Trump’s Hot Agenda: Crypto Assets

The global total gross domestic product (GDP) at the end of 2023 is $105.4 trillion . The assets of the world's largest 1,000 banks are $160 trillion .

The world has been discussing the future of money for a while now. While discussing the future of money, the future of the financial system, especially banking, must also be discussed. The future shape of the financial system will change and determine the monetary policy practices and areas of activity of central banks. The future of money also means the future of finance.

In September 2021, El Salvador made Bitcoin its official currency. The country was already using the US Dollar as its official currency. A crypto asset was added to this. The public, who started using a crypto asset as their official currency under the leadership of Nayip Bukele, partially moved away from Bitcoin after a while. The reason was Bitcoin's unstable price. El Salvador, who was worried when the value of Bitcoin fell, is happy that the value of Bitcoin has increased these days. As the value of Bitcoin increased, the country's reserves also swelled .

The price of Bitcoin has surpassed $97,000 in recent days.

Chart – 1 (Source: https://digitalassets.ft.com/ )

News and discussions about crypto assets have become heated in recent days. With Donald Trump, who will take office at the beginning of 2025, stating that he will turn the United States into a crypto asset capital, the prices of all crypto assets have skyrocketed.

BRICS countries are trying to move away from the US Dollar. Trump has threatened BRICS members. He said that if they use a currency other than the US Dollar, they will face 100% tariffs from the US. Thus, discussions on crypto assets and protectionism in international trade have become intertwined.

Discussions about crypto assets frequently come up under headings such as financing of terrorism, being a platform for financing illegal activities. The world of crypto assets is frequently included in discussions focused on illegal and immoral activities. The FTX scandal is still remembered.

In the heated agenda of crypto assets, it has become important to analyze the subject from a technical perspective. With the acceleration of digitalization with the Covid-19 crisis, the digitalization of money has been on the agenda very intensely. The above developments have brought the subject back to the top of the agenda.

In this article and the following two articles, I will try to provide a summary of the technical issues related to crypto assets.

Will the future of money and finance threaten the banking system? If so, at what points and to what extent? How will the policies of central banks in this new order be shaped? What will be the characteristics of the legal regulations on the subject?

The crux of the matter is the change in payment systems. The basis of the change in payment systems is technology. With the decreasing use of paper and coins and increasing digitalization, the platforms where money transfers take place are changing. Payments that traditionally take place within the banking system are shifting to different platforms.

Traditionally, monetary policy implementations and financial market regulations have been implemented through the banking system for decades. The platform shift in payment systems will also change the scope of central banking and financial regulation. In other words, while effectiveness in monetary policy and financial regulation will be provided to a lesser extent through the banking system, it will increasingly be provided through newly emerging financial institutions and their platforms.

Payment systems are shifting to technology companies’ platforms. Credits are being provided via digital platforms. Intermediating payments and providing credits are among the basic functions of financial markets. However, these transactions, which were previously mediated by banks, have increasingly spread to non-bank entities and have begun to mediate. Transactions have begun to occur where the brokerage prices applied by banks to their customers are much lower and money transfers are even free of charge. Credit applications can be made and credits can be received within minutes via various digital platforms.

A very large portion of the broadly defined money supply is in the banking system. A portion of the deposits included in the definition of money supply is also held as a reserve requirement at the central bank as a precaution against any negative developments that may arise. This system is a system that central banks have traditionally known and used to control the money supply. Central banks control the money supply through the banking system using the monetary policy tools at their disposal (interest rates, open market operations, reserve requirement practices, etc.).

According to the new order that awaits central banks in the future, controlling market variables is relatively less complicated today. Central banks indirectly affect many macroeconomic variables (growth, employment, income distribution, etc.), primarily inflation. However, with the exception of some central banks around the world, their primary duty is to ensure price stability. Targeting other variables is the job of governments.

The decrease in the weight of banks in the financial system and the shift of payments and credits to platforms outside of banking offer advantages to society in terms of costs. However, for central banks responsible for managing monetary policy, the change in the traditional order described above heralds a very difficult period.

First of all, it is necessary to distinguish between central bank digital currencies (CBDs) and the concept of crypto assets. Bitcoin, Ethereum, Dogecoin, etc. do not fall into the "definition of money" in economics. However, they have found areas of use as a means of payment. On the other hand, each of them has a value in US dollars. In other words, none of them have a value on their own.

No country with a currency that fulfills the functions of money should have its central bank destroy its national currency and make crypto assets its official and national currency. However, while we have the example of El Salvador before us, Trump's support for crypto assets has also emerged. The presence of Elon Musk, the richest person in the world and a great interest in crypto assets, behind Trump differentiates the US's position. I do not express Musk's presence as a positive. My thoughts are not positive at all, but I emphasize Musk to emphasize the importance of a large capital power involved in politics. It is also necessary to remember that Musk is the founder of a digital payment systems company called PayPal .

On one side, the United States, on the other, El Salvador. Two very different countries. For El Salvador, it is possible to think of the following: It made Bitcoin the official currency of the country. However, it did not have a national currency anyway. It was a country that used the US Dollar and as of 2021, it also put Bitcoin next to the US Dollar.

It is a country governed by a dictatorship and has miserable economic conditions. Therefore, even Bitcoin can mean something to El Salvador. Many citizens of the country do not live in El Salvador. Unemployment and economic inadequacies have forced the citizens of the country to live in other countries. They transfer money to their families who are left behind and are living in economic difficulties. Therefore, instead of transferring in US Dollars by paying a certain fee through the banking system, it is important to transfer in Bitcoin without paying any fee. Transferring resources from outside to inside is of critical importance for El Salvador, which does not have a national currency. However, El Salvador has no chance of managing its monetary policy. Because neither the US Dollar nor Bitcoin are under its own management. It is impossible for a country without a monetary policy to get rid of this miserable economic situation. It is a country that is happy when the value of Bitcoin increases and sad when it decreases.

In order for a country's currency to have the status of "money", it needs to have a strong institution behind it - and the central banks of the states have this duty. Economic policies also need to be of a quality that will provide "trust" for that currency so that the currency in question does not partially or completely lose its "qualification as money". In this sense, the Turkish Lira had partially lost its status as money in the recent past. Turkish citizens were evaluating more than half of their deposits in the banking system in currencies such as the US Dollar and/or Euro, which they trust more than the Turkish Lira. Therefore, the value of the currency and the fact that it does not exhibit excessive volatility provide an element of trust. The most important issue for "money" is "trust and stability".