It’s not that central banks are against cryptocurrencies, they just don’t see how they could use them to improve the financial system.
That seems to be the opinion of many of the world’s leading central bankers after a discussion at Money 2020 in Amsterdam.
The summit was attended by Dr Thomas Moser, of the Swiss National Bank; Dr Marius Jurgilas, of the Bank of Lithuania; Martin Etheridge, from the Bank of England; and James Chapman, representing the Bank of Canada, among others.
They agreed that tokens may have a role in unlocking new sources of finance for businesses – and by tokens the bankers mean cryptocurrencies like Bitcoin and Ethereum.
The topic followed on from other central bank discussions earlier in the year, like the IMF World Bank meeting and confirmed central bankers just don’t have an opening that cryptocurrency would improve.
Spending digital currencies
The Bank of England, among others, argues that the success of a digital currency is not the value in the marketplace but how easily consumers can spend the token in a shop and the confidence consumers have in holding the currency.
This week’s blitz against the value of Bitcoin following a multi-million dollar hack in South Korea is just one recent example of a lack of confidence consumers have in digital currencies.
So what will a global digital currency look like?
It’s likely to start out as a hybrid of something between a fiat currency, like the Pound or US dollar with a digital infrastructure like the blockchain underlying Bitcoin and Ethereum.
Implementing the blockchain
One issue is the value of the single currency against local currencies.
The world has already seen how a weak economy with a currency pegged to a strong economy can lead to problems.
The economies of Greece, Spain, Ireland and Portugal all suffered because the governments had no room to manoeuvre within the Eurozone, while the economies of Germany and France powered on.
And how much will someone in Venezuela experiencing 1000% inflation get for their bolivars compared with someone in the US with a fistful of dollars?
Calling for a global digital currency is one thing, but fairly implementing the system is another.