Lack of trust in public institutions leads to higher use of cryptocurrencies
Citizens who are dissatisfied with governmental response to the financial crisis are more likely to use digital currencies.
The report “Cryptocurrencies and the Future of Money”, published today by the Center for the Governance of Change (CGC) of IE University, sheds light on one of the more interesting yet misunderstood phenomenon of the early 21st century: digital money. The study, led by a multidisciplinary team of economists and cryptographers, provides a comprehensive overview of how cryptocurrencies currently function and how the public use, understand, and trust them across European and American markets.
Cryptocurrencies have the potential to improve systems of payments and are thus viewed as a possible tool for radically altering financial landscapes for the betterment of society. However, the CGC report finds that existing cryptocurrencies have failed to achieve the objectives envisioned by their pioneers and are, in general not considered as money.
“Our research suggest that cryptocurrencies still have a long way to go before they can compete.”
– Mike Seiferling
“Although innovations are making digital currencies more realistic candidates to replace traditional money and create benefits for users across large volumes of transactions, our research suggest that cryptocurrencies still have a long way to go before they can compete, let alone or overtake, traditional forms of money backed by central and commercial banks,” said Mike Seiferling, Research Director of the Cryptocurrencies and the Future of Money project of the IE Center for the Governance of Change.
The report features a unique empirical examination of how citizens understand cryptocurrencies and how they trust different institutions to issue and manage money. The survey included a unique sample of eight countries: Argentina, Brazil, France, Germany, Mexico, Spain, the UK, and the US. Findings reveals that knowledge, use, and understanding of cryptocurrencies remains highly limited.
While, in general, public institutions enjoy a significant trust premium when it comes to the creation and management of money, a large difference exist between Latin American countries (Argentina, Brazil, Mexico) and European countries (France, Germany, Spain, UK) and the US.
The divide lies in countries where central banks experience lower social trust – these citizens are more open to adopt new digital currencies issued by alternative institutions: 27% of Brazilians, 20% of Argentinians, and 18% of Mexican respondents own cryptocurrencies. Part of this lack of trust comes from the perception of that government’s regulatory response to the financial crisis, as many respondents feel that authorities have not taken meaningful steps in regulating the banking sector since 2008.
For those who do not own cryptocurrencies in these three countries, the study found that the main reason for not owning digital currencies was not due to a lack of interest, but simply not knowing how to buy them. In fact, 79% of Argentinians who do not yet own cryptocurrencies, and 78% of Mexicans, and 75% of Brazilians, would be willing to own a digital currency.
“The report does point to the fact that, in general, cryptocurrencies have yet to manifest as a useful form of money.”
– Diego Rubio
Meanwhile, a vast majority of European and US respondents do not own cryptocurrencies because they consider them too risky. Likewise, there is higher emphasis on current currencies having an advantage over cryptocurrencies. For that reason, only 29% of Germans, 32% of Britons, 33% US, 36% French, and 49% Spaniards would be willing to use a new effective cryptocurrency. These results suggest that countries with a stable history of monetary stability are less open to new types of money.
The report also confirms the current sentiment on the viability of Facebook’s Libra, with European and US respondents being much less willing to trust the Libra than other digital currencies. Only 3% of Germans, 4% of Britons, 5% of US residents, 6% of French and 13% of Spaniards trust Facebook to issue and manage a new currency.
“Although these findings do not mean digital currencies do not have the future potential to become integrated into societies, particularly as their infrastructure improves, the report does point to the fact that, in general, cryptocurrencies have yet to manifest as a useful form of money,” said Diego Rubio, Executive Director of the IE Center for the Governance of Change.
The full report as well as additional information is available here.