What Do Central Bankers Think Of Cryptocurrencies?

C O N T E N T S:


  • The BIS has told central banks to think hard about the potential risks before issuing their own cryptocurrencies.(More…)


  • Mr. He argues that “Central banks must maintain the public’s trust in fiat currencies and stay in the game in a digital, sharing, and decentralized service economy.(More…)
  • Where she stated cryptocurrencies like Bitcoin could give central bank-issued currencies and existing monetary policies “a run for their money.”(More…)
  • Just recently, the same banks played another big role as they stood as keepers of fiat flowing between national currencies and cryptocurrencies such as Bitcoin (BTC), not exempting Ethereum (ETH) and Ripple (XRP).(More…)
  • “Although the new technology is interesting and can probably create value added in the long run, it is important for central banks to make it clear that cryptocurrencies are generally not currencies but rather assets and high-risk investments,” Ingves said in a commentary for the International Monetary Fund.(More…)


What Do Central Bankers Think Of Cryptocurrencies?
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description: Central Bank-Issued Cryptocurrency Round Up: IMF, BoE, Hong Kong


The BIS has told central banks to think hard about the potential risks before issuing their own cryptocurrencies. [1] Surprisingly the representatives from the cryptocurrency world were less bullish on ICOs than the central bankers. [2] ” he future of central banking may involve fewer central bankers,” Mr. Carney said. [3]

If there’s any group that wants to drive a stake into the heart of bitcoin and other cryptocurrencies, it’s central bankers. [4] The BIS is warning the world’s central banks to think hard about the potential risks before issuing cryptocurrencies of their own. [5]

The Bank for International Settlements (BIS), the central bank for central bankers, claims that that lack of backing by a central authority is not a virtue; it’s a major weakness. [4] This echoes statements by Christine Lagarde, the Director of the International Monetary Fund (IMF), who has previously warned central bankers not to ignore Bitcoin and stated that “it’s time to get serious about cryptocurrency.” [6]

Responsible central bankers should therefore welcome the flourishing of cryptocurrencies as a way to bind their institutions to the mast of prudent monetary policy. [7] Central bankers interested in adopting cryptocurrency technology may instead decide to issue a digital currency whose monetary issue is centralized in the hands of the bank. [7] Bitcoin guru Brian Kelly noted how cryptos are an existential threat to central bankers. [8] In addition to cryptos being existential threats to central bankers, they have a couple of other features that make bankers antsy. [8] Perhaps this may change in the future, which could indeed affect the menu of options available to central bankers in certain economic situations, as we will soon discuss. [7] He pointed out that in the Bitcoin/crypto ecosystem, you don’t need central bankers anymore. [8]

ZUG, SWITZERLAND — Countries are unlikely to introduce national cryptocurrencies any time soon, according to a senior Swiss central banker. [9] Central bankers, including Former Federal Reserve Chairman Alan Greenspan, investors such as Warren Buffett and George Soros have stated similar views, as have business executives such as Jamie Dimon and Jack Ma. [10]


Mr. He argues that “Central banks must maintain the public’s trust in fiat currencies and stay in the game in a digital, sharing, and decentralized service economy. [3] Whilst the BOE has sought to assure that it currently holds no plans to develop and issue a digital currency, Bank of England governor, Mark Carney, recently expressed that he is open-minded regarding the prospect of a central bank-issued cryptocurrency whilst speaking in Stockholm. [3]

An article authored by the IMF’s Monetary and Capital Markets Department deputy director, Dong He, has argued that cryptocurrencies may have a negative impact on demand for central bank money in future, and that central banks must be adaptive of the changing financial landscape brought about by cryptographic assets. [3] A deputy director for the International Monetary Fund’s Monetary and Capital Markets Department believes that central banks need to offer “better” fiat currencies in order to fend off any potential competition from cryptocurrencies. [11] In other news, a report published by a International Monetary Fund (IMF) official has warned central banks that they must adapt to the innovations brought forward by cryptocurrencies. [3]

In 2018, some of the world’s most influential central banks are sitting up and taking notice of cryptocurrencies and what they like to describe as distributed ledger technology (DLT). [12] While the use of cryptocurrencies has increased, Etheridge said that there were no plans to launch a central bank digital currency. [12] Jurgilas addressed the talking point of a central bank digital currency by unpacking how cryptocurrencies came into existence in the first place. [12] Actually, the central banks were in support of keeping cryptocurrencies active and finding ways to overcome the issues that allows banks to accept these funds. [2] Over the past few years, central banks and financial institutions have had to grapple with the emergence of cryptocurrencies and their steadily growing adoption around the world. [12] A major take away from this topic is that central banks are beginning to change their tune towards cryptocurrencies. [12] If this resolution had been adopted the lawyers for the Swiss central bank have said this could be used to outlaw cryptocurrencies. [2]

Cryptocurrencies are not scalable and are more likely to suffer a breakdown in trust and efficiency the greater the number of people using them, the Bank of International Settlements said on Sunday in its latest warning about the rise of virtual currencies. [1] When it comes to transferring money, He argues that cryptocurrencies have an advantage over banks when it comes to speed, anonymity, and divisibility. [13] From the standpoint of someone who writes about cryptocurrencies and tries to remain a watchdog for consumers and investors, this admittance of a problem in the general banking system is a good sign that the banks, even if just the banks without much of a vote in the E.U. system overall, are ready to find compromise and move forward to a more beneficial system that accepts cryptocurrencies. [2] The Bank of England has been particularly thorny in its stance towards cryptocurrencies in general over the past few years. [12]

Bitcoin and other cryptocurrencies, therefore, can be classified as “commodity money? (money whose value comes from a commodity of which it is made), while the central banks have always been based on “credit money? (any future monetary claim against an individual that can be used to buy goods and services). [13] As cryptocurrency transactions become more commonplace, and fewer people choose to trade with fiat, it is possible that central bank money will no longer define the unit of account for most economic activities. [13] “For example, they could make central bank money user-friendly in the digital world by issuing digital tokens of their own to supplement physical cash and bank reserves. [11] The article asserts that “Crypto assets may one day reduce demand for central bank money,” adding that central banks should consider implementing measures to “forestall the competitive pressure crypto assets may exert on fiat currencies” and make fiat currencies “more attractive for the digital age.” [3] They can remain relevant by providing more stable units of account than crypto assets and by making central bank money attractive as a medium of exchange in the digital economy.” [3] In that article – which boasts the tagline “Crypto assets may one day reduce demand for central bank money” – He argues that central banks may want to consider adopting some of the concepts in order to “forestall the competitive pressure crypto assets may exert on fiat currencies.” [11] For any form of money to work across large networks it requires trust in the stability of its value and in its ability to scale efficiently, the BIS, an umbrella group for the world’s central banks, said in its annual report. [1] Of course, if a currency is not performing well, you have hyperinflation and a country where people lose trust of rule of law of its central bank. [12] In essence, normal banks would no longer be able to issue currency and people would have accounts at the central banks. [12] Another potential scenario is put forward–one in which the demand for cryptocurrency over bank-issued currency undermines the authority of central banks? monetary policies: “Central banks typically conduct monetary policy by setting short-term interest rates in the interbank market for reserves (or clearing balances they keep with the central bank). [14] In a blog post titled ” Monetary Policy in the Digital Age “, fund director Dong He asserts that cryptocurrency has the potential to topple the monopoly of central banks, and that to stay relevant, banks must adapt to the demands of an evolving economy. [14] Dong He, deputy director of the IMF’s Monetary and Capital Markets Department, shared his analysis on how the mainstream adoption of cryptocurrency could affect central banks and monetary policy. [13]

Decades before Bitcoin, the arrival of the internet prompted speculation that the relentless march of information technology would eventually put central banks in the same category as typewriters and cassettes–obsolete inventions that people once thought would last forever. [14] To adapt to the new era of digital finance, central banks should consider issuing tokens of their own–Central Bank Digital Currencies–which could also be exchanged peer-to-peer. [14] Mr. Joseph Chan, the acting secretary for financial services and the treasury, recently dismissed the prospect of issuing a central bank digital currency (CBDC) whilst asking a question in parliament. [3] No central bank has issued a digital currency, though the Riksbank in Sweden, where the use of cash has fallen, is studying a retail e-krona for small payments. [1] He highlighted the fact that the future development of a central bank digital currency would be necessitated by the needs of the public. [12] Such central bank digital currency could be exchanged, peer to peer in a decentralized manner, much as crypto assets are,” the article went on to say. [11] One way would be for the central bank to issue a central bank digital currency, another option is to open up Central Bank bank accounts for everyone directly there.” [12]

Notably, no one raised any issues that made me think the fears of the crypto community of regulation outlawing cryptocurrency, and big banks instead releasing their versions, are warranted. [2] “In general no but I think it depends on the fiat currency of the central bank. [12] These benefits could potentially reduce demand for central bank money. [13] According to King (1999), ceasing to be the monopoly supplier of such reserves would indeed deprive central banks of their ability to carry out monetary policy.” [14] Etheridge also revealed that the Bank of England issues electronic liabilities at the central bank in the form of reserve accounts. [12] Central banks typically conduct monetary policy by setting short-term interest rates in the interbank market for reserves (or clearing balances they keep with the central bank). [13] Ceasing to be the monopoly supplier of such reserves would indeed deprive central banks of their ability to carry out monetary policy. [13] It is abundantly clear that central banks are threatened by the possibility of losing their influence over monetary policy to a more decentralized and fair system. [13]

If those units of account are instead provided by crypto assets then the central bank’s monetary policy becomes irrelevant. [13] There is within the wording of the referendum a statement he explained as “other currency would be allowed as long as it does not affect the central bank.” [2] At this point, it’s unclear whether the goal of a fairer central banking system is simply too little too late. [13]

The Volgelld Initiative issued a paper of proposed reforms, which includes a stipulation that private currencies will be permitted as long as they don’t interfere with the mandate given to the central bank. [12] A particular highlight of the Money20/20 Europe showpiece was a discussion panel titled ” Cryptocurrency, the central (bank) question “. [12] Do big banks and central banks have a common interest with regular cryptocurrency enthusiasts? Let’s hear your thoughts in the comments. [2]

Although they certainly are looking out for their own interests, “We?re not trying to upset central banks and governments, we are trying to work with central banks and regulators.” [2] In recent days, central banks from the around the world have been actively exploring the prospect of issuing digital currencies. [3] Central bank digital currency is already the equivalent of cash in digital form, so the basic concept of this is not something foreign to central banks. [2] Although he expressed concern as to the public ledger aspects stating, “here is a question as to who should have access to a central bank ledger.” [2] It depends on the central bank, as long as they do a good job there is no reason for fiat currency to disappear.” [12] The deputy director suggested that tightening regulation could provide a boost for central banks. [11]

As more new people adopt cryptocurrencies, lots of newbies are creating mnemonic recovery phrases in order to make sure their digital assets are kept secure. [3] BIS added that cryptocurrencies are more likely to suffer a breakdown in trust and efficiency the greater the number of people using them. [1] Trust can disappear instantly because of the fragility of the decentralized networks on which cryptocurrencies depend, the BIS said. [1]

I was the winner of the “ICO Buzzword Bingo”, and I suppose it is only natural that I am better at picking out crypto buzzwords after attending four European conferences about blockchain and cryptocurrencies in the last week. [2] CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. [11] According to Moser, that was included to protect other private markets including cryptocurrencies like Bitcoin. [12] You could potentially use that to forbid cryptocurrencies like Bitcoin.” [12]

Since cryptocurrencies have entered the mainstream, largely due to a breakout year in 2017, both the fintech and financial sectors can no longer ignore the possibilities created by blockchain technology and digital currencies. [12] Their latest review of cryptocurrencies in March 2018 saw no ‘threat to financial stability’ but Etheridge also said it’s a sector they would ‘monitor very closely’. [12] He argues that adopting cryptocurrencies will lead to a shift in how we accept and understand payments, from “an account-based payment system to one that is value or token based.” [13] In the meantime, a handful of projects offer ‘ stable coins,’ which are cryptocurrencies that are largely immune to price volatility because they are pegged to the value of the U.S. dollar. [13] A point of concern for Jurgilas is the possibility of these adopted cryptocurrencies leading to a ‘major collapse’ pointing out the reason “why we’re issuing warnings and pointing out the risks.” [12] The world of cryptocurrencies and banking crossed paths once again at the Money20/20 conference in Europe on June 4-6. [12] On a positive note, Garlinghouse did a good job of addressing the volatility risk of cryptocurrencies as a medium of international exchange, “There is more volatility risk of using Swift over 180,000 seconds than Ripple over 3 seconds. [2] If our product is good, there would be no need to talk about cryptocurrencies. [12] Cryptocurrencies are sent peer to peer over a shared ledger no intermediary or third-party is necessary. [13] Etheridge was also confident that cryptocurrencies don’t pose a threat to the long-term existence of fiat currency. [12]

In light of the global financial crisis of 2008, the invention of Bitcoin and other cryptocurrencies has caused many to reassess the value of centralized banking institutions. [13] Most have taken tough stances towards Bitcoin and other cryptocurrencies, but as this Money20/20 panel demonstrates, the tide is certainly changing around the world. [12]

Money 20/20 bills itself as “The Future of Money” and I found it completely fascinating as I think the majority of people don?t have an understanding of the “now” of money, let alone the future. [2] Could a cryptocurrency really spell the end of fiat currency? I think so. [12] Considering I was the person writing for a crypto publication, I think the audience thought I was the one asking the silly questions, but I swear it was not me. [2] He’s recommendation for increased regulation as a way to prevent an “unfair competitive advantage” is precisely what some in the crypto space think the SEC is doing. [13] “But if society starts questioning, rightly or wrongly, or it thinks what we are selling could be done better, in a more convenient and cheap way, other things will appear. [12]

Where she stated cryptocurrencies like Bitcoin could give central bank-issued currencies and existing monetary policies “a run for their money.” [6] An article authored by the IMF’s Monetary and Capital Markets Department deputy director, Dong He, argues that cryptocurrencies may have a negative impact on demand for central bank-issued fiat money in the future and that central banks must be adaptive of the changing financial landscape brought about by cryptographic assets. [6] A report published by an International Monetary Fund (IMF) official has warned central banks that they must adapt to the innovations brought forward by cryptocurrencies. [6] Cryptocurrencies are “not scalable and are more likely to suffer a breakdown in trust” as they grow, according to the annual report from the Bank of International Settlements (BIS), the umbrella organisation for the world’s central banks. [5] The Bank for International Settlements says the “decentralized technology of cryptocurrencies is a poor substitute” for money backed by central banks. [4] Has the BIS killed, once and for all, the idea that bitcoin or any other cryptocurrency could become the dominant means of exchange in the U.S. or any other economy? No. After all, some of its arguments boil down to “cryptocurrencies can?t work because a central bank isn?t involved.” [4] The BIS says that’s wrong — cryptocurrencies, at least “permissioned” ones, do depend on a central authority. [4] UPDATED The more popular cryptocurrencies become, the less trustworthy and efficient they are, according to a key central banking organisation. [5] The report ends on a positive note, suggesting approaches for regulating cryptocurrencies and noting that central banks are closely monitoring the underlying technologies. [4] The St. Louis Federal Reserve has slammed cash as an archaic method of transacting while suggesting that central bank cryptocurrencies could be the solution. [15]

He argues that “Central banks must maintain the public’s trust in fiat currencies and stay in the game in a digital, sharing, and decentralized service economy. [6] The article expresses that “Crypto assets may one day reduce demand for central bank money,” adding that central banks should consider implementing measures to “forestall the competitive pressure crypto assets may exert on fiat currencies” and make fiat currencies “more attractive for the digital age.” [6] In an article published Thursday, IMF deputy director Dong He makes the case that “crypto assets may one day reduce demand for central bank money” and that government institutions must do more to not let that happen. [16] The Central Bank of Russia have not only released a report clearly stating that they don’t feel that crypto represents a global threat, but have also defined the digital currencies as “crypto assets”, perhaps signalling things to come with regards to regulations in the country. [17] The Bank for International Settlements (BIS) “fosters international monetary and financial cooperation and serves as a bank for central banks,” and presumably the recent crypto-doomsday report was carried out by well-informed experts in the banking sector. [15] The BIS report brings up the same notion, although saying even central bank cryptos have no set use case at the moment. [15] The BIS, which is often dubbed the central bank of central banks, released a chapter from its upcoming annual report on Sunday dismissing bitcoin as “a poor substitute for the solid institutional backing of money.” [18] Why do the values of bitcoin and other cryptocurrencies bounce around so much? The BIS says it’s due to the “absence of a central issuer with a mandate to guarantee the currency’s stability.” [4] One of the most common arguments against the value of cryptocurrencies, and monetary ones like bitcoin in particular, is how they compare to current assets. [16] Lagarde, added she believes that cryptocurrencies like Bitcoin may give “existing currencies and monetary policy a run for their money,” and could potentially even be included in the IMF’s SDR (Special Drawing Rights) basket of currencies in the future, Coinivore reported. [6] Which might lead one to believe that a cashless future bodes well for the idea of cryptocurrencies, entirely digital money that relies on a public ledger, the blockchain, to verify transactions. [19] Not once in his epilogue does he mention blockchain, the very technology that sets cryptocurrencies apart from historical attempts at new money, or the $143 billion market cap achieved by bitcoin alone currently. [16] While that and other statements evince the BIS’s bias, the paper contains some solid points that bitcoin experts need to address — if they want to continue to claim that cryptocurrencies such as bitcoin still hold promise as a form of money. [4] “Thus, while cryptocurrencies based on permissioned systems differ from conventional money in terms of how transaction records are stored (decentralized versus centralized), they share with it the reliance on specific institutions as the ultimate source of trust,” the BIS says. [4] “To live up to their promise of decentralized trust, cryptocurrencies require each and every user to download and verify the history of all transactions ever made, including amount paid, payer, payee and other details,” according to the BIS. [4]

The report essentially claims that there’s nothing wrong with the centralized banking system and that permissionless cryptocurrencies have no use case I think it’s more likely that the BIS is terrified of the notion of a leaderless, incorruptible, monopoly-breaking means of transacting that cannot be monetized or easily controlled by one group. [15] While the BIS is issuing its words of caution, other parts of the banking system are moving much faster into the worlds of blockchain and cryptocurrencies than the organisation itself appears to realise. [5] Newton and Allaire both pointed to the bitcoin Lightning Network and other so-called “Layer 2” projects that are built on top of existing cryptocurrencies and allow for greater volumes to be processed without sucking up huge amounts of energy but still ultimately rest on the underlying trust of the bitcoin blockchain. [18] Crypto advocates say that this — and BIS’s other criticisms of bitcoin and cryptocurrencies — misses the point. [18] He has, however, also criticized the cryptocurrencies currently available, even going as far as to say that Bitcoin had ‘failed’ as a currency. [20] As He stated in his paper, some cryptocurrencies like bitcoin have limited inflation risk because their supply is capped. [16] Proof of Work cryptocurrencies do indeed consume a lot of energy, with Bitcoin alone currently consuming more power than the nation of Ireland. [15] Cryptocurrencies aside, money “is rich in mystique,” he says, and fueled by the faith that people and institutions place in it. [16] Yale economist Robert Shiller warns that for all their innovation, the new money that is cryptocurrencies is an experiment that in the end may fall short. [16] Shiller taps into the emotional case for cryptocurrencies, suggesting that the allure of new money is shrouded in the mystery of “advanced science.” [16]

The problem is that a banking authority for cryptocurrencies, unless introduced incrementally as the use of fiat currencies wanes, has the potential to catastrophically disrupt current financial system infrastructures. [19] The BIS makes plenty of other arguments against cryptocurrencies, including their use for illicit activity. [4] Because permissionless cryptocurrencies are often decentralized, BIS points out that there’s nobody to be held accountable if something goes wrong, and considers decentralization to be a flawed system. [15] Let’s take a look at the main points the BIS raised against permissionless cryptocurrencies. [15] In blockchain-based cryptocurrencies, for example, in order to limit the number of transactions added to the ledger at any given point, new blocks can only be added at pre-specified intervals. [4] The statement stressed that cryptocurrencies are mainly used for investment and speculation purposes and rarely for payments transactions for goods — much of the reason for international capital movement. [19] While payments are a key application of cryptocurrencies, they’re not the only use case. [16] The paper’s theme: the “decentralized technology of cryptocurrencies, however sophisticated, is a poor substitute for the solid institutional backing of money.” [4] Matthew Newton, an analyst at eToro, which is a trading platform that supports cryptocurrencies, said: “Cryptocurrencies remain an emerging technology, albeit one that is moving towards the right infrastructure for everyday use.” [18] Cryptocurrencies are created anonymously online, have volatile and unpredictable trading swings and are not regulated by any country, government or financial regulatory body. [19] That said, all financial systems attract fraud and illegal behaviour, and it is foolish to believe that cryptocurrencies and blockchain-enabled systems will eradicate the problem. [5] Blockchain-based permissionless cryptocurrencies have two groups of participants: “miners” who act as bookkeepers and “users” who want to transact in the cryptocurrency. [4] Evidence that the apparently secure systems of record beneath cryptocurrencies are anything but was provided this week: South Korean crypto exchange, Bithumb, was hacked, following another heist last week at Coinrail. [5] To bolster its argument, the BIS released a 24-page paper last Sunday heavily criticizing cryptocurrencies. [4] The BIS has made a compelling case for why, at least in their current form, cryptocurrencies fall far short of a reliable medium of exchange. [4]

Organisations are also experimenting with a mix of blockchain, cryptocurrencies, and carbon credits to help support environmental programmes, as we recently reported, and again here. [5] Blockchain and cryptocurrencies have a symbiotic relationship, one in which neither wouldn’t exist without the other. [16] Permissionless cryptocurrencies have no leader to hold accountable, it’s true but in a world where bankers are never held accountable, the real takeaway is that no-one’s in control either. [15] Banks like the BoE, headed by bankers looking after their own pocketbooks, are beginning to recognize the transformative powers offered by digital currencies to consumers across the globe, but are at the same time worried about what their roles will be moving forward. [20]

Don?t expect central banks to issue their own digital currencies anytime soon — “such an instrument would come with substantial financial vulnerabilities, while the benefits are less clear,” concludes the BIS. [4] The piece speculates that a central bank digital currency (CBDC) authority could be created to regulate future digital currencies created by evolved blockchain financial technologies. [19]

A central banking digital currency authority would demand identity verification of anyone creating such currencies, thus creating privacy issues. [19] In a decentralized network of cryptocurrency users, “there is no central agent with the obligation or the incentives to stabilize the value of the currency.” [4] The central point of cryptocurrency, experts claim, is that it doesn?t require an institution’s or sovereign’s backing. [4] To some, that’s old news, and to others the notion is preposterous however, the BIS report certainly takes a hard and unyielding stance against cryptocurrency with only positive points to make about obviously flawed central banks in the report. [15] Central banks must defend themselves against cryptocurrency, the report says, by carrying out ‘effective monetary policies.” [21] A high-ranking official at the International Monetary Fund (IMF) is urging central banks to developer “better” fiat currencies in order to maintain their leadership pace over cryptocurrency. [16] To “forestall the competitive pressure crypto assets may exert on fiat currencies,” central banks need to adopt some of the core concepts driving digital assets. [16] Going forward, Kumhof and Noone acknowledge that ‘risks remain,’ and that central bank digital money could still potentially impact the stability of bank deposits and bank profitability. [20] “These trends have sparked a discussion about whether central banks should issue their own digital coinage,” said the banks’ leaders. [19]

Central banks, at least well-run ones, “stabilize the domestic value of their sovereign currency by adjusting the supply of the means of payment in line with transaction demand.” [4] The “Central Bank of Central Banks” recently released a 24-page report taking a hard stance against the cryptocurrency movement and the mainstream application of the technology. [15] Op-Ed: Crypto-Doomsday? Takeaways From BIS Central Bank Report You are using an outdated browser. [15]

Central banks set their policies by setting interest rates in relation to the country’s money reserves, of which it is the monopoly supplier. [21] “The tried, trusted and resilient way to provide confidence in money in modern times is the independent central bank. [15] Without central banks the world economy would have no way of regulating unbacked, uncollateralized fiat currency, resulting in widespread economic chaos and disaster. [15] Central banks are vital for the use of fiat currency, there’s no doubt about it. [15] Although they were initially resistant to the idea of blockchain, central banks are now widely exploring its use. [16]

Biuro Informacji Kredytowej (BIK), the largest credit bureau in Central and Eastern Europe, has partnered with distributed ledger specialist Billon to deploy a blockchain system for storing and securing access to over 140 million credit records, relating to 1.2 million businesses and 24 million citizens in Poland. [5] “The only real question about such a future is how much the central banks? monetary policies would matter.” [21] Of course, for crypto purists, the idea of a central bank-run crypto asset is itself a contradiction. [16] “Such central bank digital currency could be exchanged, peer to peer in a decentralized manner, much as crypto assets are,” writes He. [21] Cryptocurrency was arguably invented precisely to combat the corruption and lack of accountability in the banking system and among central banks around the world. [15] Last week, BoE governor Mark Carney said he was open-minded about the possibility of introducing a central bank currency. [20] In its early 2016 staff paper, the IMF stated the central bank considers distributed ledgers to have the capability to revolutionize the financial sector through cost reduction and deeper financial inclusion in the long term. [6] The BIS doesn?t come straight out and say that a cryptocurrency’s “trusted participants” have much less credibility than a central bank, but the implication is there. [4] This is just one of many examples of central banks destroying the value of a fiat currency and negatively impacting lives throughout the world. [15] Not so fast, says the world’s biggest global government banks, the Bank of International Settlements and the European Central Bank. [19] His words echo those of Christine Lagarde, Managing Director of the IMF, who said in a speech at the Bank of England last year: “The best response by central banks is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.” [21] A risk manager called Jonathan Sugarman approached the Irish central bank in 2007 to blow the whistle on the fraudulent liquidity breaches that led the country to disaster he was ignored by the central bank and then blacklisted from ever working in the banking sector again. [15] He argues that they first thing that central banks should do is “strive to make fiat currencies better and more stable units of account.” [21] By adopting blockchain technology, central banks are essentially following in Wall Street’s footsteps not in terms of blockchain itself, but in embracing innovation. [16]

Let’s get into what the report had to say about permissionless cryptocurrencies. [15] Cryptocurrencies cannot scale with transaction demand, are prone to congestion and greatly fluctuate in value.” [18] “The cryptocurrencies are a statement of faith in a new community of entrepreneurial cosmopolitans who hold themselves above national governments, which are viewed as the drivers of a long train of inequality and war.” [16]

Critics in the crypto world say the report missing the point — bitcoin and other cryptocurrencies are still in development and shouldn’t be judged yet. [18] Here at NewsBTC, we are dedicated to enlightening people all around the world about bitcoin and other cryptocurrencies. [20] To bitcoin adherents, bitcoin and other cryptocurrencies are still a work in progress. [18]

“I don’t think many people appreciate just how early stage this technology is,” Jamie Burke, the founder and CEO of specialist bitcoin and blockchain VC fund Outlier Ventures, told the Blockchain Alternative Investment Conference in London on Monday. [18] Allaire said: “There’s a lot of infrastructure work going on and I think it’s really, really key because I think the consensus within the industry is that if we can solve some of those issues in the next year to two years, then we can have products that are actually used by a billion people. [18]

“I think we should just be aware of not categorizing anything that has to do with digital currencies in those speculation, ponzi-like schemes,” she said. [6]

Here’s a recording of Irish bankers describing how they conned the government into an initial $8 billion bailout that would eventually lead to $34 billion. [15]

Just recently, the same banks played another big role as they stood as keepers of fiat flowing between national currencies and cryptocurrencies such as Bitcoin (BTC), not exempting Ethereum (ETH) and Ripple (XRP). [22] The bank argued that cryptocurrencies, such as Bitcoin, were being used by criminals and money launders. [23] Rather than adopting cryptocurrencies wholesale as a new kind of official money, the Bank of Canada and Monetary Authority of Singapore are simulating real-time gross settlement systems using a blockchain-like structure. [7] The Reserve Bank of Zimbabwe is challenging a High Court ruling against its ban on the trading of cryptocurrencies in the country after crypto exchange Golix had the ruling lifted. [23] Perhaps, the central banks will start holding cryptocurrencies as reserves or large retailers, like Amazon, will start accepting cryptocurrencies for transactions. [24] If the central bank issues cryptocurrencies, the supply of money, in all its forms, all the way from M0 to M3, can be controlled – in theory. [24] Some central banks have gone as far as to consider launching their own cryptocurrencies as a substitute or even replacement for their current money base. [7] Most central banks are actively studying cryptocurrencies and have even considered issuing their own. [24] The existence of cryptocurrencies as an alternative safe haven during times of financial crisis may prompt central banks to behave in a more responsible way than they otherwise would. [7] It is also possible that central banks may decide to buy and hold existing cryptocurrencies as a part of their reserves just as they do for gold and other assets. [7] It is more likely that central banks will experiment with distributed ledger technologies to aid in settlement services, or even begin buying existing distributed cryptocurrencies as a part of their reserve portfolio. [7] Many advocates of cryptocurrencies argue that, while there may be little reason to move to cryptocurrencies for those living in developed countries with relatively credible central banks and governments, that does not apply to all. [24] This is perhaps the biggest advantage of central-bank-issued fiat currency (at least when the central banks are credible) over any of the cryptocurrencies as currently envisioned. [24] Not all central banks have been immediately antagonistic toward cryptocurrencies. [7]

At this point, it should be clear that cryptocurrencies do pose a threat to banks. [25] These officials recognize that cryptocurrencies can serve a very similar function to cash; that is, as a semi-anonymous medium of exchange accessible not only to banks but to the population as a whole. [7] The U.S. government has not been shy in taking advantage of its reserve currency powers in the past, I don’t think it would be any less shy when it comes to cryptocurrencies in the future. [24] PG: More than being different I think that Blockchain technology companies have an arduous task of showing investors the great advantages that the use of these technologies would mean without leaving aside the cryptocurrencies for their industries, the benefits in terms of automation of trust, of performance in the processes, of autonomous collection system, of machine-to-machine communication among many other things. [26] I still think that cryptocurrencies are more like a religion or a cult than a rational economic phenomenon. [24]

The only difference between existing assets like gold and cryptocurrencies in an emergency event is perhaps that cryptocurrency may be easier for people of all economic backgrounds to hold. [7] Many people believe that cryptocurrencies like Bitcoin can co-exist within the current monetary system, whether individuals purchase units as an alternative kind of investment or for their targeted technological applications. [7] Blockchain-based cryptocurrencies like Bitcoin are inherently slow if we want to trust the transaction, at least 10 minutes, or even an hour, and are not costless. [24] The Head of Payment for the RBA, Tony Richards released a text speech in Sydney noting that cryptocurrencies like bitcoin were still volatile and vulnerable to hack and so are not reliable stores of value or means of exchange. [27] If Bitcoin and other leading cryptocurrencies achieve a significant enough level of value and stability, bankers may find it prudent to add it to their portfolio of assets. [7] What is the value proposition of cryptocurrencies? Recall Figure 3 above showing that the market cap of cryptocurrencies is about 1% of money supply in the form of M1 in the four largest currency areas. [24] In Figure 3 we saw that the value of cryptocurrencies is a small fraction of the total value of money. [24] The best practice in trading cryptocurrencies is to keep one’s keys on an air-gapped laptop. We are constantly hearing about people who have their money stolen, and that the various ways one transacts in cryptocurrencies are subject to hacking. [24] What is missing is a better way to send money between countries, and for that cryptocurrencies often have the advantage. [24]

Cryptocurrencies hold much promise to expand the range of monetary options available to all classes of people and secure a degree of security and liberty not offered by some of the world’s government-backed currencies. [7] Others fear that if cryptocurrencies are adopted on a wide enough scale, it could have a negative externality, or spillover effect, on the economy as a whole in the form of monetary instability. [7] Things like gold or Bitcoin (or any of the cryptocurrencies) just don?t do that. [24] There are countries like Mexico that have already taken a big step with the approval of fintech law for the legal use of certain cryptocurrencies within the country, and cases like those of Colombia where the president-elect for the next 4 years mentioned that he would implement technologies such as the Blockchain to avoid the evasion of national taxes. [26] Advocates like to emphasise that cryptocurrencies exist outside existing economic and financial structures, away from the long hand of the law. [24] Others, like Etherum, provide some economic function underpinned by the integrity of cryptocurrencies. [24] In this kind of economic climate, cryptocurrencies can be a godsend to families that need a more stable store of value. [7] If cryptocurrencies are to replace fiat money they will need to increase significantly in value. [24] The promise of cash replacement cryptocurrencies like bitcoin is that they will, well replace, fiat money. [24] Some cryptocurrencies, starting with Bitcoin in 2009, are designed to be direct replacements of fiat money. [24]

Some cryptocurrency experts think that big banks cannot stop Bitcoin (BTC) and other cryptos even if they develop their own blockchain. [22] Recently, Sheila Bair, the former chair of the Federal Deposit and Insurance Corporation (FDIC) said that she thinks the U.S. Federal Reserve Bank should consider using digital currencies to reduce the risk of a financial crisis and to improve monetary policy. [28]

What do you think about Central Bank’s adoption of Blockchain technology and cryptocurrency? Tell us in the comment box. [29] “I think the evidence to date is that trustless blockchain solutions are unlikely to be adopted Based on our interactions with our counterparts in other countries, it is also not front of mind for most other advanced economy central banks.” [27] Do you think the central bank is right to oppose the lifted ban? Let us know your thoughts in the comments below. [23]

A central bank that is used to tightening or loosening the money supply in response to changing economic conditions will be quite frustrated to find that their official cryptocurrency is rigid to their policy needs. (Indeed, this monetary rigidity is the source of much theoretical economic debate within the cryptocurrency community, with some offering suggestions for digital currencies that change the rate of supply in response to certain economic targets.) [7] It is laudable that a few central banks are showing interest in using cryptocurrency technology to update their monetary administration. [7] One element of cryptocurrency technology that central banks are already experimenting with to some success is the distributed ledger technology at its heart. [7] The business unit head for Central Banks, ACH and Payments at Sybrin, Eugene Etsebeth worked at the South African Reserve Bank (SARB) where he founded the Virtual Currencies and Distributed Ledger Technology working group. [26] Some have gone so far as to suggest that Bitcoin’s properties as money are such an improvement over the current system that it central banks may switch over to a Bitcoin-based reserve system entirely, echoing the former global gold system. [7] A couple of years ago we played around with moving money between banks and the Central Bank on the Ethereum Blockchain. [26] Notably, though, if the central bank is successful with its opposing documents to the High Court, the people of Zimbabwe may find themselves once again with limited means of accessing money when most needed. [23] It is unlikely that a central bank will adopt a state-backed distributed digital currency wholesale because it would fully remove their ability to manage the national money supply. [7] The Reserve Bank of India (RBI) announced in April that they are looking into issuing its own central bank digital currency. [28] On the other end of the spectrum, some suggest that central banks may actually be aided by issuing their own national cryptocurrency. [7] Ex-central banker turned cryptocurrency aficionado and leader, Eugene Etsebeth gives us an inclusive insight into the psychological types and the mechanics of a Central Bank operations, fintech scene and its influence on governments in Africa and how ICO’s model is changing. [26] The governor of the Bank of England has publicly expressed interest in the idea of a cryptocurrency backed by a central bank, with the caveat that such a possibility would be quite a ways off in the future. [7] The bank is planning to develop a way of conducting inter-bank settlements using a wholesale central bank cryptocurrency with the purpose of aiding faster and cheaper settlements between banks on the domestic inter-banking system. [29]

Why should a central bank issue cryptocurrency? Bech and Garratt argue that retail clients might benefit from anonymity and the ability to hold accounts directly with the central bank, while wholesale clients might benefit from increased efficiencies. [24] Central bank authorities have expressed concern as to whether issues like the security, volatility, and privacy could pose threats to economic stability. [28] Central banks across the globe have been releasing reports detailing how digital currencies can enhance their country’s economic ecosystem, and debates have sparked regarding the pros and cons of using private digital currencies. [28] Some worry that distributed digital currencies may undermine the ability of central banks to manage national economic policy goals. [7] The risks of using private digital currencies instead of fiat currency leads to the next major question: should central banks create their own digital currencies or use existing ones? Creating their own digital currencies would allow them to customize the design to perfectly fit the needs of their economy. [28] Representatives of the Bank stated that the central bank is investigating blockchain use cases in several financial applications, which include supply chain, bond issuance and letters of guarantee. [29] It only holds value if the central bank and the government manage it properly, and in cases where they do not, the use of fiat money can be very costly, and in extremis result in hyperinflation. [24] Other European countries are in the process of conducting similar studies, with Sweden’s central bank considering transitioning their economy to use an electronic currency instead of cash. [28]

The main reason BIS officials believe cryptos have garnered so much attention is due to their promise to replace trust in long-standing institutions, such as commercial and central banks. [8] BIS is an 88-year-old institution based in Basel, Switzerland that serves as a central bank for other central banks. [8]

While it is laudable that these officials are keeping an open mind with regards to the promise of distributed digital currencies, they will likely find that these projects simply do not meet the requirements that they hold for a central bank-created monetary base. [7] In this kind of situation, it is a very good thing that Bitcoin has undermined the Venezuelan central bank’s authority to wreak havoc on its citizens. [7] They currently exist in a small and experimental corner of the world’s financial markets, and are therefore unable to restrain central bank’s monetary policy levers. [7] In May, Zimbabwe’s central bank gave financial establishments 60 days to cease relationships with digital currency exchanges Golix and Styx24. [23] Norges Bank’s report focused on evaluating three main applications of a central bank digital currency (CBDC): the introduction of a reliable alternative to cash deposits in private banks, a suitable legal tender to replace cash, a replacement for electronic payment systems, and the effects on the availability of credit. [28]

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2. (31) How do cryptocurrencies affect monetary policy? | Coin Center

3. (26) Money20/20 Review: Central Banks Closely Monitoring Crypto and Blockchain

4. (26) Bitcoin’s time could be up: Are government-backed cryptocurrencies the next big thing? – Firstpost

5. (21) Central Bankers Find Flaws in Cryptocurrencies –

6. (19) Op-Ed: Crypto-Doomsday? Takeaways From BIS Central Bank Report

7. (15) IMF: Crypto Assets Could Reduce Demand For Central Bank Money – Bitcoinist.com

8. (15) IMF Official Urges Central Banks to Compete with Cryptocurrencies

9. (14) What Do the Big Banks Think About Crypto? – Bitsonline

10. (14) Ex-Central Banker on Crypto: “There is no Limits to Where This is Going to Go” | ?rypto?omes

11. (12) Banks love Blockchain but hate Cryptocurrencies – Crypto Investing Insider

12. (12) Enthusiasm has slowed for creating national cryptocurrencies: The unknown risks are potentially large – Beaumont Enterprise

13. (10) The Rise of Digital Currencies among Central Banks – Covesting Crypto Intelligence Portal

14. (10) Central Bank-Issued Cryptocurrency Round Up: IMF, BoE, Hong Kong

15. (10) Bank for Central Banks: Crypto Trading Volumes Could Bring the Internet to a Halt By Cryptovest

16. (9) Crypto responds to the Bank of International Settlements bitcoin report – Business Insider

17. (9) Second IMF Official Warns Central Bankers To Adapt To Cryptocurrencies – Coinivore

18. (8) Global Government Banks Think They Should Take Over Cryptocurrency, Someday

19. (8) “Cryptocurrency systems cant scale or be trusted” – central banking organisation | Internet of Business

20. (6) The bigger cryptocurrencies get, the worse they perform, says central banking institution

21. (6) IMF Official: Central Banks Need to Compete With Crypto – CoinDesk

22. (6) IMF: Bitcoin Could Render Central Banks Irrelevant | Finance Magnates

23. (6) The central bank of central banks rubbishes cryptos role as payments tech – Crypto News Review

24. (6) Norwegian Central Bank Considers National Cryptocurrency to Secure Monetary System – CryptoCoin.News

25. (6) Bitcoin Today: Narrow Losses on Tap as Most Cryptos Move Lower – TheStreet

26. (5) Crypto a threat to central bank driven monetary policy says IMF Brave New Coin

27. (5) BoE: Central Bank Digital Currency May Strengthen Monetary Policy | NewsBTC

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29. (5) Is Bitcoin Going to Crash the Internet? These Experts Think So.

30. (4) How Banks Will Help Make or Destroy Bitcoin (BTC) And Others

31. (4) Era of Cryptocurrency: Do We Still Need Banks? – Due

32. (4) Central Bank of Thailand Adopts Blockchain and Cryptocurrency

33. (3) The Central Banks Of Australia And New Zealand Rule Out State-Owned Cryptocurrencies | Smartereum

34. (2) Bitcoin – Wikipedia

35. (2) Swiss Central Bank Nixes National Crypto | PYMNTS.com

36. (1) Central Bank of Russia Dont Believe Crypto Assets Are a Threat to Global Financial Stability – Bitrazzi

37. (1) Crypto-Crash: Bitcoin and Its Ilk Fail to Make the Grade | bitcoin | cryptocurrency | BIS | The Epoch Times