TORONTO (Thomson Reuters Foundation) - Canadian financial regulators have approved the public sale of a new digital currency in the country’s first official endorsement of money created independently of the government or central banks, company officials said on Wednesday.
Produced with digital encryption techniques, cryptocurrencies like Montreal-based impak Coin allow users to create their own money supply - with potentially significant impacts for how wealth and property rights are controlled.
Impak Coin has already raised more than C$1.5 million ($1.18 million) for the new currency and plans to launch an Initial Coin Offering - or a public sale of the digital money - this month.
By allowing people to create a new currency, the project aims to reduce the power of big banks in determining how property rights are managed and money is created, said Paul Allard, chief executive of impak Finance, the social enterprise behind the project.
“It is up to communities to decide how to manage a currency, it is not only for the government to decide,” Allard told the Thomson Reuters Foundation.
‘NO NEED FOR GOVERNMENT’
Throughout modern history governments have had control over how money is created and the power to enforce contracts and determine how goods and services are transferred.
Cryptocurrencies - through blockchain, the information storage and database system they use - have challenged that power, said Simon Trimborn, a professor at the Free University of Berlin who studies digital networks.
“The link between cryptocurrencies and individual property rights is the information storage and transaction system behind cryptocurrencies, the blockchain,” Trimborn told the Thomson Reuters Foundation.
“It is a database which can guarantee property rights while there is no need for relying on a company or government.”
Contracts are made digitally between peers and transactions are often conducted without government oversight, reducing the state’s power over the market.
The move by financial authorites to approve the sale of the digital money means “confidence and trust for investors”, said Jean-Philippe Vergne, a professor at the Ivey Business School School in Ontario, Canada, who studies cryptocurrencies.
“We are observing a profound change in the nature of capitalism,” Vergne told the Thomson Reuters Foundation. “For the first time we have a technology that allows us to remove intermediaries such as government or central banks.”
Impak Finance hopes to raise up to C$10 million from its first sale of coins. Users who buy the new currency will be able to spend it via a mobile wallet connected to their phones.
More than 500 businesses have signed up to accept the new currency when it launches, Allard said.
He expects that will grow into the thousands as the project develops a “critical mass” of users, leading to more buyers and sellers making transactions.
Users will be able to exchange impak coins for traditional money which will be credited to their accounts after an initial waiting period in order to stop speculators from causing volatility in the currency’s value, Allard said.
Impak Finance will initially keep 40 percent of the money invested in the new currency as reserves in order to have cash on hand if users want to exchange it for traditional money.
Only businesses adhering to social and environmental standards are able to use the currency, said Allard, who hopes consumers interested in ethical purchasing will be attracted to the plan.
The “impact economy” - a small but growing sector that seeks to put the achievement of social good at the center of business - is expected to grow by more than 15 percent next year in North America, Allard said.
Impak Finance will be entering a crowded market of new digital currencies, analysts said.
Following the growth of bitcoin, the most well known cryptocurrency, there are now more than 1,000 similar digital currencies being traded over the internet, said Arvind Narayanan, a computer science professor at Princeton University in the United States.
Most of these new digital offerings, however, are used for speculation - investors hoping the currency will gain popularity and then rise in value - rather than buying and selling tangible goods and services, Narayanan said.
“People are trying to get the state out of money and various forms of property,” Narayanan told the Thomson Reuters Foundation. “regulators and law enforcement are trying to adapt to a new technological development.”
($1 = 1.2707 Canadian dollars)
Reporting by Chris Arsenault @chrisarsenaul, Editing by Astrid Zweynert @azweynert.; Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, women's rights, trafficking, property rights, climate change and resilience. Visit news.trust.org