“We need a Bretton Woods”. But, perhaps, he is exaggerating


Foreign Press Association in Italy.  Press conference by Paolo Savona, Minister for European Affairs.  In the picture Paolo Savona.  Rome, October 8th, 2018 (Photo by Massimo Di Vita / Massimo Di Vita Archive / Mondadori Portfolio via Getty Images) (Photo: Mondadori Portfolio via Getty Images)

Foreign Press Association in Italy. Press conference by Paolo Savona, Minister for European Affairs. In the picture Paolo Savona. Rome, October 8th, 2018 (Photo by Massimo Di Vita / Massimo Di Vita Archive / Mondadori Portfolio via Getty Images) (Photo: Mondadori Portfolio via Getty Images)

Bitcoins are a threat to the international monetary system. And if central banks and states do not intervene with their regulation on a global scale, there is a risk that Gresham’s law will be triggered: “Bad coins eat good coins”. Translated: cryptocurrencies risk undermining the stability of the system based on dollars, euros, yuan and company. The lectio magistralis that Professor Paolo Savona gave in his Cagliari this morning was an opportunity to raise the alarm. For the president of Consob, a new Bretton Woods is needed. State authorities have to sit together at a table and decide what to do with cryptocurrencies. “Bretton Woods had imposed the US dollar as the reference currency for all the others, guaranteeing stability and economic development for all participants in the system,” Professor Luca Fantacci, professor of economic and monetary history at Bocconi in Milan, tells HuffPost. “Having skipped that system, no currency has risen to the role of international reference currency”. The risk, agitated by Savona, is that Bitcoin and sister coins could be candidates to take on that role.

Words of weight, those pronounced in Sardinia. Not only because you come out of the mouth of the chairman of the commission who has to supervise stock exchange activities. But also for the timing. For a few days, China has announced a ban on making payments in Bitcoin on its territory. There are around 2,000 cryptocurrencies in circulation today. The volume of cryptotransactions, according to Consob estimates reported today by Savona, is in the order of 2.2 trillion billion dollars. “The problem is that Bitcoin, the most famous crypto, is not a currency,” explains Fantacci. “It has too volatile a value, subject to frequent speculation. A currency, to be recognized as such, needs stability ”. An attempt was made to solve the volatility problem with the introduction of stable coin, a family of second generation cryptocurrencies. “These are private currencies with a value linked to that of a state currency. A Tether – the most widespread – is worth as much as a dollar ”. Bad stable they are not as stable as they should be. “The issuing company is unable to guarantee a consideration in dollars for all the Tethers now in circulation. Besides, this company is not subject to transparency checks by the monetary supervisory authorities. So I fear that cryptocurrencies can never be considered a stable currency, that is, coins in all respects “.

But if they are not coins, then what are Bitcoins? There is no single definition of cryptocurrency. “I’ll first tell you what I’m not” replies Fantacci with a smile. “In Germany they have assimilated them to financial assets (bonds, shares, derivatives, etc.). But there is a significant difference: financial assets always have an issuer. There is always someone who has to answer as a debtor. A juridical person called to answer for it even in the registered office “. This is not true for Bitcoins. Because behind the cryptographic currencies is the Blockchain technology. “In crypto transactions, the identity of the person behind the payments is one hundred percent anonymous.” The Blockchain is a virtual register, on the network, where transactions are recorded automatically. Encryption guarantees the security of payments, but also the secrecy of the identity of the person making them. The difference between encrypted payments and bank payments is that the former do not provide a broker, as are the banks in the latter. “Let’s remember that electronic payments existed even before the arrival of cryptocurrencies. Electronic payments are all those we make with debit cards, credit cards or by bank transfer. But in any case there is a mediator, usually a bank ”. With Bitcoins we are instead faced with a totally free finance, not surprisingly called ‘decentralized’.


The problem with Bitcoins is that they are not legal tender currencies. And therefore people prefer to rely on traditional ones. “With the Blockchain there is disintermediation, efficiency and speed in financial transactions” explains Fantacci. “That’s the big advantage of crypto. However, they lack a regulatory framework that makes them equally reliable. It is a question of combining these two needs ”. To solve the Bitcoin dilemma one must necessarily go through a regulatory intervention. “Rules that increase the transparency and security of crypto-transactions. But collaboration is also needed between traditional subjects (banks in the first place) and those born on the long wave of these new technologies, such as the start-ups of fintech and decentralized finance ”.

And it is in this delicate passage that President Savona’s reasoning fits, when in Cagliari he affirms that the equilibrium of the financial market will depend on the degree of legitimacy guaranteed to crypto by the political and monetary authorities. We need a new Bretton Woods, this time to figure out how to manage the rise of cryptocurrencies. “This is not a provocative proposal. Many, since the financial crisis of 2008, have invited us to redesign the international monetary system ”. But what was Bretton Woods? “In 1944, in this New Hampshire locality, the representatives of the Allies, close to victory in World War II, met to decide which monetary system should govern the post-war international economy, to ensure development and stability for all participants. , as happened to Italy during the economic boom. Basically, the currencies of half the world were linked to the value of the US dollar, the queen of currencies. A fixed exchange rate system. Which gave stability and predictability to international trade ”.

The Bretton Woods system ended in 1971, when US President Richard Nixon put an end to fixed dollar convertibility. “Whoever invokes a new Bretton Woods today – explains Fantacci – hopes to return to that golden age. Because today there is a very tough international competition between currencies, where each state and each central bank models the value of its currency to protect its national interests ”. The dollar continues to prevail, but the challenge is open: first there were the yen and the German mark. Now it’s the euro and Chinese yuan’s turn. “We are in full currency war. If there is a conflictual relationship between currencies, there is no global point of reference “. Thus, spaces of opportunity are created for cryptocurrencies. These, by nature, can easily override national regulations. Like Bitcoin, “but also Diem, the Facebook crypto. A currency that could count on a pool of billions of users, practically all members of the social network. If the coin minted by Mark Zuckerberg were to go into full operation, then there would be very important political, not just economic, implications ”.

At that point, the ‘bad’ coins could eat the ‘good’ ones, as Savona stated. Are cryptocurrencies direct competitors of traditional currencies? “For Savona, cryptocurrencies are ‘bad’ in the sense that they are not transparent and not even reliable from a legal point of view. With their volatility, they risk polluting the ground. But I am much less worried than the Consob president. And now I’ll explain why ”concludes Fantacci. “Bitcoin and sisters are scarce assets. They are produced in limited quantities. And with the increase in media interest, their price has increased ”. On the other hand, these are the laws of the market: if the quantity of a good is fixed and the demand for it increases, then the price also goes up. And that’s what’s been happening to Bitcoin in recent years. “A currency whose price is constantly rising, however, is not an incentive to spend. Those who have a Bitcoin ‘in their pocket’ have an interest in keeping it in their wallet. Because its value will go up. While our euros do not go up in value. If 10 euros is written on the note, that note will retain a value of 10 euros. I don’t think Bitcoins can go into circulation and become coins. There are no necessary incentives ”.

This article originally appeared on The HuffPost and has been updated.


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