Central Banks might resort to cryptocurrency reserves as means of supplementing national gold reserves according to veteran cryptographer Nick Szabo. He also holds that the use of digital currencies will rise in countries with distraught economies.
Cryptocurrency Over Gold
Speaking at the Israel Bitcoin Summit at Tel Aviv University on January 8th, legendary cryptographer, Nick Szabo, said that national central banks might resort to cryptocurrency reserves as means of supplementing existing national gold reserves.
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One of the reasons for this to happen, according to Szabo, is the potential lack of trust between foreign banks or governments:
There’s going to be some situations where a central bank can’t trust a foreign central bank or government with their bonds for example. […] One solution that’s been developed is to have the Swiss government hold it for you – that’s not a trust minimized solution. The Swiss government itself is subject to political pressures and so a more trust minimized solution is cryptocurrency.
In addition, Szabo also notes that gold reserves are “physically vulnerable,” saying:
The other problem with gold reserves is that they’re physically vulnerable. When the Nazis conquered countries in Europe, the first place they went to was a central bank’s gold reserves.
Bitcoinist reported on the uncanny resemblance in the historical performance of gold and Bitcoin in the past. Unlike gold, however, Bitcoin “has more utility” admitted US economist and Bitcoin-critic Paul Krugman.
The Winklevoss twins also recently stated that “Bitcoin is better at being gold than gold,” predicting that it should surpass the precious metal’s $7 trillion dollar market cap in the future.
Helping Distraught Economies
Another thing the Bitcoin pioneer shared was that censorship-resistant cryptocurrencies will grow in popularity in countries, which suffer from failed monetary planning, as well as those which have been blacklisted from trade.
There seems to be substantial merit to his thoughts. Venezuela, for example, is a country which is currently being torn by hyperinflation. In fact, the Director of the Western Hemisphere Department of the International Monetary Fund, Alejandro Werner, said that 10 million percent inflation rate is not out of the picture:
Yes, 10 million percent because prices in Venezuela are doubling or tripling every month. And that, when you take it to 12 months, generates an exponential inflation rate.
As Bitcoinist reported in late December, the country saw its biggest jump in bitcoin volume on LocalBitcoins.
What is more, a Russian university lecturer with ties to the government, Vladislav Ginko, has recently revealed that the country is planning to invest in Bitcoin as a means of avoiding US sanctions.
Whether this is true remains to be seen, but US sanctions indeed have little effect on a neutral global digital currency like Bitcoin
“Because of US sanctions, Russia’s elite is forced to dump US assets and US dollars and invest hugely into Bitcoins. The central bank of Russia sits on $466 billion of reserves and has to diversify in case there are limited opportunities to do it (in the future),” Ginko said.
What do you think of Nick Szabo’s statements? Don’t hesitate to let us know in the comments below!
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