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Topic: [2017-08-31] Cryptocurrencies are barbarians at central bank gates (Read 3144 times)

legendary
Activity: 3430
Merit: 3080
The point that worries me is the transition period.

I concur with this point.

But I don't think there's anything we can do, the pain will be significant and unavoidable.


People have been raised to believe in this system, no differently to the way they were raised to believe in religious parables, or in personifications of the forces of nature before that. Sadly, human beings just want a simple life for the most part, very few people are interested enough in understanding how their entire living environment is constructed and functions.

And that's the type of view point you need to contemplate the importance of a technology like Bitcoin to begin with, smart well informed people make up the majority of the eraliest proponents and adopters of Bitcoin, almost by definition. The alternative is to behave with some benevolence towards those that lost out, but that's a very complex situation when you think it through in practice. It's difficult to justify on someone else's behalf how much money or resources they deserve to be gifted, the have a strong tendency to disagree in their own favour (and why not).

These things happen in history. It's happened before and will happen again. I guess the best we can do is to continue to do our best to make things simpler for the naysayers so as to convince them of the importance of the impending wave of cryptographic tech, that's probably the most effective way of minimising disruption & smoothing out the distribution.

It still won't be pretty when the dust settles IMO. Disruptive technology is disruptive, unfortunately.
legendary
Activity: 3108
Merit: 1531
yes
The point that worries me is the transition period. Great if the early adopters can see the trend and ride the wave of cryptocurrencies taking a larger role in society. An immense wealth transfer is on the way (not only to cryptocurrencies). The issue I see is that a lot of less informed and elderly people will be the last in this game. People with low or no income, depending to some degree on government support or a pension plan.

If government will take in less taxes because of the shift to 'better currency' (less grip, less ability to assume debt, less ability to overtax), and pension plans will lose out in the wealth transfer (because being to late in the trend and/or hampered by regulations prohibiting them from joining the wave in time), those vulnerable people will get hit in a massive way. Taking the helicopter view, this could be seen as a temporary issue, but for these people, the problem would be very real (and probably lasting).

On the other hand, we can ask ourselves where that group of people would end up if the current financial system implodes without any ability to escape the system.
legendary
Activity: 3430
Merit: 3080
Who's going to protect us all without central banks?

Who will protect you:

  • From keeping your money safe when interest rates are negative
  • From inflating away the money supply when the commercial banks lose your account deposit whilst gambling with it
  • From making huge profits on financial markets
  • From setting monolithic interest rates that are either too high or too low for your own individual circumstances
  • From charging the public interest that doesn't even exist as a part of the money supply to secure their indefinite death-like grip on the actual productivity of wage-slave neo-serfs of state gangsterments


Yeah, let's all shed a tear for these jumped-up loan sharks using the criminal alias "central banks"
legendary
Activity: 1918
Merit: 1012
★Nitrogensports.eu★
If cryptocurrencies threaten the role of a central bank, it is because the free market believes that the central banks are not doing a good job. We would all stick to digital fiat, governed by central banks, if it were a good implementation of money.
full member
Activity: 322
Merit: 217
Bitcoin—the largest and best-known digital currency—and its peers pose a threat to the established money system by effectively circumventing it

Hong Kong/ Frankfurt/ Washington: The boom in crypto currencies and their underlying technology is becoming too big for central banks, long the guardian of official money, to ignore.

Until recently, officials at major central banks were happy to watch as pioneers in the field progressed by trial and error, safe in the knowledge that it was dwarfed by roughly $5 trillion circulating daily in conventional currency markets.

But now as officials turn an eye toward the increasingly pervasive technology, the risk is that they’re reacting too late to both the pitfalls and the opportunities presented by digital coinage.

“Central banks cannot afford to treat cyber currencies as toys to play with in a sand box,” said Andrew Sheng, chief adviser to the China Banking Regulatory Commission and Distinguished Fellow of the Asia Global Institute, University of Hong Kong. “It is time to realize that they are the real barbarians at the gate.”

Bitcoin—the largest and best-known digital currency—and its peers pose a threat to the established money system by effectively circumventing it. Money as we know it depends on the authority of the state for credibility, with central banks typically managing its price and/or quantity.

Cryptocurrencies skirt all that and instead rely on their supposedly unhackable technology to guarantee value.

If they don’t get a handle on bitcoin and their ilk, and more people adopt them, central banks could see an erosion of their control over the money supply. The solution may be in the old adage, if you can’t beat them, join them.

The People’s Bank of China (PBoC) has done trial runs of its prototype cryptocurrency, taking it a step closer to being the first major central bank to issue digital money.

The Bank of Japan (BoJ) and the European Central Bank (ECB) have launched a joint research project which studies the possible use of distributed ledger -- the technology that underpins crypto currencies -- for market infrastructure.

The Dutch central bank has created its own cryptocurrency—for internal circulation only—to better understand how it works. And Ben Bernanke, the former chairman of the Federal Reserve who has said digital currencies show “long term promise,” will be the keynote speaker at a blockchain and banking conference in October hosted by Ripple, the startup behind the fourth largest digital currency.

Russia, too, has shown interest in ethereum, the second-largest digital currency, with the central bank deploying a blockchain pilot program.

In the US, both banks and regulators are studying distributed ledger technology and Fed officials have made a couple of formal speeches on the topic in the past 12 months, but have voiced reservations about digital currencies themselves.

Fed Governor Jerome Powell said in March there were “significant policy issues” concerning them that needed further study, including vulnerability to cyber-attack, privacy and counterfeiting. He also cautioned that a central bank digital currency could stifle innovations to improve the existing payments system.

At the same time, central bankers are obviously wary of the risks posed by alternative currencies -- including financial instability and fraud. One example: The Tokyo-based Mt. Gox exchange collapsed spectacularly in 2014 after disclosing that it lost hundreds of millions of dollars worth of bitcoin.

But for all their theoretical tinkering, official-money guardians have largely stood by as digital currencies have taken off. The explosion in initial coin offerings, or ICOs, is evidence. Investors have poured hundreds of millions of dollars into the digital currency market this year alone.

The dollar value of the 20 biggest cryptocurrencies is around $150 billion, according to data from Coinmarketcap.com.

Bitcoin itself has soared more than 380% this year and hit a record—but it’s also prone to wild swings, like a 50% slump at the end of 2013.

“At a global level, there is an urgent need for regulatory clarity given the growth of the market,” said Daniel Heller, Visiting Fellow at the Peterson Institute for International Economics and previously head of financial stability at the Swiss National Bank.

Rather than trying to regulate the world of virtual currencies, central banks are mainly warning of risks and attempting to garner some advantage from distributed-ledger technology for their own purposes, like upgrading payments systems.

Carl-Ludwig Thiele, a board member of Germany’s Bundesbank, has described bitcoin as a “niche phenomenon” but blockchain as far more interesting, if it can be adapted for central-bank use.

In July, Austria’s Ewald Nowotny said the he’s open to new technologies but doesn’t believe that will lead to a new currency, and that dealing in bitcoin is effectively “gambling.”

There could also be a monetary policy aspect to consider. ECB Governing Council member Jan Smets said in December that a central-bank digital currency could give policy makers more leeway when interest rates are negative. Policy makers have long been concerned that if they cut rates too low, people will simply hoard cash. The ECB’s deposit rate is currently minus 0.4%.

Other central banks see the uses of distributed ledger technology, but worry about the abuses virtual money can be put to outside the official system -- like criminal money laundering and the sale of illegal goods. That’s not to mention the risk that virtual currencies could pose to the rest of the financial system if the bubble were to pop.

Bank of England Governor Mark Carney—who has said blockchain shows “great promise”—also warned regulators this year to keep on top of developments in financial technology if they want to avoid a 2008-style crisis.

While Mt. Gox cast a shadow over bitcoin in Japan, it now has many supporters in the world’s third-biggest economy. Parliament passed a law in April this year making it a legal method of payment. Japan’s largest banks have invested in bitcoin exchanges and small-cap stocks linked to the cryptocurrency or its underlying technology have rallied this year as it begins to win favour with some retailers.

With the nation’s Financial Services Agency responsible for bitcoin’s regulation, the BOJ remains focused on studying its distributed ledger technology.

“Central banks are not yet ready for regulating digital currencies,” said Xiao Geng, a professor of finance and public policy at the University of Hong Kong. “But they have to in the future since unregulated digital currencies are prone to crime and Ponzi-type speculation.”

To be sure, the attraction of virtual currencies for many remains speculation, rather than for households or companies buying and selling goods.

“It is a fad that will die down and it will be used by less than 1 percent of consumers and accepted by even fewer merchants,” said Sumit Agarwal of Georgetown University, who was previously a senior financial economist at the Federal Reserve Bank of Chicago. “Even if we can make the digital currency safe it has many hurdles.” Bloomberg

Source
http://www.livemint.com/Industry/IrUupj2VPnf8do9dKjzChI/Cryptocurrencies-are-barbarians-at-central-bank-gates.html
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