Sergey Hestanov: "Now we have the technical possibility to create money not controlled by a government"

Several major international banks have announced their intention to put a new digital currency into circulation, which will be based on blockchain technology that is already used in circulation of bitcoins. It is planned to begin the commercial use of the new digital currency in 2018. Heads of various banks (Swiss bank UBS, Spanish bank Santander, German Deutsche Bank, American Bank of New York Mellon Corporation and the British broker ICAP) have decided that transactions between banks and financial institutions are difficult, take a lot of time and are expensive. The use of a digital currency will significantly reduce the time taken for payments, the initiators of its release believe.

Advisor to the CEO of the brokerage house 'Opening-Broker' on macroeconomics, economist Sergey Hestanov, spoke about the prospects of the new digital currency in an interview with Vestnik Kavkaza.

- Is the introduction of a new digital currency really necessary for the global financial system?

- Theoretically, there is the prospect of the introduction of so-called private money. It means a currency that is not controlled by a country, but by some financial community or even private individuals, in an extreme form. In 1974, Friedrich von Hayek received the Nobel Prize in economics for the creation of a theoretical basis of, among other things, these "private currencies" or "private money". At that time, the very possibility of the creation of such a financial instrument was regarded as purely theoretical. Nobody thought that it would ever reach the stage of practical implementation. But after the emergence of the internet, powerful computers and advanced encryption algorithms, now we have the technical possibility of creating money not controlled by any government department, in other words, in its extreme form – not controlled by a government.

One of the most famous precedents is the so-called currency bitcoin, which uses blockchain technology and its own algorithms to create digital money. But blockchain, despite how well-known it is, also has its flaws. So up until now, in practice, cryptocurrency was something of a toy for enthusiasts and not popular among major corporations.

This idea is very interesting because of the fact that the initiators of this private digital currency are major international banks. But it is still too early to discuss how soon it will be created and whether it will be popular or not.

If we recall the history of aviation, the Wright brothers' plane was very important, but it was almost unusable in practice. It simply demonstrated a principle, on the basis of which other companies managed to quickly built many other planes, some of which could be used.

The most interesting part of this news is not that the banks have decided to create a new digital currency, but the fact that this rather promising technology is now used by large financial institutions.

It is likely that there will be many such attempts in a relatively short time, many competitors of these banks will also want to create something like it. Viable projects of "private money" will appear in the process of competition. It is really difficult to say whether this currency will be popular or not. But the fact that large, serious, very conservative banks are not interested in the development of these types of projects opens the way for a new round of development of trade and monetary relations in the world economy. In any case, some time must pass before it will be possible to reach objective conclusions.

- What flaws of blockchain do you mean?

- The main flaw is that when it comes to traditional money, there is a centuries-old mechanism of resolving conflicts. If payment operation failed, you go to the bank, receive an account statement, then go to the Central Bank department, they request information from the cash management center, and everything quickly becomes clear. Here, it is unclear how everything will be done, but it won't be easy. So until needed experience will be accumulated, it is hard to objectively tell how the conflicts will be resolved.

- Will Russia join this system and use this digital currency?

- It is hard to say. Central banks that regulate monetary circulation view such projects very differently. They can be divided into three groups. There are Central Banks that view it cautiously, or even disapprove this idea. Chinese Central Bank does not welcome such initiatives, our Finance Ministry recently proposed to sentence people for seven years for using cryptocurrency. Of course, he withdrew this initiative later, but it is hard to forget it. The US Federal Reserve is neutral - they don't welcome it, but also don't interfere. They don't believe that these new-fangled things have commercial value and, accordingly, don't ban them, but also don't make any regulatory decisions.

There are Central Banks, mostly in small European countries such as Denmark, which, on the contrary, welcome this technology, and have even issued a grant for universities to study it, funded researches that study this technology. Long story short, there are many approaches to this issue in the world. This thing is fairly new, so everyone simply observe and wait until there will be some statistics in order to make a more balanced decision.

- How will the introduction of this currency affect ordinary people?

- It won't affect them in the near future. Even if this technology will be popular, it won't spread immediately. Just like computers, internet and cell phones did not spread immediately. On the other hand, if at least half of the expectations that experts have for these instruments will prove to be correct, then it is possible that we will use these instruments in five or ten years.