Cryptocurrencies are all the rage now with both investors and some nations seeing them as fundamentally revolutionising the world’s financial systems.
It is what the automobile did to the horse and buggy, some say.
Here in Jamaica and the Caribbean, Bitcoin and digital currencies have gained attention with both the Bank of Jamaica and Sagicor speaking favourably on it and looking to utilise it as tender.
But this comes against the background of increasing cybercrime and widespread scamming of US citizens which has placed Jamaican and Caribbean financial institutions on blacklists.
As one American banker told me in New York, “Many of the banks down in Jamaica and the Caribbean are Mickey Mouse houses that have more regulatory holes than a sieve!”
Now think about that for a minute.
Indeed cryptocurrencies like Bitcoin are in their infancy and they may in time gain greater eminence but, for now, there is a lack of regulatory clarity as a barrier to providing custody for digital assets.
This raises concerns around anti-money laundering and KYC.
Jamie Dimon, the CEO of JP Morgan, generally acknowledged as a talented top executive banker, had some interesting thoughts on the matter.
“I don’t understand the value of something that has no actual value. The only value in Bitcoin is what the other guy is willing to pay for it. Eventually it will be the Emperor without clothes,” said the JP Morgan boss.
Speaking in a forum with students of Stanford University, Dimon made it clear that he has concerns around security, pointing out US$6 trillion a day is moved around in real time securely by JP Morgan. He poses the question: Before that is replaced, can we all be sure it can be done right?
Dimon says there are three types of cryptocurrencies.
1. Initial Coin Offering (ICO). This is an unregulated way by which funds are raised for a cryptocurrency business offering products and services. This sees people paying for a token that allows you to use a service which is very different from a currency.
2. Using a cryptocurrency as a fiat currency. This has some merit because it sees the use of a different technology to move currency around.
3. Digital currencies that should be a store of value and a payment mechanism.
Dimon is of the view that governments are one day going to crush cryptocurrencies.
“When it is used to fund terrorist activities. This will happen. It’s just a matter of time. All these people who say they love technology will then change their minds when this starts happening.
“Secondly, when little old ladies lose their money because a speculative vehicle was allowed to exist by the Government of the United States. People will then be asking how was this allowed to happen? You should have put efficient regulations in place.
“And thirdly, the currency of a country is a fiat currency backed by the Central Bank. Governments like to control their currency. They like to know who has it? Where is it going, etc. Right now Bitcoin is a novelty. Cuba, Venezuela, criminals, drug money are use cases and are pushing for it. They prefer crypto to money in the bank and it is easy to see why.
“We have seen where governments have gone into people’s accounts and taken their money – it happened in Argentina. The world of cryptocurrencies will get bigger and bigger and governments will want to control it,” said Dimon.
He stresses that it is very different than a fiat currency where governments insist you must take this as legal tender at par. A fiat currency is always worth par. The way he sees it, there is nothing behind a cryptocurrency.
Dimon has a problem with non-fiat currencies. Did he leave us with a good tip or will digital technology forever change the face of money transactions.