Representation of Bitcoin cryptocurrency is seen in this illustration photo taken in Krakow, Poland … [+]
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When the euro was introduced just over twenty years ago, there were tales of people around Europe refusing to exchange their national currency notes for the single currency, on the basis that the euro ‘will never catch on’. When the hacking group Darkside ransomed the dataset controlling the Colonial pipeline last week, the ransom was paid in a cryptocurrency.
These two, different tales from opposite ends of the ‘money’ spectrum tell us much about how finance, and money in particular is evolving. At one end, we see the development of a new, traditional money (euro) and the centralised financial and capital markets (to an unsatisfyingly incomplete degree), that go with it. At the other end of the spectrum is decentralised crypto finance, that exists on a largely anonymous, unregulated way beyond the ‘old’ global financial system.
Crypto meets Digital
These two worlds are soon set to collide. Regulators, witnessing the speedy rise of cryptocurrencies, the lurid ways in which they are traded (e.g. dogecoin) and the threat they present to the incumbent financial system, will I suspect soon take a heavier hand in overseeing the architecture around crypto currencies like bitcoin which currently can’t be regulated, though the infrastructure or architecture that trades it can be overseen.
For context, these two approaches criss-cross many other related debates – the rise of sophisticated organised crime, the future of the dollar as the world’s reserve currency and the need to build emerging market financial systems that can curb corruption.
A potentially decisive development is the acceleration in the rollout of central bank digital currencies (CBDC). Central banks are set to issue digital versions of their currencies to accompany outstanding reserves and bank deposits. Theoretically, central banks will give each of us a retail account, and households can exchange money directly with them (as opposed to going through the banking and economic systems). The logistical and communication aspects of this project will be fiendishly complex to the extent that ‘it will never catch on’ echoes through my head.
It is however, catching on. Nearly twenty million Chinese are hooked up to an experimental digital yuan run by the People’s Bank, whose intention is that the 2022 Winter Olympics in China will serve as a showcase event for the digital yuan. Small, advanced economies – notably Switzerland and Singapore (not forgetting the Bahamas’ Sand dollar) are to the forefront in planning digital currencies as is the Bank of England, which egged on by the strategic urgency created by Brexit, may be the first large central bank to roll out a digital currency (the Fed and ECB…
Read more:Will Digital Currencies Wipe Out Crypto? Central Banks To Target Bitcoin?
