Those among you who have teenagers at home probably are familiar with the popularity of interactive computers games. One of these games, Second Life, is a role-playing game in which you create and live an alternative life. In these games, game players use a number of virtual currencies.
But virtual currencies exist not only in the high- tech computer world; they are “real.” In the world of finance and international trading, Bitcoins are a virtual currency—they are not physical notes or coins and they are not associated with any country’s central bank; they are a global currency.
If Due to the current crisis in Cyprus, Bitcoins appear to be the currency that is benefiting the most by gaining most value. The value of the Bitcoin increased from $40 USD a piece up to a record high of $79 USD and currency traders are positive about its potential to gain further value.
What is the crisis in Cyprus? In a nutshell, the crisis in Cyprus can be described as follows. The banks in Cyprus need 16 billion euros to be able to comply with all their debt obligations. However, the assets of these banks are worth only 2 billion Euros. The rest of the members of the European Union, are willing to help with 10 billion euros to strengthen the financial position of these Cypriot banks but only under the condition that Cyprus contributes 5.8 billion euros of their own. To raise the 5.8 billion euros, a one-time tax on all Cypriot bank savings accounts was proposed but the parliament of Cyprus rejected this proposal—it did not receive a single vote.
Following the rejection by the Cypriot parliament, a solution, based on the restructuring of the banking system, has been implemented. This new solution does not need parliamentary approval, since it is a bank (private) restructuring and not a fiscal policy (tax) as was the case with the first proposal. The plan is to merge and restructure the two biggest banks in Cyprus, namely the Bank of Cyprus and Laiki Bank. With the implementation of this restructuring, it is anticipated that those with more than 100,000 Euros in deposits, will
suffer great losses.
Why would the crisis in Cyprus push us towards global virtual currencies? Trust is something that takes a long time to establish, but can be lost rapidly. It appears that the trust in the Cypriot banking system has been drastically reduced. Critics, not only in Cyprus, argued that the way the European Union, is handling this crisis, sets a bad precedent and that the door has been opened for future governments to take ordinary people’s savings and use that money to finance deficits. During the hyperinflation of the 1920s, there was little trust in the banking system many people felt more comfortable keeping their money under their mattresses instead of at the bank.
Rather than going with national currencies or currencies such as the Euro-zone currency, perhaps we would all be better off going fully global. Bitcoins are not only real in the virtual e-commerce world; they are coming into our world. For example, nowadays you can buy Bitcoin gift certificates at Walmart and recently in Canada a real-estate property has been listed for sale—in Bitcoins.
Perhaps in the future people might go for a different safe haven to have financial peace of mind by seeking refuge in a cyber-currency such as the Bitcoin.