Cryptocurrencies .. Will it become a spearhead in a global financial crisis?


Days ago, Gary Gensler, the head of the US Securities and Exchange Commission, asked Congress to give the agency more powers to improve oversight of trading, lending and cryptocurrency platforms. Gary Jensels justified his claim that the cryptocurrency market is a “chaotic region full of fraud and risks for investors.”
In fact, this conviction was not unique, as the American request was preceded by days of warning issued by the Bank of England, “the Bank of England”, returning that cryptocurrencies threaten the broader financial and economic stability, indicating that the rise of those currencies may lead to a flow of withdrawals from banks. grand.
These warnings did not come out of nowhere, as many of the largest banks and international financial institutions continue from time to time to issue warnings that cryptocurrencies may pose a threat to current financial institutions, including risks to the stability of the global economy, and many banks consider that the spread of cryptocurrencies will allow By circumventing capital controls significantly, and will clearly limit the ability of financial authorities to track the movement of funds, and this development will open the door wide for money laundering operations, and the distortion of the economic system.
Dealing with cryptocurrencies can also be risky for investors, and some of the top bank chiefs, such as Jamie Dimon, chairman of JPMorgan, which has a total value of about $2.5 trillion, considered cryptocurrencies a “scam” warning. of their ability to destabilize or undermine the authority and control of central banks.
For his part, he says to the “Economist” I. B Frank, a banking expert at Net West Bank, “Governments control the issuance of national currencies, and use the central bank to issue or destroy money when it becomes unusable, and through the central bank and through what is known as monetary policy, governments exercise their economic influence, and through this monetary mechanism, governments become It is able to direct the economy to achieve the targeted development goals, and its issuance of currencies enables it to track the movement of funds, determine who profits from that movement and collect taxes, as well as it enables it to track criminal activity, and all this control is lost when non-governmental organizations create their own currency.
He adds, “The spread of digital currencies practically means the collapse of the banking system, the backbone of the international economic system, where without banks the jobs and tax revenues generated by banking activities and economic businesses that support them through large-scale lending operations disappear.”
While Dr. J. Arthur, Professor of Public Finance at Oxford University, also adopts a rejectionist view of digital currencies, and warns of its risks to the national and global economy, as its use has expanded or it has become a national currency, as El Salvador did recently.
In this context, he told Al-Eqtisadiah, “Cryptocurrencies sometimes achieve huge profits for their dealers or speculators, but they can also achieve huge losses the next day. This situation reveals the unstable nature and rapid and violent volatility of this type of currency.” Currencies, such a situation makes it difficult, if not impossible, to estimate public budgets accurately, stably, and consistently throughout the year, even if governments grant legal release power to cryptocurrencies.”
He adds, “This rapid volatility may become a major obstacle to an accurate assessment of the state’s tax or customs revenue or even from the sale of its products abroad, and the rapid change in the value of cryptocurrencies hinders in practical application the achievement of justice and balance in the internal trade exchange, the use of cryptocurrencies Expressing financial obligations within a single country as a mandatory means of payment in the buying and selling operations or pricing the services provided may result in a huge imbalance that may lead to huge losses and a sharp increase in social differences as a result of continuous fluctuations in their value.
In fact, the violent fluctuation in the value of these currencies prevents them from being used as a store of value, which is a key characteristic that a currency must have in order to become a true widely tradable currency. Central banks will also face challenges of a new and confusing type related to interest rates and the relationship between interest rates. On cryptocurrencies and national currencies, as well as the relationship with international currencies traded such as the dollar, euro, sterling and Japanese yen.
From this point of view, some experts point out that every decade or so provides a catalyst for a major economic crisis. The nineties of the last century witnessed the dot-com bubble, and the global economy suffered from the mortgage crisis, which started from the United States in the first decade of the twenties of this century. Could the proliferation of cryptocurrencies cause a global financial crisis in the second decade of the 21st century?
The answers and positions of experts when responding to this question vary. While some consider cryptocurrencies the spearhead that will cause the next global financial crisis, others believe that there are exaggerations about the ability of cryptocurrency markets to cause harm of an international nature.
Dr Davey McQueen, who took charge of the Bank of England’s advisory committee in the 2000s, may be one of the leading voices pointing to the dangers of cryptocurrencies, but she believes that it cannot trigger a global financial crisis, as at best it represents only a small slice. of the massive global financial system.
She told Al-Eqtisadiah that “the occurrence of a global financial crisis means that the financial system in developed countries, specifically Western Europe and the United States, no longer works efficiently for a long period of time, without anyone interfering to carry out a real reform process.”
She asserts that cryptocurrencies in essence present themselves as a monetary system parallel to the banking system, as they allow people to access loans, savings, insurance and trade without going through the state’s financial system, but for most citizens of developed countries, ordinary banks work very well to provide for those needs, so they will not There is a real need for this type of currency to carry out banking business.
Dr. Davey McQueen considers that the talk that many poor people do not deal with banks, this has more to do with poverty than with a lack of access to financial services.
But this viewpoint is rejected by international experts who call for not being lenient with the cryptocurrency markets, and they believe that the rapid growth of it and the popularity it is gaining, may have serious consequences, and cause a sudden and severe global financial crisis.
Those with this view often base their view on the fact that the cryptocurrency markets are not transparent, and do not create real, sustainable trust for most dealers, and this may be the reason for the rapid and violent fluctuation in their value.
The continuous fluctuation of the financial value of these currencies, denominated in international currencies such as the dollar and the euro, becomes very dangerous with the increase in the total value of investments, which are pumped into the cryptocurrency markets. About a violent global financial crisis.
In turn, he told The Economist, DM Russell, an investment expert, “Virtual currencies have witnessed sharp rises and falls in the past five years, while the US dollar index was relatively stable during the same period. The cryptocurrency market is more sensitive to information, and the evaluation of each cryptocurrency depends significant on external forces such as public opinion, artificial supply and demand, competition from other cryptocurrencies, and currency interest.”
D is. M Russell believes that the relative volatility in the valuation of the cryptocurrency is destroying both external and internal confidence in its strength, and this is precisely what creates the groundwork for a global financial crisis.
In a related context, a number of experts, who believe that the collapse of the cryptocurrency markets on a large scale will lead to huge financial repercussions or even a global financial crisis, also see that financial crises often occur as a result of the lack of understanding and regulation surrounding new financial tools, and the more a number of financial instruments are adopted. Larger than the public Financial products are opaque and lack regulation, the greater the possibility of the global financial crisis.
The question becomes what to do? In a more precise sense, what is the nature of the preventive measures that must be taken quickly to control the cryptocurrency market?
Some experts describe cryptocurrencies as a “license for the private sector to print money.” If this is the case, why does the “public sector” not print money, given the potential of the “public sector” to be more powerful and credible in the eyes of dealers with that money.
Specifically from this point of view and based on the idea of ​​penetration of cryptocurrency markets by governments, the most common view of controlling or scaling cryptocurrency markets is now based on central banks issuing their cryptocurrency, this new government-backed currency will help stabilize cryptocurrency markets , and will increase external and internal confidence in the world of investing in cryptocurrencies, as governments are often seen as a strong, secure and stable investor, and those government cryptocurrencies will act as a safe haven in the event of a market shock, and businessmen will be able to trade their balances of highly volatile cryptocurrencies, By motivating them to abandon it in favor of government cryptocurrencies.
And he points out to “The Economist”, a researcher at the Bank of England, Alexander Lewis, that due to the government’s management of the cryptocurrency, which will be issued, the details will be known and accurate, as the current cryptocurrencies obscure many details and characteristics. Cryptocurrencies, which will be issued by the central bank, will be more transparent and more trustworthy, as they are less volatile and more widely accepted due to government support.
“Regardless of the market valuation, government cryptocurrencies will have real value, and this will increase external confidence and prevent shocks from sudden valuation fluctuations, which panic investors,” he says.
Of course, cryptocurrency proponents strongly reject these proposals as a by-pass attempt to eliminate cryptocurrencies by striking at the idea of ​​decentralization and the absence of government regulation.
With this, the commitment of central banks that their digital currencies will be free from government interference, will make government cryptocurrencies more popular among investors, and will make them a true medium of exchange.
But moving forward with the success of this scheme requires maintaining some of the inherent characteristics of cryptocurrencies, most notably that the number of cryptocurrencies that the central bank will issue is limited. Through this, governments will ensure the possibility of supporting all cryptocurrencies that they issue, whether through digital currencies or gold, Limiting the number of cryptocurrencies would make them especially attractive to investors and increase transparency.


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