Tehran (ISNA) – There is some news that Uruguay and Paraguay are on the way to legalize bitcoin and other crypto currencies as a method of payment; we’d asked professor Hanke for a commentary.
Steve H. Hanke is a professor of applied economics at the Johns Hopkins University in Baltimore and is the world’s leading expert on hyperinflation. He served on President Reagan’s Council of Economic Advisers.
The assertion that cryptocurrencies would be superior to the local, sovereign currencies in Latin America is highly debatable
Asked about why South American countries are increasingly interested in crypto currencies, Hanke said, “Latin American countries have a long history of producing third-rate, worthless currencies. The only exceptions to this are Panama, which has been dollarized since 1904; Ecuador, which was dollarized in 2000; and El Salvador, which was dollarized in 2001. So, the cryptocurrency evangelicals and promoters have been using the argument that cryptocurrencies would be superior to the local, sovereign currencies in Latin America. This assertion is highly debatable. What is known is that dollarization works very well. For example, since El Salvador was dollarized in 2001, it’s average inflation rate has been 2% per year, almost exactly the same rate as the U.S. and the lowest rate in all of Latin America. What Latin Americans prefer by way of currency is the U.S. dollar, not their local currencies and not cryptocurrencies. “
What dangers will these countries face if they approve cryptos as a formal method of payment?
According to Hanke, The greatest danger for countries adopting cryptocurrencies is the risk of not complying with the regulations of the Financial Action Task Force. Noncompliance will probably result in sanctions. For example, countries who adopt cryptocurrencies will be unable to comply with the FATF’s know-your-customer standards, among other regulations. They will then be blacklisted by the FATF and will probably face sanctions from FATF member nations.
Do you think that accepting cryptos will help the Iranian economy? why?
No, the only thing that would help the Iranian economy is a currency board, which I have advocated for some years. In fact, it’s all laid out in my book, Currency Boards for Developing Countries: A Handbook, which was published by The Parliament Research Center of Iran (MRC) and is available in farsi. A currency board issues a currency that is freely convertible at an absolutely fixed exchange rate with a foreign anchor currency or gold. The currency issued by a currency board is backed 100% with anchor-currency reserves. So, with a currency board, its currency is simply a clone of its anchor currency. Currency boards have existed in about 70 countries, and none have failed. By making the Iranian rial a clone of a solid anchor currency, inflation would be smashed immediately and stability would be established.
Professor Hanke also pointed out that He doesn’t believe in the extinction of traditional methods of payment such as banknotes in the near future.