Cryptocurrency vs fiat money: Which has the most political interference?

Politicians have been known to have had a fairly frosty relationship with cryptocurrencies. It’s perhaps easy to see why, too. The likes of Bitcoin have come along and threatened to upset the existing order – providing an alternative to the fiat currencies that are run by central banks and are so closely intertwined with the economic health of a nation.

Whether it’s because their noses are out of joint, fear of the unknown or genuine concerns over security scares there has been a backlash from regulators and policymakers to the rise of cryptocurrencies.

This has led to a period in which regulations have been at the top of the agenda. New rules to restrict and regulate the way in which cryptocurrencies are created, traded and used have been put forward. Yet, mostly, the rumours have been worse than the reality. At the turn of the year, apocryphal comments warned that Bitcoin might even be banned in countries such as South Korea and the whole cryptocurrency movement would fall down. Instead, tougher new rules have been introduced that establish safer practices – things that cryptocurrency advocates have welcomed and only serve to strengthen the sector in the long run.

Still now, however, the press reports doom-laden predictions about the impact of regulations. The suggestion is that politicians could eat away at the selling point of cryptocurrencies as an asset free from central control and clip their wings. When compared to fiat currencies, critics see this potential for political interference as a black mark for cryptocurrency.

But is that really fair? It starts from an assumption that politicians can, with threats and policies, only impact on the outlook for cryptocurrency – it’s an assumption that is false. Politicians directly impact on the values of their prospective currencies through budgets and financial policies – and the recent ‘quantitative easing’ phenomenon has been a way in which to control the supply of a currency to stave off inflation. All of this is every bit as significant for one’s forex investment as the regulations coming for cryptocurrency.

There’s an indirect impact too. This guide from DailyFX explores how some of the things that politicians say and do can have an impact – positive or negative – on a currency. Forex prices fluctuate as a result of confidence and key leaders have a big role to play in developing a narrative that creates or erodes this.

It’s wrong, therefore, to think that cryptocurrencies are uniquely prone to the potential impact of political decision making. For now, at least, interference – direct or indirect – is more of an issue for fiat currency investors. It’s also important to recognise that not all regulation is inherently bad for cryptocurrencies. Provided they can keep their USPs – speed, security, free from central control – rules that weed out the operators who tarnish the sector should be welcomed with open arms.

Melissa Thompson writes about a wide range of topics, revealing interesting things we didn’t know before. She is a freelance USA Today producer, and a Technorati contributor.