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The Political Economy of Cryptocurrency

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M A Iliasu

 

 

-By Muhammad Ahmad Iliasu.

 

One would have to wonder how huge the work rate of economic theory must be to astonishingly liberate existential debates on the possibility or otherwise, the undertones and the future of currency digitalization – which has been the major talking phenomenon since the slump in 2008. Nevertheless, a free flow of theoretical opinions and treatise prescriptions by established economists, prophecies of doom and suggestions in persuasion by ecosystem commentators is only expected when the phenomenon is a determining factor on the future of money and the role of government.

 

Cryptocurrency as the so-called apolitical and decentralized digital currency is an economic phenomenon like any other, unlike what many people think, and therefore has a meaningful context inside the economic theory. On its own merits, its warranted to say that the economic relevance of the phenomenon takes the courtesy of massaging the idea of the monetary economists who hold immense reservations upon the centralization of money supply and government intervention in general, along the line rattling the scrutiny of the neo-Keynesian economists and their sensitivity to the centralization of money supply and government intervention generally.

 

Predicting the major stand of the two distinguished schools would economically speaking, be as easier as tracing the economic backgrounds of their distinctive arguments. The neo-Keynesians would naturally be anti-cryptocurrency for the threat it cast upon centralization and the policing of financial bubbles. While the monetarists would be more inclined to be pro-cryptocurrency for the opportunity it brings their thoughts on fixation and decentralization. Why they hold their stands should be discussed later in the essay.

 

-What is a cryptocurrency and why has it been introduced?

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The 2008 global financial crisis was a moment in history during which bankers’ hubris blew out spectacularly. The big number of jobs, businesses, houses and assets lost to crisis crushed people’s optimism to the level where the trust between economic society and bankers alongside their politicians allies arrived under radical scrutiny. People felt the impact of the crisis and therefore no longer trust the engineers that created it – the bankers and the politicians. As a response, the Central Bank governors of the G-20 organized a meeting to discuss how the bankers were to be rescued from the financial disaster. The concerned populace who understood how banking hubris works and what the bailout could turn out to be, began to exercise the hope and thoughts of having a medium of exchange (read: currency or money), that get affected neither by the hubris of bankers nor by the skeptical government intervention. An apolitical money that can’t be controlled by the central, and democratically decentralized in a nature that it’ll be a currency of the people, for the people and by the people.

 

In an attempt to satisfy people’s wish for apolitical currency, an email was received bearing the signature of Satoshi Nakamoto (who is still yet to be to identified) carrying an algorithm that meets people’s ideals, what we currently call “Bitcoin”. The beauty of Nakamoto’s algorithm was that it did away with the ledger run by a central authority but still managed to ensure that a single currency unit could never be copied or spent twice. The whole community using Bitcoin would share in the task by each making available a small part of their computer’s capacity for this purpose. Everyone would observe everyone else’s transactions, ensuring their validity, while at the same time no one would know whose transactions they were observing, safeguarding privacy. Many people around the world were enthused and signed up. Until a large scandal perpetrated by entrepreneurs who exploited people’s fears against fraud to collect their quantity of Bitcoin for safeguarding only for them to run away with it. And with the absence of a centralized controller, people lost their money without insurance or bailout.

 

That was the inception of cryptocurrency and the reason behind its introduction. But as any logical thinker could guess, the nature of the currency and the reasons behind it are all pending the complexities of an ecosystem that doesn’t get easily overrun by the wildness of popular fantasies. Some of those complexities were explained inside the economic theory, experienced in the past, and are the skeletal frameworks forming the arguments of the monetarists and Neo-Keynesians.

 

-Crisis and Logic of History.

 

When the hell of economic crisis broke loose in Europe and America back in 1929, a policy prescription that aimed at controlling inflation was introduced which convinced the US and the European economies to print only the quantity supply of money that corresponds to the same amount of gold reserve, the so-called “Gold Standard”. Through Gold Standard, economies were cuffed to hinder the reckless printing of money – which was the determining factor in the surge of inflation. For if countries are obliged to print money with respect to gold reserve – something with limited, though intrinsic supply – the velocity of money in circulation would be reasonable and the money supply is tied to a commodity that doesn’t get assassinated by inflation. That way, the countries found a standard and common dictator of their currency value, just like the dollar nowadays. But a few years later, the demand for money began to exceed the supply, due to the limited supply of money as a result of printing per unit of gold. And shortly afterward, the story changed. Inflation – an occurrence when the quantity of money in the economy chases the same quantity of a commodity, causing the prices to unhealthily rise – culminated into what the economists call “Deflation” – an occurrence when too less quantity of money chases significantly higher quantity of commodities, causing a significant a fall in the price of goods and services below their actual and reasonable value.

 

The deflation in the US forced the hands of the then government under President Roosevelt, and the European economies, the emissary of which was the famous John Maynard Keynes, to abolish the “Gold Standard”. It was later adopted and abolished once again by President Nixon in the 70s. The underlying rationale behind the consistent execution and abolishing of the policy during the 20th century was informed by the standard economic theory that asserts and has been proven accurate that when money supply is fixed below the rate of public demand, deflation will strike. In the same way, when it is left uncontrolled beyond the public demand, inflation will strike.

 

Along the same curve, the decentralized nature of Cryptocurrency means it can’t be policed by any institution, rather a blockchain that comprises of different unidentified individuals with an asymmetric chance of arriving at a consensus. And when Satoshi Nakamoto (who is yet to be known) explained his algorithm in 2009, it was specified that the total supply of Bitcoin was certainly fixed, with the mining only certain to grow slowly until it reaches a maximum number of 1 million Bitcoins sometime in 2032. That means the digital currency is problematic in two ways; first it makes crisis more likely and secondly it offers no room for government to alleviate the crisis. So the prospects of any economy that gets into bed with cryptocurrency resemble the pre-1929 unpoliced economy that was crushed by absurd inflation. The same way its limited supply renders the prospects of any economy that adopts it to face the threat of post-1929 economy that was plagued by Gold Standard deflation. So in short, with cryptocurrency, it’s either deflation or inflation, with price and currency stability extremely unlikely.

 

That was the viewpoint of the Neo-Keynesian economists, mostly the alumni of Harvard. The most vocal being the American economist and crisis expert, Professor Roubiel Roubini from the University of New York, who even believes that cryptocurrency has no feature of money. And the Greek economist and author, Professor Yanis Varoufakis from the University of Athens. The latter dedicated a whole chapter to discussing the issue extensively in the prolific crisis-dissecting book, “The Brief History of Capitalism”. While the former is quite consistent with podcasts and interviews.

 

-Modern Sensitivity to Technology and impact of Optimism.

 

In contrast to the belief of the Neo-Keynesians, the most influential figure in the monetary school, Milton Friedman, originally proposed a fixed monetary rule, called Friedman’s k-percent rule, where the money supply would be automatically increased by a fixed percentage per year. Under this rule, there would be no leeway for the central reserve bank, as money supply increases could be determined “by a computer”, and business could anticipate all money supply changes. With other monetarists, he believed that the active manipulation of the money supply or its growth rate is more likely to destabilize than stabilize the economy. So the most important area of concentration is price stability rather than currency stability as proposed by Keynes.

 

The mention of computers by Friedman, and the fixed increase rate of money per year, agrees with two of the three most important features of cryptocurrency, which are digitalization and the fixed increase rate of Bitcoin until 2032. While the consistent castigating of the Central Bank by Friedman and Schwartz skews their idea closer to decentralization than otherwise.

 

The monetarists who are mostly anti-Keynes and subtly pro-decentralization arrived fierce to debunk what they call nostalgia that was inspired by an obsession with post-crisis literature, mostly the contributions of Keynes that comprises of “The General Theory of Employment, Interest, and Money (1932)” and “A Treatise on Money 1930”. The mainstream among their economic commentators debunks the thesis in some of the post-2008 contributions of Yanis Varoufakis that discussed the economy and future of capitalism. Books like “The Brief History of Capitalism (2014)”, “Adults In the Room: My Battle with Europe’s Deep Establishment (2017), “And The Weak Suffer What They Must: Europe, Austerity and the Threat to Global Stability (2016)”.

 

-Music and Musing; where do I stand?

 

Having observed the possible major stands of the two distinctive schools, the argument of pro-Keynes that revolves around the fixated supply of cryptocurrency was debunked once again by the creation of other types of cryptocurrencies like Ethereum and Dodge, which unlike Bitcoin are of unlimited supply. So one of the two problems of digital currency is said to be eliminated. Meanwhile, while decentralization remains a concern for any individual household that understands the importance and need for government intervention, major technologically-innovative countries like China and Japan are already paving the way for decentralization of their financial institutions to accommodate the cryptocurrency. And the decision is being backed by lucrative optimism from the buyers of Bitcoin and other forms of cryptocurrency, which is driving its value crazily higher than expected. For what that’s worth, it’s certain that cryptocurrency is surging for a reason, the same way it could be said it’s here for a reason. To quixotic commentators, it’s more like the introduction of the computer in the ’80s, so it’ll be correct if termed inevitable. Therefore judging from the flow, perhaps in the grand scheme of things the digital currency would have to be accommodated if it continues to dominate the economy. The question is when?

 

The rhetoric also begs the question; maybe the economists that are using Keynes to reject crypto are indeed plagued by nostalgia and fear that was bred due to consumption of post-crisis literature judging from the way cryptocurrency has been gathering incredible optimism and momentum. The reception it receives from rational and visionary capitalists like Elon Musk suggests so. But equally important are the questions: what would be the future of government without its ability to regulate money supply? What would be the response of America to a phenomenon that could dwarf the demand for the dollar and the democratic nature of which could swindle the dollarization policy? What would be the second reaction of Third World countries whose democracies are so young and fragile, economies too unstable and inconsistent as to give-in to decentralization? What solution is there for the possible reoccurrence of the 2008 e-Theft?

Privatization of Public Spaces: A Tragedy for Land Use Planning in Kano Metropolis

Currently, not enough has been said or shown to indicate the wavering of governmental institutions as to give up their power on the money supply. Chinese and Japanese economies are too advanced to be the sample of inference while judging possible decentralization in countries like Nigeria that has been fighting its second recession in a half-decade, accumulating large chunk of debt and abject recession for almost a decade despite surprisingly being one of the highest traders of the cryptocurrency. It’s no wonder that the CBN banned it outrightly. First for being ignorant of its dynamics as was learned from the governor. And second for having neither the efficient economic environment nor the institutional strength to accommodate it. Likewise, where the accommodation of decentralization is concerned, banking sectors will have to restructure for the death of their last resort – the Central Bank. And when all the transactions are fiat, an existential crisis looms in the employment department of the banking sector.

 

There’s also the case of cryptocurrency as a simultaneous medium of exchange and investment. When it becomes dominant the economic society may fall victim to the fallacy of composition and paradox of thrift, because more people would rather save their money in crypto to enjoy its speedy appreciation in value than do otherwise. And that would put the multiplier effect of disposable income and immediate consumption in jeopardy. The circular flow of income may turn into a vicious circle of rational economic households looking to outsmart themselves for profit but are subconsciously crushing the entire ecosystem. The digital running of the currency as an investment medium will remain the major avenue of investment, and little do we forget that it’s greatly influenced by speculation. And like Keynes said in the prophetic “General Theory: “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when an enterprise becomes a bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done.”

 

The Keynesian prophets of doom should do kindly as to exercise patience. In the same way, the monetarists should enjoy their giant leap forward towards decentralization. Who is right shall be vindicated by time. If it’s the Keynesians the status quo lives on. And if it’s the monetarists we can look back to 2008 and say the crisis is indeed the laboratory of the future. But personally, I don’t think money can ever be apolitical, governments are as old and their influence as lasting as the social contract itself. In the same way, I believe in the strength of optimism, which is driving all the possibilities of cryptocurrency. After all, as Keynes said: “Investment is dedicating our intelligence in predicting what average opinion expects the average opinion to be”. If the blockchain behind Nakamoto’s algorithm keeps getting the mind of the global economy spot on, Cryptocurrency are more than capable of being here to stay. But where an error occurs all hell would break loose. Whatever happens, we shall live to witness.

 

MA Iliasu studies economics at Bayero University, Kano.

Opinion

Kano APC Crisis: An Open Letter to President Tinubu

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I hope this letter finds you well Your Excellency. As Nigeria stands at a critical crossroads, I write to you today as a concerned and dedicated member of the All Progressives Congress in Kano, compelled by the urgency of our nation’s challenges and aware of your unwavering determination to steer it unto the path of greatness.

But a united front is indispensable in achieving your grand plan for the nations success. Internal party crisis in my dear state, threatens the very foundation upon which your vision lies – unity – and this I write to you today, eager spark meaningful dialogue and constructive action on your part.

Mr. President, as the Commander-in-Chief of the Armed Forces and leader of our party, your urgent intervention is crucial to address the pressing issues at hand. If left unattended, it may escalate into a crisis that could have far-reaching and devastating consequences for the party, making it challenging to manage. Your timely action would help mitigate this risk and ensure the party’s stability.

In Kano, it is generally acknowledged that Dr. Abdullahi Umar Ganduje, former governor and current National Chairman, leads our party. Members have consistently shown loyalty to his leadership since day one.

You will also recall that Dr. Ganduje actively supported your presidential bid, demonstrating a pure, genuine and unmixed commitment to your cause during both the presidential primaries and general elections. However, some individuals now seek to drive a wedge between you and the Chairman, feeling threatened by his influential position as the National Chairman of our great party.

Mr President sir, It is imperative to hold the Deputy President of the Senate Barau Jibrin accountable for plunging the All Progressives Congress into an avoidable crisis since taking office. As a seasoned politician and senator representing Kano North since 2015, his actions have significant implications. Barau Jibrin’s leadership has sparked division within the party, necessitating urgent attention to prevent further escalation.

Due to the recent removal of Abdullahi Muhammad Gwarzo as Minister, the All Progressives Congress is facing an unprecedented crisis in Kano North, a stronghold of the party since 2015. This division, fueled by Deputy President of the Senate Barau Jibrin’s actions, threatens the party’s stability. As a leader, Mr. President, it’s crucial to address this issue sustainably.

Barau Jibrin’s political strategy and human relations have been questionable, yet his influence led to the sacking of a loyal minister, Gwarzo. This decision was disheartening, considering Gwarzo’s impressive track record as a generous, humble, and grassroots politician. The people of Kano are upset, and rightfully so.

It’s essential to recognize Barau Jibrin’s intentions. He’s only loyal to you, Mr. President, because of your current position. History shows he’ll turn against you once you’re no longer in office. His self-serving nature is evident in his interactions with grassroots politicians.

To pacify the people and resolve the ongoing crisis, reappointing Gwarzo is imperative. This move will demonstrate your commitment to loyalty and fairness. The APC’s future in Kano North depends on it.

Mr. President, to ensure the party is back on track, it is crucial to prioritize collaboration with loyalists and consider the input of key stakeholders in Kano. This means moving away from decision-making that caters to a single individual who claims control over Kano North. Instead, foster an inclusive approach that values diverse perspectives and promotes unity within the party.

By doing so, you’ll not only strengthen the party’s foundation but also demonstrate your commitment to fairness and representation. This approach will help prevent unnecessary conflicts and ensure that the party’s interests are truly served. It’s essential to recognize that the party’s success relies on collective efforts, not individual interests.

For your information Mr President, Barau’s electoral successes can be attributed to the popularity of the House of Representatives candidates from his Senatorial District. These individuals are widely admired and respected by their constituents. However, rather than leveraging his own strengths, Barau has consistently relied on the goodwill and reputation of these candidates to secure his own victories, essentially seeking shelter under their umbrella.

It’s not yet too late for the President to do the needful for the interest of Kano State and the party at large. With the weight of history and the hopes of a generation on your shoulders, I urge you to confront the harsh realities that threaten our collective progress.

Nabahani Yusuf Gogori writes from Gogori town in Bagwai

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Opinion

Unmasking Excellence : Idris Abdulkadir Zare’s (Jagora) Leadership Style

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By Abba Anwar

Without any doubt, Idris Abdulkadir Zare’s name rings bell in Kano politics, particularly, in his political zone, Kano South. It rings bell not because he is terrifying, but simply because, his name, alone, signifies examplary leadership, selfless service to humanity, genuine loyalty and un-arguable commitment for the survival of the party, All Progressives Congress (APC), in this context.

While he is not a seeker of any elective public office, or party position, as I study him and his political antecedents, he believes, supporting party leadership and followership is one of the surest ways of strengthening the party, against all odds. I kindly call my readers to go to Rogo and substantiate my submission.

Here is a lone Jagora (leader) who spends from his hard earned resources to support the party without thinking of getting anything from anybody, no matter how highly placed, that person could be. His magnanimous touches go beyond party lines. Go to Rogo and seek for more clarification.

If Kano APC is really serious about mending fences, gaining more grassroot support, bouncing back in pre, during and post 2027, people like Idi Zare must be on board. I never met this gentleman. In fact I don’t even know his face, anyway. I come from Dala local government, Kano Central. But I came to know about him for quite sometime now.

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He, unlike many of our politicians, made his fortunes outside government. But he spends stupendously in people’s welfare, needs and loyalty. One good thing about him, is, while engaging in such activities, he is not vying for any position. Meaning, this gentleman is acting the script of his good heart. He is indeed a morale booster from whatever standpoint you look at him.

This is somebody whose loyalty is not dangling. He supports what he believes in, with all his heart. By whatever standard, Zare is a Phoenix. And trains people to become that.

I caption this piece, as Unmasking Excellence… because, here is a strong party man, whose support and faith in the party and beyond, are more or less, left near lowest ebb. If we can have enough Zare’s replica from all our political zones, in Kano, regret and backwardness could be things of the past. No doubt about this!

I can also understand that, even among our APC strong men in the state, only those of them who are more loyal and sensitive to the welfare of the party members, are the ones that understand his (Zare) worth and work with him hand in hand, for the survival of the party, in the state and the nation in general.

Zare’s clear understanding of political cohesion as a recipe for good governance gives him more courage to see to the welfare and unassuming political engagement with the view to bring all politicians to state growth and development.

The issue goes beyond dishing out resources to people for massaging the economic hardship, he helps in perfecting people’s transportation network, via the provision of vehicles for their personal use. He recently distributed cars and motorbikes for his people. Not because he got a single Kobo from any government institution. He uses his hard earned money to do what he sincerely believes in.

He is also being disturbed by the economic hardship plaguing the society. Which makes hunger more visible than before. That makes him to be up and doing in cushioning the effect of this ugly experience. He distributes foodstuff on frequent basis. To help body and soul live together.

Zare Jagora is not any super human being, only that he believes in making people happy. While being interested in developing his people, without recourse to any ambition or expectations, he believes when man is developed, all other systems can work in harmony to each other.

If and only if, APC as a strong party in Kano, and the nation in general, is really interested in victory, strength and service to humanity, Zare’s legacy and immense contributions to humanity should not be downgraded to the bottom of the ladder.

Anwar was former Chief Press Secretary to the former Governor of Kano State, Dr Abdullahi Umar Ganduje and can be reached at fatimanbaba1@gmail.com

November 4th, 2024

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Opinion

Northern Nigeria’s Silence Amidst Rising Injustices: A Call for a Return to Principled Leadership

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The worsening security situation in Northern Nigeria is no longer merely a concern—it has become a full-blown crisis threatening the lives and liberties of millions. Kidnapping, once considered the work of hardened criminals, is now perceived as a lucrative trade. Even more disturbing is the encroachment of this practice into governance, with reports of state authorities detaining citizens under questionable circumstances, particularly young protesters. These developments raise difficult questions about the strength and integrity of leadership in Northern Nigeria and leave us wondering whether the region still has leaders who genuinely represent its people.

The recent detention of minors, allegedly in unhealthy conditions, illustrates this chilling trend. These young individuals were reportedly taken by the authorities while engaging in a protest to call for better governance. Their alleged crime? Waving a foreign flag, in this case, the Russian flag, which authorities deemed treasonous. They did so, perhaps naively, without recognizing the potential implications, yet the state treated them with severity, reportedly requiring a staggering N10 million per person as bail. In contrast, individuals in Southern Nigeria have raised foreign flags and voiced secessionist sentiments without facing equivalent punishments.

This discrepancy raises difficult questions about the consistency of the law and whether it is applied equally across the country. Why are Northern youth held to such strict standards while similar actions in other regions seem to be treated with leniency? Historically, the North was known for its stalwart leaders—individuals who stood up for the people, challenged the government when necessary, and never allowed the region to be compromised. Leaders like Sir Ahmadu Bello, the Sardauna of Sokoto, Alhaji Tafawa Balewa, and Malam Aminu Kano left a legacy of dignity, integrity, and advocacy for Northern interests. These figures prioritized the wellbeing of their people, standing up against exploitation and injusticeTheir voices resonated across Nigeria, leaving an indelible mark on the nation’s political landscape. Today, however, the lack of a unified voice from Northern leaders is disheartening. In the past, these leaders would not have hesitated to demand justice for the detained minors or to negotiate on behalf of their people. Now, the silence of Northern elites on issues like insecurity, youth incarceration, and poor governance has left a void. Instead of elders standing firmly to shield and protect the region’s youth, we are witnessing a tragic indifference that has left many young people feeling abandoned. This crisis of leadership in Northern Nigeria has had severe consequences. Kidnapping and banditry are ravaging communities, youth are disillusioned, and the voices of the people are ignored or, worse, suppressed.

The North is bleeding, and without intervention, the situation will continue to deteriorate. To the elders of the North, if indeed they still exist in spirit and purpose, it is time to rise. The North needs a collective, principled voice to stand against injustice and ensure that the region’s youth are protected and that their futures are not sacrificed to lawlessness or state oppression. The need for Northern Nigeria to reclaim its dignified, protective, and principled leadership has never been more urgent. It is time to break the silence.

Abubakar Ibrahim can be reach via:

habuibrahim76@gmail.com
+2348098454956

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