The latest developments in blockchain-related financial perspectives on the level of states offer an interesting view not only of progress in fintech but also of international relationships.
ALTERNATIVE TO SWIFT WANTED
Germany’s foreign minister has repeatedly called for adoption of a new international payment system. The Society for Worldwide Interbank Financial Telecommunication (SWIFT) connects over 10,000 financial institutions globally and handles a cross-border transfer every second.
The recent stance of the US towards Iran induced some concern among the European business community. There is fear that the US could dictate which countries could use SWIFT – a selection most likely based on compliance with US foreign policy. Although SWIFT is based in Belgium and claims political neutrality it has been bent to US foreign policy interests in the past when it blocked transactions to Cuba and Iran.
It is possible that with the dawning of a multipolar global order, countries are growing increasingly suspicious of centralized financial systems controlled or heavily influenced by a single state. Germany’s desire to increase European financial independence opened the space for the possibility of crypto and blockchain solutions. Interestingly enough, Iran has also announced its intention to bypass the US sanctions by launching a domestic crypto currency, while at the same time clamping down on Bitcoin and altcoins.
CRYPTOCURRENCY AS A BENCHMARK AND LEGAL TENDER
Germany and Iran are not the only two countries trying to loosen the grip of US dollar dominated global finance. The case of Venezuela has received much more attention in the media. After announcing the launch of Petro, their own digital currency tied to the international price of oil and allegedly raising billions in their ICO, the predictable result of US administration was a ban of all US-based transactions in Petro and calling it a scam. Venezuela in the meantime revealed plans for launching another precious metals-based cryptocurrency. It seems we are about to witness the first cryptocurrency accepted as legal tender for tax purposes and that should tell us something about the viability of such systems. The Marshall Islands will be the next location with its own cryptocurrency (SOV) functioning as legal tender. This cryptocurrency, however, will be capped at 24 million tokens, which opens the question of deflationary tendencies. Perhaps there is no reason to worry as SOV will supplement and not replace the US dollar which is in use now.
However, SWIFT is not likely to be replaced by an alternative in the EU in the short to medium term and the solution may not be on blockchain. But it is interesting to observe two countries trying to solve the same problem considering the use of this technology. In Venezuela a cryptocurrency has already been introduced as a desperate measure to bring its economy under control with a new benchmark. Unfortunately, this process is surrounded by conflicting information and uncertainties. The Initial Coin Offering of this cryptocurrency lacked transparency and oversight, so it is hard to assess its impact so far.
The example of China is perhaps best suited to reflect the ambiguous attitude toward this new emerging technology. The country has been trying to clamp down on crypto transactions and ICOs for years, but during the same time it has reportedly spent billions on the development of blockchain technology. It is very likely that further disintegration of the global free flow of goods and capital will make the use of this technology more and more appealing, although it remains doubtful if some sort of a global consensus will replace the efforts of individual states to bypass the troubles presented by a more fragmented global economy.