The crypto-currency race is heating up, giant corporations like J P Morgan, Microsoft, Facebook, Oracle and many others have all signaled their intention to or are in the process of creating their own Blockchain backed currencies.
It seems former skeptics are now taking this financial technology quite seriously; Bitcoin’s resilience has proven that a privately issued currency has its place in a space that has for a long time been closed. So perhaps it comes somewhat as a surprise when central banks also join in the crypto-currencies frenzy.
It is surprising because when Bitcoin was launched, central banks led the charge in vilifying and maiming the currency. Potential users were constantly reminded why this privately issued currency had to be ignored not least because of risks of financial loss. As Bitcoin endured courtesy of the underlying technology, alarmed central banks and their cohorts upped the ante in their opposition.
This currency is being used by criminals or terrorists has been their usual refrain.
Essentially, authorities were alarmed that a privately issued currency was gaining foothold and that this threatened the future of central banks and their monopoly over monetary policy management. Of course, Bitcoin was created specifically to challenge this monopoly and give people a viable alternative to fiat currency.
So it is quite awkward that some 8 years after the start of Bitcoin, the Bank of England signaled its intention to experiment with its own Blockchain backed currency, the so called RSCoin. At the time of the announcement in 2016, the academics working on this project said they hoped this particular Blockchain backed crypto would even upend the US dollar as the world’s reserve currency.
According to media reports at that time, supporters claimed the RSCoin would combine the benefits of distributed ledger technology (DLT) with those of a regular and controlled currency. Such are the double standards; apparently crypto-currencies are only beneficial when issued by central banks. The benefits or advantages that are already seen with cryptos like Bitcoin are simply whitewashed.
Indeed many figures in the regulatory world privately acknowledge the utility of the Blockchain technology or DLT and do not want to be left behind. Threats against Bitcoin have not worked, there are now 2000 more crypto-currencies and more will come. The only logical thing is to join the race.
One can only feel sorry for those in the central bank orbit still fighting crypto-currencies; the world has accepted this idea. Augustin Carsterns is a General Manager with Bank for International Settlements and a harsh critic of privately issued currency.
Earlier this year he was quoted by the media, railing against crypto-currencies arguing that there are ‘huge operational consequences for central banks in implementing monetary policy and implications for the stability of the financial system.’ According to him, central banks thus do not put brakes on innovations (like crypto-currencies) just for the sake of it
This is rather a belated but important admission, regulators could have been deliberately stifling growth of crypto-currencies this entire time but now ructions within the ranks of central banks are beginning to manifest. Switzerland is one country to have gone a step further in embracing Blockchain technology by issuing its own crypto and more countries look set to follow these footsteps.
It is clear that reasons often given for the warnings or advisories against Bitcoin are just a ruse; central banks were not happy with the intrusion, they just wanted this space to remain monopolized.
It may be worthy to note that prior to Bitcoin, there had been several attempts to issue currency privately and each time such efforts were crushed.
Abuse of national currency and unchecked printing of money are some of the inflation causing reasons that motivate individuals to seek alternatives.
Creators of Bitcoin learnt from the mistakes of early currency dissidents and made this decentralized digital currency that seems to give disillusioned fiat currency users a viable alternative. Unless central banks reform, privately issuing crypto-currencies or alternatives to fiat currency will keep coming. It will not matter that central banks are now joining the crypto movement; people will continue to seek alternatives.
Essentially, it this threat or competition from private currencies, which might force Central banks to reform after all. Furthermore, it has never been desirable for any entity to enjoy a monopoly position as history has shown us, consumer welfare is hurt.
Central banks can issue their own cryptos but that should not mean an end to privately issued currencies. The more the merrier!
In any market, the quality of choices is only enhanced when there is healthy competition and that should be the case in the currency markets as well.