For many applications in an industrial context, the digital Turkish Lira on the blockchain would not only be the missing piece of the puzzle, but also a clear answer to the digital renminbi from China. Can a digital Turkish lira improve the efficiency of payment flows in money transactions?
I strongly believe that the digital Turkish Lira should be tested in terms of digital central bank money (CBDC) in interbank traffic. This is intended to improve the financing of the economy.
With the whitepaper of the alleged Bitcoin founder Satoshi Nakamoto, digital means of payment or so-called crypto currencies suddenly turned the world of the Internet and finance upside down. In its relatively young history, Bitcoin, Ethereum , Ripple & Co. have already come a long way. More and more courageous investors are interested in their investment opportunities and at the same time do not overlook the IT architecture under Bitcoin, the blockchain .
The idea behind the digital currencies
Cryptocurrencies were issued in order to exist in principle independently of states, central banks and monetary policy. This means that digital means of payment and their bookings do not have to be checked and confirmed by any central point. Of course, this does not rule out that central banks could also make digital currencies – or even exclusively – available in the future.
Thanks to the blockchain, such cryptocurrencies are always billed “peer to peer”, i.e. directly between the respective users and thus without banks as mediators. Within the blockchain, all transactions are stored at all nodes and decentrally. To avoid inflationary tendencies, the number of bitcoins is limited to 21 million.
While Bitcoin tends to attract investors and speculators, the industry is paying more attention to crypto currencies such as IOTA because they also allow smart contracts . This means that once machine systems and devices can communicate directly with each other, a digital currency such as IOTA or other crypto currencies should be used to automatically bill services. Such a machine-to-machine payment transaction could, for example, take over a car which, after the end of a parking time, reimburses the parking meter for the corresponding parking time.
If many of these machines and devices can also be integrated into payment systems within an Internet of Things (IoT), this is particularly promising for manufacturers. Ultimately, smart contracts and distributed ledger technologies ( DLT ) such as blockchain or IOTA open up the possibility of a completely new type of infrastructure for financial services, as it is attracting increasing attention under the term decentralized finance (DeFi).
Perspective of cryptocurrencies
Although many interest groups, companies and investors are making great efforts to make crypto currencies more popular, Bitcoin & Co. are still far from being suitable for the masses. This means that only when it is possible to establish themselves as a natural alternative to conventional currencies such as the euro or Turkish Lira can one speak of a real breakthrough.
Even the bitcoin hype in 2017, which brought investors a record high of just under $ 20,000, could not force this. On the contrary: The subsequent price crash, in which many investors left the market in panic, prevented numerous investors from making sustainable investments in cryptocurrencies. How things will proceed with the world’s largest digital currency, Bitcoin, therefore depends on two criteria: security and mass market adaptation.
A clear set of rules could give new impetus to the question of a Bitcoin ETF (Exchange Traded Funds). So far, however, the United States Securities and Exchange Commission (SEC) has denied any application or postponed the decision on possible approvals. This is because the SEC expects the ETF providers to take significantly more measures to prevent manipulative practices.
On the other hand, the regulations for mining and trading crypto currencies are very different in the individual nation states. The same applies to the more or less unregulated Initial Coin Offerings ( ICO ) that come about through crowdfunding, as well as to the taxation of crypto profits. This means that digital currencies are facing numerous challenges.
For the future, it is expected that the market will be more strictly regulated in the future. As an example, interventions by the financial market regulator in the issuing process are conceivable. Whereas the Chinese government has already banned ICOs. On the other hand, states, central banks and financial service providers are working on establishing a digital currency and making transactions more secure (hacking crypto wallets, etc.) and cheaper.
From bitcoin to digital Turkish Lira
Some critics have long since declared Bitcoin as a currency to be dead. Because it has decisive disadvantages compared to other crypto currencies such as Ethereum: Bitcoin cannot be programmed practically. This means that automated contracts, so-called smart contracts, cannot be supported.
One is already a good bit further in China. A digital currency has been tinkered with there for some time. The first tests with the digital renminbi have already been successful. In a second step, a suitable legal framework is currently being drawn up. In addition, the first CBDC for salary payments for Chinese employees is currently being tested in practice. In a third step, the currency is to be issued on a larger scale. International dissemination seems to be possible in the near future. The opportunities and risks of a digital US dollar are also being examined in the USA. The project received new impetus not least from the discussion about digital helicopter state money.
In contrast, the Turkish central bank should test the use of a digital currency in the sense of digital central bank money (Central Bank Digital Currency, CBDC) for clearing and processing tokenized assets . The digital central bank money is intended to optimize the effectiveness of payment flows in monetary transactions and thus better finance the economy. At the same time, the Turkish bankers should check what effects a digital Turkish Lira could have on financial stability, monetary policy and regulation.
Therefore I believe that Central Bank of Turkey is a bit late for digital Turkish Liras. However, it may turn into advantage by monitoring best practices.