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Are National Cryptocurrencies Viable? 4 Practical Approaches To Consider

Denis Goncharenko

2018 delivered a number of projects initiated not by crypto enthusiasts, but by statesmen. Thanks to loud proclamations, as well as political and economic promises of Nicolas MADURO, the president of Venezuela, the media buzzed with the discussion of a new phenomenon which received the name of national cryptocurrency. Since then, representatives of different countries from all around the world have proclaimed the development of their own versions of digital currencies. Where is this phenomenon going? Will this trend be successful at all? Let's get to the details.

Origins of the phenomenon

The first attempt to release a nation-wide cryptocurrency happened in Iceland. However, the state was not involved: the anonymous developer nicknamed Baldur Óðinsson, launched the Auroracoin currency and distributed half of the coins among all registered Icelandic citizens. However, only 10% of Icelanders took some advantage of the coin; the price declined sharply. The government of Iceland stated that Auroracoin is an illegitimate initiative, and even called the project to be a scam. Nevertheless, the precedent was created.

The vitality of the idea

In theory, the Auroracoin project has demonstrated that independent developers can create a currency that has every chance of being adopted by citizens, and the government can accept it consequently as well. But it also became clear that the right to issue the national cryptocurrency — as well as a fiat one, of course — would be claimed by the Central Bank of the country or similar authority. It is quite unlikely that any state would allow privately issued money to gain the "national" label and scale. In general, governments around the world estimate decentralized currencies which are not under their control negatively or consider them as a threat. Oddly enough, many of these countries would like to have national cryptocurrency, and each has their own motives and incentives.

It is worth noting that the national cryptocurrency is sometimes referred to as a fiat-backed stablecoin, as it was stated, for example, in Iran. However, this is quite optional: ​​Petro was claimed to be backed by oil — it would be utterly pointless to tie it to bolivar which keeps falling. Moreover, Maduro announced that he was considering the option of pegging the bolivar rate to Petro — well, this is something new.

So, what are the aims of such financial instruments, after all?

Experts in the field of digital economics note that national cryptocurrencies can have four purposes:

  • An Economic "Shield";
  • A Trade Catalyst;
  • A Digital Frontier;
  • A System Connector.

The first group represents the notorious Venezuelan El Petro — an attempt to oppose sanctions and save a devastated economy. The effectiveness of this instrument is extremely difficult to assess right now: life does not get any better in Venezuela, and the political tension reached its peak in a live mode — and this news puts the future of El Petro to a big question. 

So, let’s turn to Iran — maybe, will have more chances? The cryptocurrency of this Islamic state can rather be attributed to the second purpose. It is also similar to the possible creation of Russian “crypto ruble” which is often discussed by the Russian government. The disconnection of Iran from the SWIFT system practically left the state with almost no choice: without international trade, Iran would be heading to a huge economic crisis, and one of the solutions was to create a national cryptocurrency. No doubt that Russia considers the same option in case om similar sanctions.

Estonia, which claims to be a “digital state”, develops its Estcoin in order to strengthen the state infrastructure and thus succeed consequently strengthening its image. However, this token cannot be called the national cryptocurrency officially: Mario DRAGHI keeps an eye on all attempts to evade the control of the Central Bank. 

The Arab Emirates made it easy though: the Emcash project, which was not widely publicized, is actively utilized in Dubai, allowed citizens to test digital money on an everyday basis. The UAE and Saudi Arabia have repeatedly stated the development of a national cryptocurrency and further collaboration in this field. According to the representatives of the authorities, the implementation of the digital currencies will positively affect trade and payments between the two states.

Stay calm and watch national cryptocurrencies work

It is too early to estimate the results of the national cryptocurrency projects. As in the case of stablecoins, many skeptics note that national cryptocurrencies are meaningless due to the decentralization concept — after all, this instrument is governed and controlled by the state. Yes, they are right. Anyway, nobody can forbid the countries and governments to experiment with the technologies, seeking practical solutions. Until now, nobody is sure about whether these applications and approaches would prove to be productive and have positive results. Time will tell.

Image courtesy of Global Business Coalition

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