The Court of Free Competition (the TDLC in Chile) ruled that banks must keep open the accounts of cryptocurrency operators, after having placed so many obstacles in their way—along with hurling accusations against their development. To them, cryptocurrencies present an existential threat to the banking industry—given that the new industry is already dealing with transactional services and financial records products at lower cost and greater flexibility.
But this is not the first time that banks have had conflicting interests with their customers. Similar pressures became some of the main drivers behind the FATCA push in Chile, the American legislation that is transformed Chilean financial institutions into ad honorem agents of the IRS, imposing a cost on Chileans that may potentially develop into the loss of privacy for their own accounts and their freedom to operate financially. They are currently promoting the CRS, too, a measure that would allow all IRS-equivalents in the world to acquire information about their taxpayers. The days of banking freely and with privacy have transformed non-Chileans into second-class citizens (especially, for the moment, Americans).
Yet, it is clear that this whole structure of financial control cannot work in a world of cryptocurrencies operated by private companies. Hence, we can better understand why there is global reluctance to accept them, leading some, such as left-leaning economist Joseph Stiglitz, winner of the Nobel Prize in economics, to promote their prohibition.
But behind this seemingly technological competition, there is both a strong rivalry for the control of the issuance of money and a philosophical rivalry between a centralized banking model and a free banking one. Those that control the issuance of money have great power, can create money at will and (above all) have control over the collection of taxes. It was not for naught that Jesus told the publicans and Pharisees of His day, after they showed Him a Roman coin and tried to corner Him into having to promote either idolatry or what was considered tax evasion: "Render to Caesar the things that are Caesar’s, and to God the things that are God’s" (Mark 12:17).
On the one hand, under free banking, each bank can issue its own currency, backed only by public confidence in each financial institution, and the fact that these currencies can eventually acquire goods and services in the future. A firm's reputation has a high value in the free market that must be meticulously maintained for a firm to survive.
On the other hand, with a system of central banking, money may be issued according to the interpretation or criteria of central bankers regarding what they think the economy requires, or according to pressure placed on them by the government or some special interest (pressure) group—as happens with the Chilean export lobby that complains about echange rates to the central bank (and the government) when the dollar is "too high" against the Chilean peso. In the case of cryptocurrencies, money issue is controlled by a mathematical algorithm, which completely eliminates discretionary policy by politicians. Plus, new technology allows the value of the currency to better reflect the functioning of the price system.
The idea of free banking is older than cryptocurrencies. In the Nineteenth Century, Chile worked very well without a central bank, having a free banking system that boasted a low inflation rate, with accolades from customers who widely received adequate services at low cost. Market-based regulation served well. This scheme existed from 1862 to 1879, until the War of the Pacific, when the state took control of money issuance to finance the war.
It is curious that, although the price mechanism is universally accepted and monopoly pricing is universally condemned, the cost of using money or centralized banking services are accepted—and its foibles overlooked—as if they have little impact on the economy. This belief is untrue. One accepts as a dogma that value determinations made by a centralized banking system are good, permitting and fomenting the viability of millions of projects, potentially having an impact on several decades. However, this belief is rather incredible and even ridiculous. What does the state do better than the market besides taxing and sometimes killing people, or destroying property? And why should such an entity be in charge of issuing and regulating the money supply? Why do people accept the inefficiency of monopolizing money issuance by legislation when there are available market alternatives?
Cryptocurrencies are now reaching a time when the centralized banking system has begun to show itself crisis in financial crises, starting in 2008, and since then with ten years of intervention ("quantitative easing") that has led to a world of negative interest rates—a monetary aberration for which the consequences are still misunderstood.
It comes as no surprise that market-based alternatives have been sought after, and many have now been arriving from abroad. The government should take them and protect them from their competitors. In that sense, we must applaud the decision of the TDLC and a pat on the back given to President Sebastián Piñera who has tried to aid this new industry. Who knows? Maybe cryptocurrencies and free banking will be the next driving forces to push along the Chilean economic miracle.
John Cobin, Ph.D. George Mason University [Twitter] (https://twitter.com/JohnCobinChile)
Alejandro Rogers B., MBA MIT Sloan
Co-Founders Party Independence
www.libertarios.cl