Bitcoin, the most popular cryptocurrency, is valuable because it is secure, immutable, irreversible, and decentralized. Another interesting thing about Bitcoin is that its code is open-source, meaning developers can take the original Bitcoin code and modify it, and this is precisely how most alternative cryptocurrencies come into existence. Now imagine if the government of a country decides to modify Bitcoin’s code and launch a national cryptocurrency. This would be a much easier way of creating a financial system than building one from scratch, since a properly built cryptocurrency prevents counterfeiting, fraud, and corruption, and also has low maintenance costs versus a physical fiat cash system. Therefore, a government-backed national cryptocurrency could theoretically be quite beneficial, whether it is used in addition to or in replacement of the national fiat currency.
Perhaps the most intriguing example of an attempt at a national cryptocurrency comes from the Marshall Islands, a country consisting of an archipelago of islands and 53,000 people just north of the equator in the Pacific. The Marshall Islands has a long history of colonization, and it passed through the hands of Spain, Germany, Japan, and eventually the United States after the defeat of Japan in World War II. The United States detonated 67 nuclear weapons in the Marshall Islands for testing purpose, permanently ruining several islands and causing discontent among natives.
The Marshall Islands finally became their own country in 1979, but they are not completely independent. The Marshall Islands still depends on the United States military for defense and the United States postal service for mail, in addition to trade and subsidies.
Also, the Marshall Islands’ official fiat currency is the United States Dollar, and that is where cryptocurrency comes in. The President of the Marshall Islands, Hilda Heine, has been pushing for a national cryptocurrency called the Sovereign (SOV) so that the Marshall Islands can become less dependent on the United States. This landed Heine in hot water with the Marshallese Parliament, which tried to impeach her, as well as the International Monetary Fund (IMF) which threatened to cut off the Marshall Islands.
Heine prevailed however and has kept her job as president, and is proceeding with the launch of the Sovereign (SOV), although it is unknown exactly when the cryptocurrency will launch.
That being said, there are some signs that the Sovereign (SOV) may not be an ideal cryptocurrency. The Sovereign Currency Act of 2018 indicates that at first 24 million Sovereign (SOV) will be sold via an initial coin offering (ICO), after which point there will be 4% inflation per year. This seems to indicate that the Marshall Islands will make some quick cash during the Sovereign (SOV) ICO, and then will persistently print new Sovereign (SOV) and dump them onto the market long term, which would probably suppress the value of the Sovereign (SOV).
More specifically, the Israeli company Neema which is helping to launch the Sovereign (SOV) will buy 12 million during the ICO, with 6 million sold to international investors, and 2.4 million handed out to natives of the islands. There are concerns over giving half of the Sovereign (SOV) supply to a private company, and a quarter of the currency to wealthy people who do not even live in the Marshall Islands, but apparently the Marshall Islands urgently needs the cash.
A country like the Marshall Islands could easily adopt Bitcoin as its national cryptocurrency, and it would probably work out better long term than a centralized cryptocurrency like the Sovereign (SOV) which will be unfairly distributed from the beginning and can be printed at will. It can be speculated that the Marshall Islands is opting to make their own cryptocurrency to make quick money, like any other ICO.
Venezuela is perhaps the most prominent example of a country which has launched a national cryptocurrency. The fiat currency of Venezuela, the Bolivar, has been hyperinflating for years and is now essentially worthless, as shown by how the price of a cup of coffee has gone from 14 Bolivars to 7,000 Bolivars in a year according to the Cafe Con Leche Index.
This has motivated the government of Venezuela to launch the Petro cryptocurrency, which is supposedly backed by oil reserves, gold, diamond, and iron, although no evidence of these reserves has ever been published, and it can be speculated that the Petro is backed by nothing. Indeed, the Venezuelan government fixes the value of the Petro relative to the Bolivar, like in November when the value of a Petro was raised from 3,600 Bolivars to 9,000 Bolivars, indicating that the Petro does not have a free market value.
The use of the Petro has been severely limited internationally after the United States declared Petro to be illegal in March 2018. Further, there are no signs that the Petro has been adopted, aside from government attempts to force citizens to adopt the Petro by only allowing passports to be purchased with Petro and not Bolivars. Apparently, it is difficult to obtain Petro, and even more difficult to trade it.
In this case, it is clear that Venezuela is in desperate need of a new currency, considering the collapse of the Bolivar, and cryptocurrency would be an excellent solution. However, the Petro appears to have just been a way for the government to make quick cash via the ICO, and since then the Petro has had no benefit for the Venezuelan economy. If Venezuela adopted Bitcoin as its national cryptocurrency they would likely be in a much better situation.
Senegal and Tunisia are two countries which have successfully launched government-backed cryptocurrencies, named the eCFA and eDinar respectively. These cryptocurrencies are essentially the same as the national fiat currency, except in cryptocurrency format. The benefit of this is it provides a more secure digital form of the fiat currency and can be sent anywhere in the world instantly and exchanged, possibly enhancing international trade. That being said, in recent years there is not any news regarding the success of the eCFA or eDinar.
Aside from the countries discussed so far, Iran is planning on launching a national cryptocurrency to circumvent United States sanctions, but just like the Petro, this Iranian cryptocurrency will likely be declared illegal which would cripple its potential to be used for international trade.
All things considered, a government-backed national cryptocurrency could be quite beneficial since it would be highly secure, prevent counterfeiting, enhance international trade, and would be much cheaper to operate than a physical cash system. However, there have been no truly successful national cryptocurrencies yet. Venezuela’s Petro ended up being a cash grab and did no noticeable good for the Venezuelan economy, and there are signs that the Marshall Islands cryptocurrency, which has not launched yet, could be a cash grab as well. Senegal and Tunisia technically have national cryptocurrencies, but they are just a digital version of those country’s fiat currencies.
Perhaps in the future, a country will launch a successful national cryptocurrency. That being said, Bitcoin is far better than any centralized national cryptocurrency ever could be, and if a government was truly concerned with the welfare of their people they would simply adopt Bitcoin.
Image Courtesy: Pixabay