Politics in Your Pocketbook: Why Governments Want to Control Digital Currencies

Politics in Your Pocketbook: Why Governments Want to Control Digital Currencies

Who do you trust more with your money: Mark Zuckerberg or your country's central bank? It's not just a theoretical question: When Facebook launched its Libra digital currency project back in June, we predicted it would provoke a sharp response from governments.


Since then, regulators the world over have placed obstacles in the way of the Facebook-backed cryptocurrency – Germany and France recently said no dice to Libra in its current form; the G7 countries, US lawmakers, and Chinese bureaucrats have also voiced concerns. In fact, China has accelerated work on a digital renminbi in response to the Facebook project, while Sweden's central bank is gearing up to test an e-krona that could take the place of cash.

So why do governments in many countries want to muscle in on the virtual currency craze? And why should you care? Here are a few reasons:

To Gain More Control – By replacing hard-to-track cash with state-issued digital money, governments can more easily find out who is buying what from whom. That could help catch tax cheats and fraudsters, creating more government revenue that can be spent for the public good, and shake up how government technocrats track economic growth and inflation. But depending on how a sovereign digital currency was designed, it could also give the state a powerful new tool to help it spy on citizens. For some governments, that's not a bug, it's a feature.

To Stick It To the US – The Trump administration's liberal use of financial sanctions to pressure America's adversaries has led big US foes—and some frustrated allies—to voice support for the creation of new alternatives to the dollar-based global payment system. The dollar's global hegemony won't be broken overnight. That's because the US currency accounts for about 60 percent of an estimated $11 trillion of foreign exchange reserves, and much of the world's outstanding sovereign debt is denominated in dollars. (The total market value of all the world's cryptocurrencies, by contrast, is a mere $250 billion.) But for countries like Venezuela, Russia, Iran, China, and even some European allies, state-backed virtual currencies that bypass financial middlemen who depend on access to greenbacks might help chip away at this unique source of US power.

To Fend Off Silicon Valley – Ten years after the world's original cryptocurrency appeared, Bitcoin remains a niche product. But just a fraction of Facebook's 2.5 billion users would need to adopt Libra to make it a powerful force in global finance. Governments around the world are already concerned about the growing influence of the biggest tech companies over commerce and fake news. They don't want Mark Zuckerberg, or any other tech zillionaire, taking away their control of money, too.

Who's Going to Win? Facebook and Libra's other backers have raw numbers and technical skill on their side, but governments have some enormous advantages in this fight: They can pass laws that make it harder for companies to launch virtual currencies. Perhaps most importantly, they get to decide which currencies they will accept for payment of taxes. That could give government-issued virtual cash a built-in market that even the world's biggest social network might struggle to match.

This time last year, world health experts were speculating about why Africa appeared to have escaped the worst of the global pandemic. Younger populations? Natural immunity created by exposure to past viruses? Something else?

They can stop wondering. Africa is now in the grip of a COVID emergency.

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Listen: Stanford historian Niall Ferguson joins Ian Bremmer on the GZERO World podcast to talk about the geopolitics of disaster. Throughout human history we seem to be unable to adequately prepare for catastrophes (natural or human-caused) before they strike. Why is that? And as we emerge from the greatest calamity of our lifetimes in the COVID-19 pandemic and look to the plethora of crises that climate change has and will cause, what can we do to lessen the blow?

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Get insights on the latest news in US politics from Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington:

House Speaker Nancy Pelosi barred two Republican members from serving on the Jan. 6 commission. What's going on?

Well, the Jan. 6 commission was designed to be a bipartisan commission, taking input from members from Democrats and Republicans. House Minority Leader Kevin McCarthy had the opportunity to make recommendations but the Speaker of the House, Nancy Pelosi, could always veto those recommendations. In this case, she did, saying no to two members, Jim Banks and Jim Jordan, both of whom are strongly aligned with President Trump and who voted against certifying the election results in 2020. The Republicans for the most part see the Jan. 6 commission as an opportunity to score political points against them, and the Democrats say this is going to be a fair, non-biased, and nonpartisan investigation into what happened on Jan. 6, starting with a hearing next week with some of the police officers who were involved in the battle with the protesters inside the Capitol.

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In his New York Times op-ed, David Brooks says the US is facing an identity crisis — protecting liberal and progressive values at home while doing little to stop autocrats elsewhere. But has the US really abandoned its values abroad just because it's withdrawing from Afghanistan? Ian Bremmer and Eurasia Group analyst Charles Dunst take out the Red Pen to argue that the US can advance democracy without being the world's sheriff.

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When the Tokyo Olympics begin on Friday, Japan watchers will be following more than just the performance of Japan's star athletes, including tennis star Naomi Osaka. They will also be tracking the political fortunes of Prime Minister Yoshihide Suga, who is taking a big gamble by staging the event — amid a raging pandemic — in the face of strong and longstanding opposition from the Japanese public. What are the stakes for Suga, particularly with elections on the horizon? Eurasia Group senior analyst Ali Wyne explains.

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YouTube pulls Bolsonaro's rants: Google-owned YouTube pulled down a series of videos on the channel of Brazil's populist President Jair Bolsonaro, accusing him of spreading misinformation about the pandemic. YouTube removed more than a dozen clips for touting quack cures for coronavirus or claiming, in defiance of scientific experts, that masks don't reduce COVID transmissions. Last year, Twitter and Facebook also removed some content from Bolsonaro's feeds for similar reasons. But critics say that YouTube's move is too little too late, because Bolsonaro has been spreading misinformation about COVID since the pandemic began. Many Brazilians hold him personally responsible for the country's abysmal pandemic response, which has led to almost 550,000 deaths, the second worst toll in the world. Will YouTube's move change Bolsonaro's message? His weekly address to the nation, where he converses not only with government ministers but also various conspiracy theorists and loons, is broadcast on YouTube. Surely he doesn't want to risk losing that — or does he?

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Boycotts! Bans! Protests! Drugs! Think you've got gold medal knowledge about politics at the Olympics? Test what you know with this special Tokyo Olympics Quiz. And to stay current on all the latest political stories at the Games and around the world, subscribe here to Signal, our daily newsletter. Now, without further ado, the first question is...

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