Based on a literature analysis, the following part of this paper consists of a
qualitative analysis based on expert interviews. The interview partners have been selected via the social networks Xing and LinkedIn. The participating
experts vary widely with respect to their background knowledge from a
Fintech start-up representative, a lecturer, to a consultancy ambassador. The
experts also differ significantly with regard to the region they live and work
in, from Argentina, Kenya, Switzerland to Singapore. An overview of the
involved experts can be found in Appendix B.
Crypto currencies and local fiat currencies
Regardless of the form, money must fulfil three main functions. Firstly, it has
to be accepted as a medium of exchange for the trade of goods and services.
Secondly, it must be suitable as a medium to store value for saving wealth.
Thirdly, it must act as a unit of account, to measure and compare the value of
goods (Ammous, 2018). In Figure 2, crypto currencies are compared with
with gold, the oldest form of money, and with central bank-issued fiat
currencies with regard to different traits of money.
In Figure 2, it can be seen, that the traditional types of money, gold and fiat
money, fulfil all traits of money to a high or medium level. The fact, that
crypto currencies are highly divisible and globally transferable leads to the
conclusion that crypto currencies are highly suitable for the role as amedium
of exchange (Ammous, 2018).
The advantage of gold is that it is the best collateralized form of money
because the exchange medium already carries value in contrast to banknotes
or digital money. The most significant difference between fiat currencies and
crypto currencies is that fiat money is controlled by the central bank and
therefore fully centralized, contrary to the decentralized organization of
crypto currencies.
For crypto currencies the decentralization and the lack of collateral leads to
the high level of price volatility. Therefore, the store of value function and the
unit of account function are harmed (Expert 4, 2018).
The price volatility can be seen as the main problem of most crypto currencies
(Expert 4, 2018; Expert 6, 2018), since the value of money has to be stable
enough, that there are no huge financial fluctuations, during the value
transfer (Expert 1, 2018). To achieve a more stable price level and lower
fluctuations, many crypto currencies progress in the direction of a more
formally regulated currency (Expert 5, 2018). Moreover, there is a trend of
many crypto currencies to change from a total decentralized system to a more
centralized system, in which some actors have the decision power to increase
the development possibilities (Expert 5, 2018).
Many crypto currencies
change from a decentralized system to a centralized system, even if this
change results in the decline of the main benefit, the complete uncontrolled
financial freedom of crypto currencies (Expert 7, 2018). The price volatility
can be reduced due to the fact that only through centralization and support by economic policy decisions crypto currencies can grow substantially (Aisen
& Veiga, 2006).
To get political support, crypto currencies need to be limited by national
boundaries, so that the governments can control the economic parameters to
keep monetary sovereignty (Expert 6, 2018).
This would result in a
centralized system with governmental control, which diminishes many
advantages of crypto currencies.
Based on the interviews, it can be assumed that crypto currencies are currently no complete substitution for fiat currencies and add only a few additions to fiat currencies. Furthermore, this has led some national authorities
to characterize crypto currencies as a digital asset rather than a currency. In
this sense, it has similarities with gold, where it is also unclear as it should be
perceived as an asset or as a form of money. It can be said, “that (i) Bitcoin is
a digital token that can be moved between parties, and (ii) the token has
market value in terms of major national currencies (the token can be
exchanged for [US] dollars, pounds and other currencies) and (iii) it is
sporadically used—albeit often in small amounts—in exchange for real-world
goods and services” (Scott, 2016, p. 3).
Crypto currencies in developing counties
As Expert 2 (2018) mentioned in the interview the impact of crypto currencies
on the improvement of developing countries is not noteworthy yet, because
the technology is still at its infant stage. In addition, Expert 2 stated, that
there is currently only limited adoption of crypto currencies and the positive
effects of crypto currencies will only occur if there is mass adoption (Expert
2, 2018). Similar to this view, Expert 1 (2018) argues that currently the
support for the improvement process in developing countries with the help of
crypto currencies is not given, mainly due to the small adoption.
Expert 1 stated, that the regulation of crypto currencies is crucial for its future
development and adoption because it determines which degrees of freedom
and benefits crypto currencies can keep. The regulation of crypto currencies
must be well balanced. They should not be too strict that all benefits are
mitigated, but the regulation must be strict enough that crypto currencies are politically supported, because only with political support it can come to a
massive adoption of crypto currencies (Jaag & Bach, 2015).
Currently, crypto currencies are generally not politically supported, because
of the fear of fraud and of losing control over economic policies such as moneteary policy (Expert 6, 2018). This result in the consequence that “the usage
of crypto currencies has been prevented by different countries” (Expert 6,
2018). The fear of losing control stems from the fact, that national
governments cannot regulate crypto currencies and therefore, its money
supply. This leads to the loss of their financial sovereignty. A solution to keep
the financial sovereignty alongside with crypto currencies is to issue a central
bank-issued digital currency (Lagarde, 2018).
