Can Governments Cope With The Emergence Of Alternative Centers Of Power? Big Tech? Cryptocurrencies?
No More BitCoin? No More TikTok?
Robert Manning is a think tank kind of guy-- currently at the Atlantic Council-- but worked at the State Department both under George W. Bush and Obama. Yesterday he penned a highly controversial OpEd for The Hill, Bye-bye, bitcoin: It's time to ban cryptocurrencies. Be began by admitting, like most Americans that he's never been able to quite figure out why cryptocurrencies are worth anything.
"Of course," he wrote, "the untraceable payments are worth a lot to ransomware hackers, cyber criminals and money launderers. But dollars, euros and yen are backed by nations’ respective treasuries. If someone invents a cryptocurrency, any value is based solely on convincing others it has value. But is it a usable means of exchange? International banking officials say cryptocurrencies such as bitcoin are speculative assets, not sustainable, usable money. Yet the epidemic of hugely disruptive ransomware attacks in recent months-- on JBS Foods, a major meat processor; on Colonial Pipelines, our critical infrastructure, causing gasoline shortages for weeks; and on 1,000 or more U.S. businesses on July 4-- highlights the enormous risks. Moreover, hundreds of small towns, hospitals, school districts and small businesses have been hit by the ransomware epidemic-- all enabled by cryptocurrencies.
As the eminent economic analyst Martin Wolf outlined in a recent Financial Times essay, the risks and chaos of a wild world of unstable private money is a libertarian fantasy. According to a recent Federal Reserve paper, there are already some 8,000 cryptocurrencies. It’s a new mom-and-pop cottage industry.
How should governments respond? Wolf argues that central banks (e.g., the U.S. Federal Reserve) should create their own official digital currencies-- central bank digital currencies (CBDC) and make cryptocurrencies illegal.
I’ve been asking the same question: Who needs cryptocurrencies? Apart from the nasty uses and wild speculative value swings, data mining to produce bitcoin is a serious environmental hazard, using huge amounts of electricity by rows and rows of computers.
Governments should guarantee safe, stable and usable money. Already, according to the Atlantic Council GeoEconomics Center's CBDC Tracker, 81 countries representing 90 percent of world gross domestic product are at various stages of researching and exploring the adoption of digital currencies.
The four largest central banks-- the European Central Bank, the Bank of England, the Bank of Japan and the U.S. Federal Reserve-- are all exploring CBDCs, though the U.S. lags behind. Meanwhile, China is already digitizing its currency, the RMB, and allowing foreign visitors to use it for payments. Though China is still a long way from having an international reserve currency to rival the dollar, its digitized RMB is a step in that direction.
Nonetheless, caution is well advised, as there are important, complex issues that must be sorted out before launching an official digital currency. These issues include equity: Should the digital dollar be available to all or just used for certain business transactions? I would argue it must be for all. Should a U.S. CBDC augment cash or totally replace it, and would there be a transition period? Then there is the impact on private banks: Should individuals have bank accounts with the Fed rather than private banks? What should be the relation between private banks and the Fed with regard to currency? Should businesses have “digital wallets”? How would international payments work?
And not least, there is the question of privacy and surveillance. A digitized dollar would likely make it hard to dodge taxes with untraceable cash. But just how traceable would the public and Congress accept a CBDC to become? Would the fact of a CBDC making transactions safer, faster and cheaper be worth some trade-off?
Then there is the question of whether the world’s major powers would cooperate in outlawing cryptocurrencies-- and reach agreement on rules and regulations of CBDCs. China, always with an eye on control, has indicated skepticism, if not disdain, toward cryptocurrencies. Indeed, that was one driver in Beijing’s swift move to digitize the RMB. This could be an area of U.S.-China cooperation worth exploring.
If China were on board, the possibility of a U.N. Security Council resolution to ban cryptocurrencies could be in the cards. That would be a foundation for taking the issue to the Group of 20 to make it a global norm.
Manning, who seems to admire China's authoritarian moves against crypocurrencies, wrote about "an international order that is fraying and fragmenting." And the combination reminded me about an essay by Noah Smith that I read yesterday, Why is China smashing its tech industry? "Those who pay attention to business news," he wrote, "have probably noted an interesting and curious phenomenon over the past few months: China is smashing its internet companies. It started-- or at least, most people in the U.S. started noticing it-- when the government effectively canceled the IPO of Ant Financial, then dismantled the company. Jack Ma, the founder of Ant and of e-commerce giant Alibaba, was summoned to a meeting with the government and then disappeared for weeks. The government then levied a multi-billion dollar antitrust fine against Alibaba (which is sometimes compared to Amazon), deleted its popular web browser from app stores, and took a bunch of other actions against it. The value of Ma’s business empire has collapsed. But Ma was only the most prominent target. The government is also going after other fintech companies, including those owned by Didi (China’s Uber) and Tencent (China’s biggest social media company). As Didi prepared to IPO in the U.S., Chinese regulators announced they were reviewing the company on “national security grounds”, and are now levying various penalties against it. The government has also embarked on an “antitrust” push, fining Tencent and Baidu-- two other top Chinese internet companies-- for various past deals. Leaders of top tech companies (also including ByteDance, the company that owns TikTok) were summoned before regulators and presumably berated. Various Chinese tech companies are now undergoing 'rectification.'"
Smith noted that "Some observers see this as an antitrust campaign, similar to the ones going on in the U.S. or the EU. China’s leaders famously want to prevent the emergence of alternative centers of power, but is the West so different in this regard? One of the driving motivations behind the new antitrust movement in the U.S. is to curb the political power of Big Tech companies specifically; if you wanted to, you might see the Chinese tech crackdown as simply a Neo-Brandeisian movement on steroids."
Yep... preventing the emergence of alternative centers of power-- that would cover governmental action against both cryptocurrencies and social media. If you missed Roger McNamee's interview on CNBC a couple of weeks ago, you can watch it here; he's making a lot of sense: