Key facts:
By adopting Bitcoin as legal tender, countries decouple economics from politics.
Bitcoin is the opposite of fiat currencies and hence its value.
Update 05/11/2022: This article was updated with the aim of introducing new data to the text and giving greater prominence to the author’s opinion.
The battle of the central banks to prevent Bitcoin from becoming a global currency is not over, we may not even have seen all their artillery yet. Why do I say this? Well, for a very simple reason: now we are going to start seeing the consequences of a bitcoinized economy in countries like El Salvador or the Central African Republic, and the central banks and other financial authorities will not like the scenario, because it will directly affect their can.
Or rather: the change is already bothering them. When a year ago El Salvador made the decision to become the first country in the world to adopt Bitcoin as legal tender, the International Monetary Fund (IMF) cried out. Now that a second nation has adopted Bitcoin in its monetary system, financial regulators in that region and again the IMF have been uncomfortable with the decision..
The Central African Republic recently authorized the use of Bitcoin as a currency, a law that seems not to have fallen in good taste among the authorities of the Economic and Monetary Community of Central Africa (CEMAC). Through the central bank of this community, the BEAC, the wrote to the president to point out that the adoption of Bitcoin was a danger to “monetary stability” in the entire region.
Under the argument that the adoption of Bitcoin could have a negative effect on the African member countries of CEMAC, the authority accused the Central African Republic of “establishing a currency outside the control of the Central Bank.” A phrase that in the mouth of politicians may sound like illegal and reprehensible behavior, but in practice it should not be a concern and is even the ultimate goal of Bitcoin.
Yes, one of the benefits of using bitcoin as legal currency is that it makes central banks obsolete, whose role in the governance of a country is highly political as they are part of the State. Namely, at the moment that a country adopts Bitcoin it would be declaring that it separates the national economy from political power and, therefore, of the aspirations and needs of the group on duty. In this way, citizens would not have to worry about changes in power and decisions made by politicians in command.
The death of centralized finance
If we are clear about the principles of Bitcoin and the way it works as a monetary system, it is understandable why entities such as the BEAC feel threatened by the approval of the cryptocurrency as legal tender. First of all: Bitcoin is a decentralized technology, therefore, it does not need third parties to issue its units, much less to regulate it.
Under this slogan, Bitcoin turns out to be the complete opposite of a fiat currency. The dollar, the euro, the yen, as well as any other currency minted by a State, is money issued by the Central Bank. This entity is responsible for determining the regulations of the monetary system, regulating its use and ensuring its distribution. All this in a centralized way, under the mandate of a person and the work of a leadership, which is very close to the governmental power.
Due to this, said system is vulnerable to vices, because the central banks are not so independent of the governmental decisions that are taken in a nation. In this way, measures can be introduced and changes made in the monetary system in order to benefit the political objectives of the moment or enrich a dome. As a centralized body, central banks are at risk of manipulation or abuse of power, since they are entities managed by people who may or may not have their own agendas.
When a country adopts Bitcoin, on the contrary, it takes a step forward to eliminate these vices at the root.. Being a decentralized currency, whose monetary policies are established from the beginning in a protocol and programmed to automate its operation, it is impossible for a central entity to alter the units to be issued or its operating rules. Any change in the Bitcoin code must first be submitted to the consensus of all members of the community, who ensure the value of the currency and the proper functioning of the network.
As if that were not enough, it is very difficult for a centralized entity such as a central bank to regulate Bitcoin transactions or modify their data. The processing of any information within the Bitcoin network is a community activity, which depends on participation in the Proof of Work (PoW), which is an activity that anyone with a computer, mining equipment and Internet connection can do.
The central bank of a country can join the network as just another miner, but it will not be able to monopolize Bitcoin activity. Additionally, all Bitcoin users can participate in the operation of the network, whether as a developer, miner or user, but they do not have the power to regulate the system because it works in an automated way.
In this way, if cryptocurrency is adopted as legal tender, financial regulators lose all their powers as regulators of the monetary system. Being, in addition, a technology resistant to censorship due to its decentralized and immutable nature since its creation, Bitcoin is for me the most armored monetary system that exists and, therefore, a solution to the abuses of power that can be carried out in more elite financial entities.
Under this perspective, it is inevitable to point out that In a bitcoinized economy, central banks lose the sense of being. Because Bitcoin is issued and self-regulates without the need for a third party to intervene, then there is no need for a central financial body to impose regulations on the country’s monetary system. And, for this reason, these authorities will have to transform themselves to adapt their functions to the new economic reality or simply disappear due to their obsolescence.
Taking all this into account: How are central banks not going to feel threatened by the adoption of Bitcoin and complain about these measures? It is a very natural attitude when your days are numbered. We all kick our feet in the water when we are drowning, which is why I think we are just beginning to see the first reactions of these entities to the increasingly crystallized future of Bitcoin.
Disclaimer: The views and opinions expressed in this article belong to its author and do not necessarily reflect those of CriptoNoticias.