The Financial Times recently published a short article by Mohamed El-Erian which are worth reflecting on.
El-Erian is a very important insider in the world of global finance. In the London newspaper - with the motto: "We live in financial times" - El-Erian, together with others, regularly contributes to a column, which is difficult for me to approach, entitled "Markets Insights".
The career of El-Erian - 62 years old, American of Egyptian origins - as an economist and financial expert would require several pages, so many are the experiences he has accumulated and the positions he has held in institutions, financial organizations, in the world of information and of training.
Suffice it to say that today El-Erian is President of the Queen's College, Cambridge and chief economic adviser to Allianz. Allianz has come from Pimco, the creature Bill Gross known as the "King of bonds", with whom El Erian collaborated for 5 years as CEO of Pimco.
In 2020, Allianz managed $3 trillion in assets, ranking11 th of asset management companies. Pimco contributes 2,1 trillion to Allianz.
Below we publish the Italian translation of El-Erian's speech in the Financial Times of 30 July 2021, entitled: China lays down challenge to the west on crypto.
A new phase
The time has come for Western governments to stop considering the crypto revolution like a mixture of illegal activities, reckless speculation and ransom making.
Rather, governments should start steering crypto innovations in a direction that helps finance, the economy, and society at large.
On the other hand, cryptos need to acknowledge the systemic consequences of their activity as well as the regulatory and energy issues such a systemic stance entails. The “zero-sum” mindset that crypto gains can only come from equal losses from the traditional financial system is a huge obstacle.
Overall, the ongoing political debate on cryptocurrencies in the West remains too narrow relative to the importance of the issues at stake and is overly polarized. Participants speak too different languages.
All of this multiplies the tension between the increasingly crypto-averse private sector and the increasingly crypto-averse public sector. The growing embarrassment of institutions and central banks is clearly perceptible.
The West is surplace and China runs
In the Western world there are too many differing opinions on the cost-benefit of the crypto revolution for established financial services, making matters even more tangled.
On the contrary, China is pushing full steam ahead with its usual strong and unified top-down approach, in an effort to spearhead change that can extend well beyond the country of the dragon.
What happens after China takes the lead will have profound implications for global financial services, monetary policy, investment policy, payment platforms and the very arrangement of global reserve currencies, such as the dollar, euro and yen. There will also be repercussions on the control and use of big data, as well as on the technological and economic competition between China and the United States.
Today, three processes can be identified that show the direction in which things are moving.
The three ongoing developments
1) The technologies driving the crypto revolution, especially the blockchain technology, are having a dramatic impact on the financial industry that has remained too long in a condition of inefficiency and complacency induced by excessive profits.
The combination of a regulation that has protected the sector from even rash innovations and the inertia of traditional customers is no longer a barrier to the wave of competition mounted by technology.
2) Despite their instability, cryptocurrencies are gradually becoming an increasingly large part of investors' portfolios through a dual use: that in the activity of risk containment as an alternative to gold and some government bonds and that in opportunistic bets on assets not correlated to traditional market fluctuations (non-correlated assets).
3) cryptocurrencies are definitely starting to spread in the ecosystem of payments. On the one hand there is concern about the phenomenon of illicit payments (think of the growing number of ransomware attacks) but on the other there is a very positive fact regarding remittance transfers, a sector in which too many traditional channels remain slow and expensive.
The point today
Broader growth of cryptocurrencies globally continues to be hampered by price volatility, lack of widespread trust and regulatory concerns.
The big question now is: Will crypto disrupters and regulators in the West be able to converge on a common point?
Here the greatest responsibility falls on the cryptos, which risk repeating the mistake that Big Tech has made – pursuing their goals without realizing that their achievement will make their activities systemically fundamental.
Crypto won't get very far with governments and central banks without fielding majors anti-money laundering guarantees. They also need to be able to allay widespread concern about a potential erosion of traditional monetary policy tools.
On the other hand, central banks need to develop a more open mindset if they are to keep pace with China.
China is around the corner
In Beijing, the transformative power of the crypto revolution is very well understood, and as such, they wish to co-opt it in a highly controlled and holistic way.
In doing so, they are posing a challenge to the West that goes far beyond China's increased ability and readiness to develop new payment systems and its own central bank-backed digital currency. All things that will quickly become global and not the prerogative of China alone.
There is quite a serious problem with it reserve currency status of the dollar, there is also the problem of providing China with the opportunity for greater control over sensitive big data and to close what remains of the technological gap with the West.
Absent a more collaborative approach, both sides of the alternative currency world in the West (crypto and government) could see their future determined by what a fast-moving China is doing and plans to do.
Before you go
We want to point out a book coming out in September that is accessible, exhaustive, updated, accurate. It was written by one of the leading Italian experts on innovations related to the blockchain technology. It is Nicola Attico, Enterprise Blockchain (Guerini with goWare for the digital edition). Attico has already published, with the same publishers, two texts on the same topic: Blockchain, ecosystem guide. Technology, business, society (also in English) to Libra. Facebook Gold. How alternative currencies will change our lives.
If you are looking for a light read like a novel we recommend the book Itineraries for crypto-adventurers. Bitcoin, blockchain, mining, token, trading, wallet (goWare) by Gerardo Coppola and Daniele Corsini (both ex-Bank of Italy) with the techno-crypto Filippo Onoranti.
