For centuries money has been a tangible thing, from simple coins that were the value of the metals they were made of, to banknotes that promised the bearer their equivalent value in gold.

From humble beginnings, electronic “cryptocurrencies” are now threatening this pillar of civilization and economics. Long seen as an outsider in the world of real economics these currencies now seem set to take their place at the big table of global finances.

It might seem that money was already seen as a thing of the past, services like Apple Pay and Google Pay, mean that we have only to wave our phones at a terminal, and payment is made. But these are just methods of moving “traditional money” electronically.

Cryptocurrencies such as Bitcoin and Ethereum are not legal tender like the cash that is issued by governments. But the signs are that this is about to change.

Governments and Cryptocurrencies

China is the first country to release a true electronic currency that is controlled by its central bank. The bank is responsible for issuing the new electronic money and the “digital yuan” will give the Chinese Government the capability to monitor both its economy and the population.

This monitoring capability is one of the major differences between traditional cryptocurrencies like Bitcoin, which offers complete anonymity, and the Chinese government’s version.

China is considered an authoritarian state, and this move has human rights concerns. But it also has made other countries, including the US sit up and take notice.

China has designed the currency to be used in international markets yet remain outside the global financial system. The dollar has long ruled the financial markets with 88% of all international foreign-exchange trades, compared to the yuan’s 4%. For many analysts, this move is seen as an attempt by the Chinese government to get ahead of the game, in what it sees as a future technology that is potentially the largest-ever shakeup in how currency operates.

Will other governments follow suit?

While nothing is imminent, governments worldwide will be watching the Chinese experiment with interest. But the signs are that the question is not so much “will other governments launch digital currencies?” But when they will launch them.

The fact that a state like China has beaten western governments to launching a digital currency is already causing some anxiety.

U.S. Treasury Secretary, Janet Yellen, was recently asked what effect national digital currencies might have on the dollar. She said that the issue was being intensely studied and that a digital dollar might well be a possibility in the future.

Pros and cons of a state-controlled
digital currency

It is difficult to be precise about the benefits and drawbacks of such currencies without knowing the model that each government introduces. But basing this on the features of the Chinese model, both the major pro and con fall under the same umbrella – Tracking and privacy.

China’s new currency allows the government to track spending at a macro and micro level. This gives them a huge insight into the state of the economy, but worryingly also allows them to monitor its population.

This gives the government an ability to react rapidly to economic changes, but in an authoritarian state like China, it also gives them another tool to control its population.

Whether digital currencies are the future or not is difficult to predict. Connect with MaindlVentures to get the most out of your investment and save your money from inflation.