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E-currencies have existed for some time, and are in wide use on the Internet. E-currencies are definitely here to stay, and will become an increasingly important part of Internet commerce. Eventually, e-currencies may become the preferred medium of financial exchange among consumers and merchants, and a popular means of money transfer between individuals. Popular e-currencies include e-Gold, e-Bullion, C-Gold, Pekunix, Liberty Reserve and GoldMoney. Unfortunately, e-currencies are tainted by association with so-called “HYIPs” (high-yield investment programs), which are basically scams of one type or another promising unrealistic returns on “investments”. Yet more unfortunately, many of the characteristics of e-currencies make them attractive to a variety of low lives, including terrorists and pedophiles.
I have recently become interested in e-currencies as a way to easily send money to relatives abroad. Quite simply, I grew tired of the effort required to send an international bank wire. Not only do international banks charge high fees for both the wire sender and the recipient, they also make most US bank branches suspicious. Alternative money wiring services are often even worse. And of course, the US government takes a keen interest in any transfer of money outside the US of any size or frequency. Finally, e-currencies provide an opportunity to diversify into a gold-backed currency outside of the US dollar.
It’s no wonder that governments don’t love e-currencies. Issuing money has long been the domain of sovereign governments around the world. Governments around the world retain the right to essentially steal from their citizens by simply printing more money, reducing the value of the currency. Control of the monetary system, and a monopoly on the legal use of violence, are the precious prerogatives of any government, because they are controlled by the citizens.
But these are not the concerns you’ll hear about from the US or other governments. They are also (legitimately) concerned with the inability to regulate the exchange of value between parties, something they are supposed to protect. Currencies used by their citizens outside of their control can easily be used for all kinds of illegal activities. But, targeting e-currencies is a ridiculous way of thwarting the objectionable intentions of the lower strata of the society. In a later article, I will directly challenge the irrational argument of the US government’s persecution of e-currencies.
Like all currencies, e-currency value is directly related to the level of confidence that consumers and merchants have in the purchasing power of that currency. If the US government announced tomorrow that they were going to issue hundreds of trillions of new US dollars, no one would want to be caught the next morning holding the resulting worthless paper. Similarly, if consumers and merchants do not have confidence in the future value of e-currencies, they will assign it little or no present value.
Since most e-currencies are backed by gold or a cache of sovereign currencies, the issue of underlying value is not an issue. The challenge for any e-currency is to respond to the possibility of future devaluation by some major act of man or government. Will the company behind the e-currency suddenly disappear with all the gold? Are they lying about the 1:1 ratio of gold and currency units in their reserves? Would a government entity suddenly confiscate their assets, imprison the princes, or disrupt people’s ability to exchange value through the e-currency system? In effect, e-currencies share the price-risk characteristics of smaller countries whose future governance is uncertain, and who may have pegged their currency to the US dollar.
So then, what is the future of e-currency? I believe that for a select handful of e-currencies, the future is indeed bright, although one must tread carefully in the short term. It would seem equally foolish to ignore e-currencies or rely solely on them. I will expand on these claims in later articles.
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