THE CRYPTO MODEL AND GLOBALIZATION

                                

a cryptocurrency picture model.

Towards the end of the 18th century and hitherto, countries have preached in favour of globalization to be the quickest model for economic growth, while others have countered it to be a setback as countries rarely have a comparative advantage, but absolute advantage in their terms of trade. An example is a gap in terms of trade between developed and developing nations. Globalization is the tendency for business to operate on an international scale through interaction and integration. It has numerous advantage and disadvantage which depend on the size of the economy. One of the ways to determine the size of an economy is the county’s export and import. If the export is greater than import, it is called a favourable balance of trade and an unfavourable balance of trade if the import is more. This means that the economy cannot produce all that her citizen will eat placing such at the losing end from the impact of globalization.

 However, even as countries use different policy regime to reduce the negative experience by a kind of support to their currency, information technology has continued to disrupt efforts, which the advent of cryptocurrencies is one. Cryptos are virtual money held in the form of coin on the net. But one cannot boldly say that cryptos are set back as it exposes the weakness of policy regimes and activities countries embark on to see that their currencies have good values in the market. And this could be the reason countries are not in support of the new normal. A country that depends on importation and enacts policies to back her domestic currency will not be on good terms with cryptos as there seem to be no authority to control inflow and outflow of the new currency, therefore a ban is imperative.

Rather than banning cryptos, it is important for countries to study the simple crypto control model. The model depicts the best way a country can have a quasi-control of inflow and outflow of cryptos. And it suggests that such a country must have its cryptocurrency to trade with other cryptocurrencies. By that such crypto becomes a legal tender. Let’s take a look at this simple model.

THE SIMPLE CRYPTOCURRENCY MODEL

From the diagram above, the arrows depict the dependency of players in the crypto market. Instead of the monetary authority to ban the importation of crypto, it can create its cryptocurrency to exchange with those in the global market, and then instruct financial institutions and non-financial institutions to trade with the country’s currency while serving end-users. Monetary authority can also advise financial institutions to open a crypto account for individuals who wish to have such an account. Set a daily limit for individual deposit and withdrawing.

DANGER OF THE SIMPLE CRYPTO CONTROL MODEL

Like was stated earlier, the advent of cryptocurrency exposed the weakness of most economies especially those that are heavily dependent on importation. Therefore for a country to trade on crypto it must be a producing economy and not a dependent economy.

I see Bitcoin as ultimately becoming a reserve currency for banks, playing much the same role as gold did in the early days of banking. Banks could issue digital cash with greater anonymity and lighter weight, more efficient transactions.

HAL FINNEY

THIS ARTICLE WAS WRITTEN BY OBILA EZE, A FINANCIAL ECONOMIST .