CURRENCY OF THE FUTURE

The high-tech world is changing our perception of life and established foundations. Over the last couple of decades, we have got used to sending and receiving emails while sitting at our desk and buying items from the United States while sitting in a chair in Baku, and taking photos, filming videos and talking using the same device.

Money has been the unshakable thing so far - beitdollars, euros, manats, roubles, or yuans, they have still been printed by centralbanks. With the development of the banking system and the introduction of information technology in this sector, we have also got used to paying with plastic cards but behind them there has always stood real money. For an amount of money to appear on one’s account, it needed to be brought to a bank and transferred to the card.

But it seems that this field, too, will soon change due to the appearance of cryptocurrencies, the most well-known of which is Bitcoin.

The birth of bitcoin is the requirement of the time 

The need for a new global monetary architecture once again became relevant during the global financial crisis. The Russian leadership at the time levelled open accusations against the United States, which at the height of the financial crisis in November 2008 began implementing quantitative easing policy in order to speed up the US economy. As part of the policy, the Federal Reserve System bought 1.7 trillion dollars’ worth of mortgage and other bonds. Note that later on the European Central Bank and other central banks adopted similar policies of quantitative easing, effectively putting all countries on the brink of a currency war.

In this way, the global financial crisis almost drew a line underthe globalization process, because talk about free trade started to sound quite ambiguous, when even leading countries started to devalue their national currencies in order to gain an advantage in foreign trade with key partners.

It is not surprising that the appearance of a cryptocurrency dates back to August 2008 and the first tradingsessiontook place in 2009. The fact that the value of the most popular cryptocurrency - Bitcoin - changed speaks volumes about how rapidly cryptocurrencies began to take their positions in the world.

Suffice it to say that 1,000 Bitcoins were 0.03 dollars in the trading session in 2009, and in 2013 its value rose to the level where 1 Bitcoin was 1,000 dollars. In other words, Bitcoin increased in value 33 million (!) times over. At the moment, 1 Bitcoin is 550 to 600 dollars at the stock exchange.

In 2010, a person with 10,000 Bitcoins could only qualify for the purchase of two pizzas (back then, that would have been about 25 dollars). However, today, they can buy an apartment, a villa, a car and many other things because that amount is 5m dollars at the current exchange rate.
A special cashpoint has been put into operation in the city of Vancouver, which can easily exchange Bitcoins to dollars or another currency.

Incidentally, young people in some countries increasingly more often prefer to keep their money in cryptocurrencies and not in dollars and not even in gold.

Overcoming financial bureaucratism 

Australian businessman Craig Wright has proven his authorship of Bitcoin. Initially, he presented Bitcoins under the pseudonym Satoshi Nakamoto – a Japanese merchant and philosopher of the XVI century, who opposed bureaucratism in the feudal country and stood up for free trade.

The virtual currency that Wright created fully meets the requirements of free trade as it is does not depend on printing of money by a central bank. Bitcoins are transferred directly from one person to another, bypassing the banks and cashpoints, and can be used for electronic financial transactions, including online purchases of real goods or services.

Effectively, as envisioned by the creators of cryptocurrencies, the economy of the future will overcome national borders and relevant government institutions for a faster turnover of capital, in which virtual currencies will have a key role to play.
“We must adhere to a positive policy with regard to innovations that promote a faster, more secure and more efficient circulation of money,” said Ben Bernanke, a former head of the US Federal Reserve.

Central banks oppose 

Despite the “mind-blowing” path Bitcoin has come, the central banks of many countries have retained their attitude to it. The central banks said the Bitcoin was a monetary surrogate and banned its circulation and use in the banks of their countries.

There are objective reasons for this. The lack of a single money-issuingcentre does not make it possible to bring specific individuals to book. Meanwhile, on its path the value of Bitcoin has plummeted many times over almost instantly, when gaps were found in the system, and at that moment there always were people seeking to create millions of Bitcoins.

However, the last time the value of one Bitcoin fell from 1,000 dollars, the reason was the ban against its usage that the People’s Bank of China issued in 2013. Back then, the value of the Bitcoin almost halved.

But gone are the days when Bitcoin was used to pay for illegal transactions, in particular to pay for narcotic substances and services offered by dubious websites. Bitcoin has become very interesting for traders who have begun to fairly actively trade in them. In addition, there is a tendency of Bitcoins turning into investment capital, similarly to gold which is independent of decisions made by the central banks of different countries.

Attempt at “domesticating” cryptocurrency

In Russia, the Central Bank bans commercial banks from using a cryptocurrency.

However, at the initiative of the Federal Financial Monitoring Service, consultations began to discuss how appropriate it was to introduce a cryptocurrency. Despite the bans, the positive aspect of the introduction of virtual currencies is obvious to many.

The advantages are primarily that the process of the movement of capital automatically becomes more rapid and more dynamic. Another expectation is that there will be a noticeable reduction in extra spending within the framework of financial transactions. This is about cost reduction: issuing of banknotes, security and transportation, costs associated with infrastructure to install cashpoints and so on.
A distinctive feature of a Russian cryptocurrency will be the existence of a licensed issuer, which will issue electronic money.
However, an attempt to “elevate” cryptocurrencies through licensing and creating issuing centres will most likely be doomed. The very point in creating a cryptocurrency is to service the global trading space without any regulatory bodies.

Introduction of cryptocurrency in Azerbaijan 

For the time being, the Central Bank of Azerbaijan is moving in line with the global tendency of non-recognition of cryptocurrencies and banning their circulation in the banking system.
Cryptocurrency relates to the economy of the future. In the current difficult situation in the banking system of the country, the introduction of a cryptocurrency could cause chaos in the financial sector.
Azerbaijan is yet to resolve even the issue of e-commerce.
There is a need to complete reforms in the banking system and cleanse it of weak banks. The number of banks should be almost halved, leaving 10 to 15 to operate in this country.

But at the same time, at this stage it would be good to speed up action to prepare for the economy of the future which will be based on information and communication technologies. That is to say, the country should take active steps to develop e-commerce, and educational institutions should start teaching all aspects of the introduction of cryptocurrencies, otherwise Azerbaijan may find itself on the sidelines of the global economy.
It is necessary to recognize that the future of the global financial architecture will not belong to the dominant currency of one country or a basket of the currencies of a group of leading developed countries. Cryptocurrency is the digital currency of the economy of the future, and whether or not one or another country will prosper will depend on how prepared countries will be to open the way for a digital currency.