Crypto Road

Citizens of some developing nations have more faith in cryptocurrencies than their national currencies, despite them being banned in one country and forced upon the population in another, while at the same time accused of being illicit financial tools.
China's ban on cryptocurrencies is challenging Hong Kong's position as a hub for digital innovation.
Photo: Sean Foley/Unsplash

Aarhus, Denmark (TP)

If understanding cryptocurrencies alone did not leave you scratching your head, the different government policies aimed at regulating them certainly will.   

China has banned all cryptocurrencies, El Salvador has adopted one of them as their local currency, and the US approves most of them.

What is behind such differing policies? 

Financial authorities’ stance on cryptocurrencies often reflects their national monetary circumstances. On a local level, adoptions are made to meet the local challenges; for example, business owners in Nigeria have adopted cryptocurrencies to combat the volatile local currency.

Cryptocurrencies’ Tarnished Reputation

Since launching in 2009, Bitcoin – possibly the most well-known cryptocurrency – has seen a meteoric rise in value and development. However, today’s crypto sphere includes thousands of different cryptocurrencies – all based on or at least inspired by Bitcoin’s decentralised, open-source and peer-to-peer system. 

With the rise of Bitcoin and other cryptocurrencies, questions have been asked regarding the legitimate need and use for cryptocurrencies in a global financial system, where traditional currencies are regulated by central banks and guaranteed by states. 

The worries are not unreasonable as there have been several cases of cryptocurrencies being used for illicit activities such as money laundering, paying ransoms to hackers and purchasing illegal goods online. But these are not problems solely associated with cryptocurrencies. 

From a climate perspective, focus has been placed on the electricity-intensive mining that is required to maintain the system at a time where the world is trying to reach carbon neutrality. 

From an investment perspective, cryptocurrencies are volatile, making them a risky investment. 

Even Bitcoin, often seen as one of the most “stable” cryptocurrencies, saw its value halving between mid-April to mid-July of 2021 only to double from mid-August to mid-October.

A No-go in China

Some countries have taken a dramatic stance on crypto. An outright ban on financial dealings with cryptocurrencies was issued by the Chinese Central Bank in late September.

The perceived instability of cryptocurrencies was the reason given by the Chinese authorities to justify the government’s repeated restrictions on Chinese financial ventures wanting to adopt cryptocurrencies. 

The ban was not solely due to the volatility of cryptocurrency values or even the potential illicit cryptocurrency activities, but more about the fear of losing monetary control. “The borderless and unregulated nature of cryptocurrencies runs completely contrary to the Chinese government’s vision of a state-controlled economy where the state has tight control over the country’s monetary policy,” Chinese financial consultant Luisa Kinzius told Wired.

A Yes in El Salvador

El Salvador has not had control of its own monetary policy since it adopted the American dollar in 2001 to stabilise the country’s debilitating inflation levels. The adoption of the dollar had essentially transferred monetary control to the US.

By being the first country to adopt a cryptocurrency as a legal tender, President Bukele hopes to attract cryptocurrency investments from abroad, cut down on the country’s reliance on the American dollar and reduce the cost of  transferring money by bypassing services like Western Union. In terms of monetary control, there was a little risk when El Salvador’s crypto-enthusiast President secured legislation that saw Bitcoin being adopted as a legal tender in the country.

But the adoption sparked demonstrations leading to protesters destroying a part of the Bitcoin infrastructure that many Salvadorians see as an expensive and unnecessary investment from their government, in a country that already suffers from high unemployment rates, along with a lack of investments in areas such as education, healthcare and common infrastructure. Additionally, with 50 per cent of Salvadorians lacking access to the internet, many people are and will be unable to trade Bitcoin. This means that the adoption will exclude half of the 6.5 million population, while still demanding that all businesses and vendors start accepting Bitcoin on equal terms with the dollar.

Tipping the Scales with Cryptocurrencies

In the world of crypto, losing monetary control on a state level can mean gaining it at a local level. While Chinese authorities are banning their citizens from engaging in cryptocurrency activities and the Salvadorian authorities forcing citizens to engage in them, people from Argentina and Lebanon to Nigeria and Vietnam have adopted cryptocurrencies irrespective of their governments’ stance on the matter.

In Argentina and Lebanon, people have turned to cryptocurrency in order to bypass capital controls implemented by authorities that essentially limit people’s access to their own bank account savings. 

In Nigeria, local business owners have started using cryptocurrencies due to a shortage of dollars and as a way to insulate their businesses from the volatile local currency. At the same time, several cryptocurrencies offer faster and cheaper transactions, especially when transferring abroad.

Money sent home by workers working abroad are essential for the survival of some countries in the Global South. Using traditional transfer services can cost as much as ten per cent of the original amount in fees, which is a significant cut from family savings. 

Unlike established transfer services, using cryptocurrencies with low transfer fees can cut away this expense, providing a cheaper solution for people where every penny counts.

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The Postcolonial | Copenhagen | CVR: 41032421

Lasse Sørensen (Founding Editor-In-Chief)

Suvi Loponen (Deputy Editor)