You know bitcoin’s time has come when it assumes the central role in a conversation between financial journalists. Relaxing with friends last week in convivial surroundings, all the talk was of the cryptocurrency, others like it, and the closely-related technology blockchain. One member of the party had invested in bitcoin a few months back, and was sitting on a 600 percent profit. Another was wondering what alternatives there were to bitcoin, sparking a surprisingly knowledgeable debate about the relative merits of Ethereum, Litecoin, and Siacoin. I learned there are even several exchanges for cryptocurrencies, where “initial coin offerings” (ICOs) can be evaluated and accessed. It was like discovering a whole new world, with its own language and cultural norms, that you never knew existed. I put it all down to the geekish enthusiasm of financial hacks for a new product, until I saw a Bloomberg report that an as-yet-unnamed sovereign nation was about to endorse a new cryptocurrency issue, Exio Coin, which will begin raising funds next week. If governments, presumably through their sovereign wealth funds and therefore with the blessing of their central banks, are ready to bless cryptocurrencies, it must surely be taken seriously. The identity of the sovereign was not revealed, and the clues were as cryptic as the currency itself, with an executive at Exio Coin saying only it involved “one of the world’s richest countries on a per-capita basis.” When you talk about high per-capita wealth, you think of Singapore and Luxembourg, both of which regularly appear in the global wealth league tables. You also think of several countries in the Arabian Gulf, and it is true that an endorsement — and presumably an investment — in the new currency fits the strategic direction of several organizations in the region. In Saudi Arabia, the Public Investment Fund (PIF) could argue that backing a cryptocurrency would be the logical outcome of its partnership in the $100 billion SoftBank Vision Fund, which is looking to invest in high-technology with a financial flavor. In the UAE, both the Dubai International Financial Center and the Abu Dhabi Global Market are actively chasing the market in financial technology (fintech). The latter, with the deep pockets of the Abu Dhabi Investment Authority in close proximity and the UAE Central Bank just down the road, looks better placed for a strategic statement of intent like backing a cryptocurrency. There are others in the Gulf who might also be interested. Whoever it is, it will be a radical departure for the banking authorities. So far, central banks have shied away from the cryptocurrency industry. They have much to lose if it really takes off, because until now central banks were the ultimate currency issuers and guarantors. All that would change in the crypto-world. It would be a fundamental shift in the financial structures, a real currency revolution. Hitherto, paper and coin currency is accepted because it is backed by the financial, economic and political authority of the issuing country. American dollars are the effective reserve currency of the world because they are issued by the Federal Reserve, the central bank of the world’s biggest and probably most stable economy. Venezuelan bolivars or Zimbabwean dollars are virtually worthless, despite the fact they are backed by their respective central banks, because of the chaotic circumstances in their home countries. Cryptocurrencies like bitcoin derive their authority because of the supposedly unhackable nature of the technology behind them. Called “distributed ledger,” this owes much to the digital book-keeping software of Blockchain, and is — in theory — immune to the attentions of hackers, manipulators or straightforward crooks. The hackers love a challenge, of course, and now they are finished with the American elections I am sure some youthful computer whizz somewhere is working on how to break blockchain or bitcoin. One bitcoin exchange, the Japanese Mt. Gox, went spectacularly bust in 2014 when somebody managed to pilfer its electronic wallet of $450 million. But those fears have not stopped central bankers all round the world from thinking seriously about cryptocurrencies. All those senior financial policymakers are wondering if there are ways they can use blockchain technology to improve their own systems. That represents a distinct shift from the previous stance, which was to look at ways to bring the new products under their own regulatory apparatus. The banks appear to have given up on that. If a sovereign government backs a cryptocurrency, it will be the clearest sign yet that the new financial technology is here to stay. One word of warning, however: policymakers should not get as carried away as the media obviously have by the new crypto-world. Several respected news outlets — the BBC and CNBC among them — reported that the fast-food chain Burger King had launched its own cryptocurrency in Russia, called WhopperCoin. When even the so-called experts can’t distinguish a loyalty scheme from a currency, the banks should climb aboard the crypto-bandwagon very cautiously indeed. Published in Daily Times, September 2nd 2017.