Blog article
See all stories »

Should private companies be able to create currency?

Ever since Facebook’s Libra was first announced, this question has been plaguing quite a lot of lawmakers not only in the United States but all over the world. Corporations have started asking these questions to themselves as well, especially those who are large enough to have a global presence.

For example, Tim Cook, the CEO of Apple was once asked if he supported the idea of Libra and whether or not Apple would ever consider creating a similar project. Cook’s answer was quite surprising to most Apple fans as he denied the company ever involving itself with such business avenues, simply because he believed that private companies should not produce currency as that’s the government’s territory.

But the 20th and 21st century have been the beginning of new ideas and challenging old ones. We’ve already gotten past old understandings of both government and financial systems, experimented with new things thanks to the technology and speed we had acquired.

Maybe it’s time to go past the idea that making currency, or something of value is not supposed to be a monopoly for the government? Maybe it’s time that we tackle it from a commercial perspective rather than a stability perspective?

Sidenote here, the currencies currently available in the world haven’t really been that stable either.

Basically what private companies, as well as economic reformers, try to ask is “who watches the watchmen?”.

Why private companies should NOT create currency

The primary argument against privately created currencies is that the company will have a specific gap in time which they can use to avoid any serious regulation. This is one of the reasons that Libra has been halted for so long, the government can’t decide what kind of regulation it should fall under as it’s one of a kind.

This gives a gap in time for the company to operate in full freedom without having to adhere to pretty much anything, thus exposing its platform for manipulation from users with not so positive intentions.

A similar case to this happened in Australia when one of the gaming companies decided that it would implement a crypto utility token on its platform that the company itself would develop. This was way before Australia even considered a comprehensive regulation for cryptocurrencies, therefore, there wasn’t too much preventing the company to create it.

Once the token was implemented, the local Tax Agency was forced to deal with an extremely increased number of tax evasion cases, money laundering cases from abroad and various other issues that could not be traced in any way.

The reason was very simple. The popularity of Australian mobile slot games promoted the utility token to a point where it was reaching “investment-worthy” levels, thus enticing not only gaming enthusiasts but also seasoned investors to take part in the activity.

Due to the fact that the Tax Agency wasn’t truly aware of the occasion, it had to file, report and investigate quite a lot of regulation violations. However, the issue was quickly discovered and relevant regulations came to the country quite quickly.

That’s basically the first argument against producing private currencies. There is no universal regulation in the world that would protect consumers from any corporate machinations that the currency can go through. Speaking of corporate machinations…

Artificial inflation

Another issue is artificial inflation (which is usually the case with government-issued currencies as well, but that’s beside the point).

In most cases, artificial inflation can be seen with company shares which mostly facilitates and investigation and the arrest of several individuals for insider trading.

What happens is that a set of people decide to “wash trade” a specific asset to either decrease or increase its value on the market. It’s usually used to decrease the value so that it becomes a better entry point. But there have been cases where crypto companies increased the value of their coins, sold them all within a day or two and then disappeared, but that’s beside the point as well.

Consumers, as well as the government,  have a serious fear that these private companies would one day artificially lower the value of their currencies, buy them back from investors under the facade of correcting the issues, and then re-evaluating them at the old prices, thus generating millions if not billions in profit.

Overall, it’s quite a serious crime to commit. But, once again. If there’s no regulation or law against it, there’s no real crime.

Why private companies should create currencies

Pretty much every argument on why companies should create currencies is a direct counter to the arguments they shouldn’t create it.

It’s a very weird phenomenon, but that’s the case. It’s such an outlandish idea that not too many people have thought about the real benefits or ramifications.

But, let’s try and tackle some of them in this article.

So, the first argument. Why should private companies create currencies?

A healthy alternative

What’s meant by a healthy alternative is a locally recognized currency which has an independant inflation rate compared to the local fiat currency.

For example. Imagine that you live in Venezuela and a private company (which has nothing to do with the government) has created their own currency which is backed by the demand of their customers as well as the partners they have in the country and abroad.

The company has created a certain amount of this currency and will not be producing any more as there is no need to.

Therefore, there’s a limited supply of this currency with growing demand, meaning the inflation rate is quite stable.

Now compare that to the Venezuelan Bolivar which is a little more than toilet paper at this point for the local population.

By providing such a healthy alternative, the private company would ensure the economic stability of the local population. And as soon as they’d get a decent following and demand, they’d immediately see the value of their currency increase. But on a much more stable basis.

The good news is that this is already a reality, we don’t need to imagine it. Dash cryptocurrency has been very active in the Venezuelan market and saving quite a lot of locals from starvation.

Is private currency moral or not?

The discussion is quite hard in this case, simply because it’s very unlikely for a private company to create something tangible. By that, I mean a physical currency like a banknote. In almost all of the cases that would be a digital currency or a stablecoin.

And the reason that it’s a stablecoin is why the US government is now cracking down on Libra to prevent any issues in the future.

But, overall, the idea has its benefits as well as setbacks. As long as it can be allowed, I believe that relevant regulations can easily be designed.

2711

Comments: (0)

Konstantin Rabin

Konstantin Rabin

Head of Marketing

Kontomatik

Member since

18 Aug 2015

Location

Warsaw

Blog posts

53

Comments

8

This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.


See all