they’re fully embracing cryptocurrency – just not any of the one’s you’re currently familiar with. There are numerous challenges with the idea of any government converting from fiat to crypto but the first is simply a matter of value and supply.
Given the extreme volatility of cryptos it’s hard to pinpoint the total value they represent at any given time, however over the past week the total value of all crypto currencies has averaged $1.5 trillion. The current annual GDP of the United States is $22.7 trillion. The annual output of the United States is greater than 15 times the entire universe of cryptocurrencies. That clearly illustrates the lack of a plausible path for government conversion for the foreseeable based on cryptos which already exist. Now structurally, the problems are even greater than the lack of necessary value in the cryptocurrency market.
The reason countries have their own currency, rather than a ubiquitous one, is the element of control. The moment a country (or zone in the case of the EU) loses control of a currency they lose control of their sovereignty. All America’s enemies would have to do to take out the United States, were we to shift to a ubiquitous cryptocurrency, is to freeze or simply slow down the crypto market to dry up liquidity in the financial markets and in turn crash the US economy. In short, not only is it not a viable idea currently – it's not safe. That takes me to what China is doing...
While China has banned the use of all existing cryptocurrencies, they’re embracing cryptocurrency. Their own. China is currently developing the digital yuan, which like its traditional currency will be controlled by their central bank. That’s the model that will and would have to be used if the United States were to enter the fray, that could be an eventual possibility in the United States. Even then though there’s no way to alleviate the US debt burden through a conversion. That is unless you don’t want to collect Social Security or government pensions. 78% of all US debt obligations are owed to Americans – predominantly through Social Security and pension plans owed to us. That’s far from the only reason debt avoidance isn’t a possibility but it probably is enough to not travel down the economic crisis explanation. As for the top holders...
I mentioned two of the top four holders of cryptos were governments... Fun fact? Bulgaria is currently the 2nd largest holder with the United States 4th. And that’s due to seizures of cryptos from criminal rings...
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