This is the translation of an article published on a newspaper called El Economista in Argentina: https://www.eleconomista.com.ar/2020-03-llego-la-hora-de-emitir-un-criptopeso/
Cash is a perfect way to spread de COVID19. Few items go through so many hands in such a short time. A digital cash issued on cryptocurrency technology would allow it to replace cash without losing its privacy characteristics.
The Argentine economy is in a limited situation. The production of goods and services and the chain of payments are strongly threatened due to the COVID crisis 19.
Those who operate in the informal economy, making the so-called “changas”, are probably the most threatened. That economy is usually moved in cash, which is a perfect object to transmit the virus. Let's think that the same banknote or coin circulates through many different hands in a very short time.
On the other hand, the central bank regularly replaces banknotes in circulation that become old with newly printed banknotes and in an inflationary context (which is likely to accelerate) it also needs to increase the denomination of those banknotes from time to time.
This enormous movement of banknotes, which in normal times would not present a greater challenge, can become a gigantic problem in situations such as those we are experiencing.
It seems essential to me, therefore, to urgently find a digital replacement to cash, which allows payments to be made without physical contact, maintaining the same characteristics that cash has today.
In the world, several countries have been analyzing for a long time the launch of digital currency issued by the central bank. The essential difference of this money is that the bank account would not be deposited in commercial banks like now, but directly in the central bank. In fact, this week Democratic congresswoman Nancy Pelosi included the digital dollar in her proposal to stimulate the american economy.
The problem with this alternative in Argentina is that a Peso issued by the Central Bank would not have the privacy characteristics of cash, which is the basis of the informal economy. Many people would probably distrust this proposal, causing the initiative to fail.
An option that seems valid to our country and that would not be difficult to implement is that of a digital Peso that will work on the technology of cryptocurrencies (a "Crypto Peso").
Digital money always works on ledgers. What changes is who owns and who updates that ledger. It may be managed by commercial banks (current bank money), by central banks (such as the one proposed by Nancy Pelosi) or in decentralized ledgers (cryptocurrencies).
How would it work?
In the latter case, the Central Bank (or commercial banks) could send Crypto Pesos to a virtual wallet for phones (which are already available for Apple and Android) against transfers from bank accounts to a central bank account. It would be the equivalent of withdrawing cash from a current ATM. It could even be defined a daily limit of “extractions” to avoid a change to massive informality. Recall that the initiative, in principle, could be thought only for the emergency and can go back once the crisis is over.
To give value to this national cryptocurrency, it would be enough for the Central to commit to redeem those Crypto Pesos in a traditional bank account each time someone sends those Crypto Pesos t0 them. It would be the inverse operation of the "withdrawal" operation.
Why do it on Cryptocurrencies?
Privacy: Doing it on Cryptocurrencies ensures the same privacy that cash has. Anyone could download the virtual wallet and start trading freely. Transaction validation occurs in a decentralized manner, without the possibility that a particular entity controls who makes payments to whom.
Informality: the person who receives the funds (for example, someone doing “changas”) does not need more than a phone and download the app. As easy as receiving payments would be to make them to a third party. It is as easy as sending WhatsApp.*
Security: the money would be protected by a password that only the holder would know. For greater security, the owner could even have a downloaded wallet on the cell phone with the money he needed for the week and the rest in an unloaded wallet that could be rescued with a 12-word password when he needed to use it.
Transparency: being handled in decentralized ledgers, all movements and the quantity of money issued would be public info. The central bank could publish its public keys to give more transparency to the operation.
No need for small change: being digital money, it is not necessary to have small change. Any value can be entered, without needing to be a multiple of anything. Both banknotes and coins could be replaced.
Remote payments: Speaking to an informal domestic worker, she explained that her employers are going to help her through this time by paying her wages even though she doesn't go to work. When I asked him how she was going to get the money, she explained that she planned to wait until April 1st (supposed end of quarantine) to go to the city of Buenos Aires (where she works) and look for the cash.
If we had a digital cash both the contact between the employee with her employer and that of the employee with others on public transport could be avoided. Not to mention the almost certain possibility that the quarantine will extend beyond March.
ZKP (“Zero Knowledge Proofs”): This technology available in the world of cryptocurrencies could allow a recipient of social programs to prove that they have the right to get paid (for example: a mother who receives social payments per child) without the need to show who she is. This feature will allow that person to use the social plan as if it were cash without having to go to the ATM or go through a political office to collect.
While there are many options within the world of cryptocurrencies that could be analyzed, what we do not have in this situation is time. As ambassador of the cryptocurrency Algorand I suggest its use and here I explain why, but obviously other proposals that could be superior to it would have to be taken into account.
First of all, it is good to know that there is a country that has already carried out the pertinent analysis and have chosen the Algorand platform as the most suitable for use as digital cash. Marshall Islands recently announced (prior to the Covid 19 crisis) that it would launch its "cash" on that cryptocurrency.
This platform ensures great security, speed and low cost thanks to the “Pure Proof of Stake” technology designed by Silvio Micali, Turing award winner (equivalent to the Nobel Prize in computing). The issuance of new "assets" such as the Crypto Peso on this platform is now available and according to their developers it does not require more than a few simple lines of code to do it.
Speed: Transactions in Algorand take approximately 5 seconds. That’s the time it would take the Crypto Peso to go from the buyer's wallet to the seller's one.
Scalability: Algorand can process about 1,000 transactions per second. This speed compares to the 10,000 txs per second that credit cards usually process.
Cost: The cost per transaction today is approx. 0.004 cents or 0.3 cents in weight.
There are no forks. This is a bit technical, but in cryptocurrency technologies such as Bitcoin called "Proof of Work" there is a possibility that the network forks, forcing the recipient of the money to wait a time that can reach 30 minutes from the time they receive the money to be sure that the transaction will not be canceled.
As I mentioned before, developing this app on Algorand does not present a major challenge from a technical point of view. The creation of new tokens requires a few lines of code that are available for consultation on their website.
If you wanted to review the system, it would not be necessary to replace 100% of the cash in the first test. It could be done a little testing and increase the volume as its effectiveness and demand are verified. In case of not being successful you could easily go back. Remember that this proposal is for the emergency to avoid contagion.
At some point the quarantine will have to be eased to avoid an economic social collapse. Perhaps this initiative could help reduce the contagion of those who are having the worst of it.
Incidentally, Argentina would become at the forefront in the use of cryptocurrencies to replace cash and could emerge as a useful tool that allows, for example, the payment of social plans without pointers. Furthermore, it would generate a path towards greater financial inclusion for all those who live in informality today.
* Although we all want to eliminate informality, it seems to me that trying to do so, without previously reducing the costs that lead to that situation, would represent a futile effort that would not eliminate the use of current cash.