It is time for governments to stop rejecting the cryptocurrency revolution, considering it the means of illegal payments and reckless financial speculation, says prominent economist Mohamed El Erian.
Instead, they should embrace the cryptocurrency market for a better economy and society in general, he adds.
At the same time, cryptocurrency enthusiasts need to recognize the issues that have arisen in terms of the impact of these digital assets on the environment as well as the regulatory issues that need to be addressed.
According to El Erian, they must move away from the “zero-sum” mentality, according to which their profits can only come from the losses of the established financial system.
More generally, the debate in the public sphere, especially in Western economies, about cryptocurrencies remains narrow, and causes polarization and division, with participants speaking completely different languages, as the Allianz chief economist points out.
This has intensified the climate of conflict between the proponents of accelerating the adoption of cryptocurrencies and the institutions, e.g. central banks, ministries of finance, etc.
The example of China
Instead, China is moving forward with a stronger, unified top-down vision, paving the way for transformation policies that have the potential to extend far beyond the country itself.
What happens next will have profound implications for financial services, monetary policy, investment, payment platforms and the formation of global reserve currencies.
It will also affect the control and use of big data, as well as China-US technological and economic competition.
The three factors that change things
Three parameters reveal how things can be shaped.
First, the technologies leading the revolution, including distributed ledgers for trading, more commonly known as blockchains, are increasingly changing the financial industry, which has long been relatively inefficient.
The combination of regulatory barriers that prevent new “players” from entering the industry and traditional customer inaction are no longer strong enough factors to discourage a new wave of technology-based competition.
Second, despite their volatility, cryptocurrencies are gradually gaining ground in investor portfolios.
Third, cryptocurrencies are becoming increasingly popular in the payment ecosystem.
It is worrying that they are used in ransomware attacks, but it is positive that they are used, on the other hand, to transfer remittances, where too many traditional channels remain slow and expensive.
But developments in the global monetary system continue to be undermined by price volatility, a lack of broad confidence and regulatory concerns.
The big question is whether convergence will be achieved.
The burden falls mainly on the world of encryption, which is in danger of repeating the mistake that Big Tech made – pursuing narrow business goals without realizing that their success will make them systemically important.
