Bitcoin and cryptocurrencies recently enjoyed a significant but temporary boost following Donald Trump’s victory in the US presidential election. Trump’s promise to make America the Bitcoin and cryptocurrency capital of the world signals a potentially relaxed regulatory environment for digital tokens, often criticised by financial regulators for their lack of intrinsic value. This pro-crypto stance has sparked optimism, leading to significant gains in crypto and related investments. However, the sharp price volatility within just a week highlights the very regulatory concerns associated with such assets.
A recent Standard Chartered report projects that the crypto market could expand to $10 trillion by 2026, a dramatic increase from today’s $2.5 trillion estimate. Historically, Bitcoin’s growth has been punctuated by booms that often fizzle out amid scandals and regulatory crackdowns. The recent surge in prices reflects an enduring yet misguided ambition: the belief that cryptocurrencies could replace or rival sovereign currencies.
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Cryptocurrency vs sovereign currencies
The vision of cryptocurrencies as alternatives to sovereign currencies captivates private investors and crypto enthusiasts. However, it clashes with the principles and practicalities that govern national economies and financial systems. Cryptocurrencies thrive on financial disillusionment, amplified since the global financial crisis. Many see them as a refuge from traditional institutions and monetary policy. Yet, these digital tokens lack the utility, stability, and oversight essential for functioning as national currencies.
Proponents claim cryptocurrencies offer freedom from inflation and government mismanagement. However, this argument is largely rhetorical. Cryptocurrencies are not widely accepted as a medium of exchange, remain unsuitable for routine transactions, and are too volatile to store value reliably. While fiat currencies derive trust from government backing and societal consensus, cryptocurrencies depend solely on speculative belief in their future value—a precarious foundation for economic stability.
Governments, through central banks, manage monetary policy to stabilise economies, control inflation, and respond to crises. Cryptocurrencies bypass these mechanisms, making policies like interest rate adjustments ineffective. Widespread adoption of cryptocurrencies would leave economies vulnerable, unable to respond dynamically to financial shocks. Furthermore, the underdeveloped financial infrastructure for seamless crypto transactions and the absence of risk management tools add to the instability. High-profile failures like the collapse of FTX illustrate these vulnerabilities.
Role of currencies in national resilience
National currencies are more than units of exchange; they underpin economic policy, social stability, and sovereignty. Central banks use monetary policy to manage growth and inflation. Cryptocurrencies, with their speculative nature and lack of oversight, cannot fulfil these roles. Political entities may recognise cryptocurrencies as speculative assets but cannot endorse them as substitutes for fiat currencies without risking economic and social stability.
Cryptocurrencies are often touted as remedies for monetary policy missteps, yet this overlooks the fact that monetary policy is a tool grounded in economic principles and managed by experts. By contrast, cryptocurrencies derive their value solely from market speculation. A system driven by volatility and devoid of policy intervention cannot replace fiat currency, which relies on stability, predictability, and trust.
The dangers of cryptoisation
Global institutions like the IMF warn against “cryptoisation,” where digital assets supplant local currencies. Such a shift would undermine central banks’ ability to implement monetary policy or control capital flows, leaving economies exposed to crises. Monetary policy and capital controls are vital for economic security, and their bypass by cryptocurrencies could have devastating consequences.
The history of money, from barter to fiat currencies, reflects society’s collective belief in value. Effective money requires stability, acceptance, and control—elements absent in cryptocurrencies. Unlike fiat currency, which supports economic activity, cryptocurrencies remain speculative assets, lacking tangible economic functions or societal trust.
A novelty, not a solution
Cryptocurrencies appeal to those frustrated with financial intermediaries and centralised institutions. However, their novelty does not equate to practicality. As speculative assets, they are far from becoming viable economic instruments. The notion that cryptocurrencies could supplant sovereign currencies is unlikely and incompatible with the principles of monetary sovereignty.
Governments will not relinquish control over national currencies or economic prerogatives. Cryptocurrencies strike at the core of sovereignty, challenging the power to steer economies and uphold social contracts. To cede control over currency is to forfeit authority itself—a compromise no nation can afford.
While the allure of decentralisation and financial autonomy is compelling, the reality is stark: cryptocurrencies, in their current form, lack the stability, acceptance, and regulatory framework required to function as national currencies. Their role is better suited to speculative investments than as pillars of economic systems. Sovereign currencies, backed by trust, oversight, and stability, remain irreplaceable in preserving economic resilience and national sovereignty.