Can you imagine a day when no fiat exists; a day when national economies are ruled by decentralized cryptocurrencies without interference from regulators and central banks? The most ardent cryptocurrency fans among us can. Yet what crypto enthusiasts dream about is less important than what their governments think. After all, governments are the ones to have to give up on fiat for an all-crypto system to work.
One look at the state of cryptocurrency worldwide makes it pretty clear that any type of fiat-free future is still a long way off. Perhaps our children or grandchildren will see it, but those of us in middle age and older likely will not. Cryptocurrency still has not made even small gains in some very important countries. In those countries where it is gaining ground, things are looking more positive.
In order to get a better handle on the state of cryptocurrency worldwide, it is helpful to look at recent developments in a number of key countries. In this post we will look at Russia, the UK, the U.S., and a few others.
No cryptocurrency in Russia
Our cryptocurrency trip around the world starts with Russia, where rumors suggested the government was looking at a national cryptocurrency project in earnest. Exactly what they were thinking remains a matter of debate. What we do know is that the chairperson of Russia's central bank, the Bank of Russia, has officially stated that her institution sees no need for nationalized crypto at this time.
Chairperson Elvira Nabiullina has confirmed that the Bank of Russia has at least been investigating the possibility of creating a central bank digital currency but have since decided against it. She told the audience at a recent financial technology forum that blockchain and cryptocurrency technologies are not for Russia at this time.
If you are wondering why, Nabiullina says that she and her colleagues are not convinced that the benefits of a nationalized crypto would outweigh the risks. She also hinted that Russia may not be technologically there yet. Even if the Bank of Russia were to come up with a digital currency, regulators apparently fear that the technological infrastructure in Russia would not support using it on a day-to-day basis.
Even without the Bank of Russia's influence, cryptocurrency is not generally well received within Russia's government. National leaders tend to take a very hardline stand against it whenever given the chance. As for the legal atmosphere, it isn't the friendliest. So for now, it looks like Russia will remain one of the more unwelcoming environments for cryptocurrency.
Crypto indecision in China
While Russia's central bank has made it clear they aren't in love with the cryptocurrency concept, China can't seem to decide which way it wants to go. For the masses, cryptocurrency is all but banned thanks to strict government policies that prohibit banks, payment processors, and other financial services providers from conducting any cryptocurrency transactions.
Things appear to be different for government purposes. Chinese leaders may not want the masses to have Bitcoin, but that has not prevented the People's Bank of China from going to work on a nationalized digital currency project. As China's central bank, the People's Bank of China will ultimately decide whether or not a national crypto makes it to market.
There has been some speculation that the People's Bank of China was racing to get its project moving in hopes of preempting Facebook's Libra project. As recently as August (2019), some were speculating that China would have a digital currency ready to go by November 2019. That no longer appears to be the case, if it ever was.
The People's Bank of China has recently come out and unequivocally stated that the project will not be ready to go this year. They called reports of a November launch "inaccurate speculation" while also confirming that the project was at least in its developmental stages.
We don't know much about what will eventually be China's digital yuan. However, it appears as though central bank leaders want to engage their counterparts around the world with the goal of making the currency one of the world's reserves. As the thinking goes, the U.S. dollar will not remain the reserve currency of choice once governments start turning to digital currencies. China wants to be out in front with a token they think could replace the U.S. dollar.
One last thing to note about China is that the government doesn't appear ready to completely replace its fiat. The plan right now is to eventually launch the digital yuan as a day-to-day currency that could be used for retail payments in lieu of cash. Meanwhile, fiat will continue to be the currency of choice for commercial, institutional, and government banking purposes.
Updated tax guidance in the U.S.
Cryptocurrency in the U.S. is really difficult to peg because multiple government agencies have a hand in regulating it. The IRS overseas crypto from a tax perspective while the SEC has influence over cryptocurrency investments. That is just the start. At any rate, the most interesting development as of late is brand-new tax guidance just issued by the IRS.
IRS officials stated in May 2019 that the agency was working on updating tax guidance that had not been touched in five years. The new guidance has finally arrived. It covers everything from delineating cost basis to capital gains reporting and how to deal with forks.
While it may seem like issuing new guidance should not take five years, there really are some difficult problems that have to be addressed. Remember that cryptocurrencies like Bitcoin act both as investments and monetary systems. They occupy a space within the greater financial landscape that isn't occupied by any other asset.
You can invest in Bitcoin just like you can a stock or bond. You can also spend your BTC like cash. There is no other asset you can do this with. Therefore, taxation is not so easy to define. Is cryptocurrency a security? Do cryptocurrency payments count as income? If the price of your coins goes up, do you have taxable capital gains?
The updated guidance allegedly answers the most difficult questions for U.S. taxpayers. However, it is still brand-new at this point. Financial experts are going to need to pick it apart to figure out just how many questions it answers.
Libra rules in the UK
We cannot talk about the state of cryptocurrency worldwide without at least mentioning Libra. If you have been following the Libra saga, you know that Facebook is seemingly up against powerful forces that seek to prevent it from dominating financial services the same way it has dominated social media.
Regulators in Germany and France have all but vowed to do whatever is necessary to prevent Libra's development in Europe. Some lawmakers in the U.S. want to put the project on hold while others have threatened greater scrutiny of Libra Association members. In the UK though, Libra sees a glimmer of hope.
The Bank of England recently announced a set of finalized principles that will guide Libra's development in the UK. Bank regulators recognize that Libra could eventually become a very important electronic payment system for consumers all over the world, and they want the UK's financial system to be ready for it.
It would seem that the UK guidance is a good thing for Libra in that it doesn't seek to hinder its development as long as Facebook and the Association play within established rules. From our perspective, that looks like a glimmer of hope where previously none could be found.
A digital franc in Switzerland
We finish our whirlwind cryptocurrency trip around the world in Switzerland, where that country's central bank is now entertaining the possibility of a digital franc at some point in the future. The Swiss National Bank is partnering with the SIX stock exchange and the Bank of International Settlement to explore the benefits of a digital currency in the settlements arena.
For those who are not familiar with global banking systems, settlement is the process by which banks finalize payments among themselves. Whether payments are made electronically or with cash, they have to be settled between banks in order to be finalized. Settlement takes time, is subject to extreme regulation, and relies on a level of standardization that goes beyond the different ways that banks handle their own business.
The concept of initiating a digital currency to facilitate better settlement among international banks is nothing new. It is an idea that has been bandied about for several years now. However, it could take a big leap forward if Switzerland decides to move forward with its digital franc plan.
As you can see, cryptocurrency worldwide remains a mixed bag. Some national governments are very wary of it in every respect. Others are ready to embrace it openly. Still others occupy a middle ground of cautious acceptance. Only time will tell how it all shakes out. In the meantime, do not get your hopes up. We are still a long way from cryptocurrency being a drop-in replacement for fiat.