Opinion | Global cryptocurrency crackdown looms as governments enter digital currency race
- Cryptocurrencies, which threaten state control over currency circulation, have gained traction only because governments were slow to act
- With China pushing the US and Europe into action, a digital currency battle is shaping up, and cryptocurrencies will be the losers
But few pundits have noticed the similarities between cryptocurrencies and gold, and even those who do, treat the parallel as merely a compass for setting a price target. But this parallel is ominously important. It shows that cryptocurrencies threaten state control over currency circulation, and are headed for a heavy regulatory stomp by major governments worldwide, just as was the case with gold in the past.
First, like cryptocurrencies today, gold was touted as a powerful investment alternative to the dollar in the early 1900s. Both assets are believed to have intrinsic value because of their limited supply. There can only ever be 21 million bitcoin and no more, for example, and there are supply limits on many cryptocurrencies as well, mirroring the limited amount of gold in circulation.
There was simply too small a supply of gold to cover the dollars in circulation. This was worsened when countries like France raced to convert dollars into gold in the 1960s, causing liquid dollar liabilities held by foreign official institutions to swell to eight times actual gold holdings in the United States by 1973 and threatening the stability of the dollar.
The US government thus decided to rid itself of the gold peg altogether in 1973. In the process, the state not only obtained significant power over domestic monetary policy, but also unprecedented power worldwide when the US dollar became the global reserve currency without a gold peg.
