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Joseph Stiglitz explains to CNBC why the world needs cryptocurrency

Posted: 7 May 2019 1:34 pm News

Picture not described: shutterstock-world-sun-cryptocurrency-738x410.jpg Image: Getty

Nobel Prize winner Joseph Stiglitz sounds like a staunch cryptocurrency advocate.

In an appearance on CNBC, Joseph Stiglitz, 2001 Nobel Prize winner in economics and former World Bank chief economist, explains why cryptocurrencies are necessary, and then summarises by explaining that he thinks they're detrimental and need to go.

"I actually think we should shut down the cyptocurrencies," he concludes.


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Opinion: Why? Why not?

The crux is that electronic payments are extremely efficient, that programmable smart money can change the world and digital currencies are all around inevitable.

"I've been a great advocate of moving to an electronic payments mechanism. There are a lot of efficiencies. I think we can actually have a better regulated economy if we had all the data in real time, knowing what people are spending. It would enable the Federal Reserve to actually set interest rates in a much more efficient way, we would have better macro economic management," Stiglitz explains.

Imagine the ability to get a complete real-time look at where and how exactly every single cent in the world is flowing, not for nefarious purposes, but just academically and for the purpose of better macro economic management. It would be quite incredible, and extraordinarily valuable.

The challenge is that you need to get this level of transparency without inadvertently ushering in a dystopian future. Digital currency and smart money is coming, ready or not. But without the proper framework for managing it we might inadvertently destroy society, which would be highly unfortunate.

How centralised digital currency could ruin everything

The thing about government smart money is that every piece of it can theoretically be programmed, tracked and remotely controlled. As such, whoever holds the keys to it will be able to control just about anyone who uses that currency. It's not quite as effective as a magical voodoo doll, but it comes close.

Freeze the funds of people giving you trouble, instantly confiscate money from anyone, program blockers to prevent people from purchasing things they shouldn't be and so on.

For a look at how quickly this is coming, just look at China's social credit system. It already integrates this to a certain extent by barring people with low social credit scores from purchasing train tickets and otherwise travelling too far from home. But the digital yuan that's currently in the pipeline will most likely serve as a nice extension of this. If everything goes according to plan, China will soon be able to remotely track and control every single yuan in existence no matter where in the world it is. The most important part is that you won't have to be a citizen or resident of China to be affected by this. You simply need to have some kind of exposure to the yuan.

Centralised digital currencies give a nation a certain amount of leverage over anyone who touches their currency, which could present an unacceptable risk in many situations. National leaders or other key figures with exposure to another country's currencies risk being compromised.

Now, rather than being a tool for economic freedom and building bridges between countries, currency turns into a weapon. The economic barriers go up between countries, insularity becomes the order of the day and the world gradually slides back into the kind of cyberpunk techno dark age that makes a great movie setting but a less nice place to live. Way to go.

Stiglitz is aware of these risks, but doesn't propose a solution to CNBC.

"We will have to figure out a way of having the transparency of an electronic payments mechanism without the dangers of the surveillance and the surveillance state," he observes.

Maybe we could pass some laws?

The keys to the castle

Shutting down cryptocurrency would help curb money laundering and criminal finance, Stiglitz asserts.

"It disturbs me a great deal the attention that was given to cryptocurrencies. We know about the role of real estate in money laundering, we know from the Paradise Papers and the Panama Papers the extent of this money laundering. We know from the research of recent years - for example the work of Gabriel Zucman - that a large percentage of the global wealth is held in these dark havens."

The Paradise Papers and Panama Papers detail a web of tax havens and shell companies, both illegal and legitimate.

The people named in the Paradise Papers include the current of former prime ministers, presidents, chancellors or other equivalents of Japan, Pakistan, Costa Rica, El Salvador, Austria, Liberia, Colombia and more, including three former Prime Ministers of Canada (Paul Martin, Jean Chrétien and Brian Mulroney), plus Brazil's finance minister, Queen Elizabeth II, the US secretary of commerce, former US secretary of state Rex Tillerson, the family of Indonesia's former president, Indonesia's opposition party leader and much, much more.

Meanwhile, the names in the Panama Papers included 140 politicians from more than 50 countries, including Australian prime minister Malcolm Turnbull, the king of Saudi Arabia, the convicted former prime minister of Ukraine as well as the new president of Ukraine, the prime minister, minister of finance and interior minister of Iceland and many, many more.

Most countries have politicians named in the Paradise Papers or the Panama Papers, and it's safe to say that the world has only seen the tip of the iceberg.

The global reaction to the release of the Panama Papers also leaves little doubt as to the way the world works. China blocked all references to it (many senior party leaders and family members were implicated) and has successfully swept it under the rug, while many governments simply ignored it. Others promised firey justice, some tried suing the whistleblowers and there were a great many promises to launch a thorough investigation.

Meanwhile, Panama's minister of the presidency Alvaro Alemán flat out said that Panama is not considered a tax haven, and other Panamanian officials expressed concerns that the leak would taint people's impressions of Panama. The country's president of the Panama Chamber of Commerce noted that the leaks were "unfair" because they were a "hack" rather than an investigation.

On the whole, the consequences of the bombshell revelations were almost nonexistent.

Now, in almost the same breath, Stiglitz complains about the corruption that's become deeply embedded in the global economy, and then advocates for the same people and systems implicated in that corruption to be given god-like power over the flow of money.

Cryptocurrency in its current state isn't the solution, and there's no denying that it's still deeply flawed in a great many ways. But it's still a backstop to prevent various problems from getting even worse as technology progresses.

Firstly, as a neutral digital currency beyond the reach of any government actors it can help keep international commerce flowing even if barriers start going up following the introduction of fiat digital currencies. It's safe to say there will be a real demand for genuinely decentralised (and probably anonymous) currencies in the future, for both legitimate and illicit purposes.

Secondly, it's a framework for not giving even more wealth and power to some of the least trustworthy people on the planet. Anyone who's concerned about the vast troves of dark money hidden in tax havens, as Stiglitz is, can probably see some merit in the idea that cryptocurrencies provide vital checks and balances in the digital world.

On the whole, Sitglitz sounds like a staunch cryptocurrency advocate, whether he knows it or not.


Disclosure: The author holds BTC, BNB, ATOM at the time of writing.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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