[ad_1]
The world of cryptocurrencies and banking crossed paths once again at the Money20/20 conference in Europe on June 4-6.
Fintech companies and financial service providers came together at the conference to talk money and technology − in particular, how the two can come together in a more efficient way.
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.
A particular highlight of the Money20/20 Europe showpiece was a discussion panel titled “Cryptocurrency, the central (bank) question”. It featured four prominent individuals from the Bank of England, Bank of Canada, Bank of Lithuania, and the Swiss National Bank.
These four institutions have an incredible amount of influence on the way the world sees money, and more importantly, monetary policies in their respective countries.
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. A few years ago, their proliferation was small, but that has changed considerably.
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).
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.
Money20/20, “Cryptocurrency, the central (bank) question” panel, Amsterdam, Netherlands
Martin Etheridge – Bank of England
The Bank of England has been particularly thorny in its stance towards cryptocurrencies in general over the past few years. Despite this, the Bank of England began to change its tune more recently, announcing a cryptocurrency task force that would provide an in depth study into the sector.
Furthermore, the Bank also expressed interest in the technology that powers Bitcoin, DLT and blockchain.
Martin Etheridge is the Head of Division at the Bank of England and is responsible for Fintech. He also heads up banknotes operations and oversees the bank’s work on digital currencies.
Etheridge explained how the Bank of England has slowly changed its position on cryptocurrencies since its initial issuance of two papers back in 2014:
“We broadly concluded concluded that we didn’t see them as a major threat to monetary stability, we did not see them gaining mass adoption for retail payments at that time back in 2014.”
While the use of cryptocurrencies has increased, Etheridge said that there were no plans to launch a central bank digital currency. However, 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’.
“We recognise that in distributed system there is the potential for resilience and other benefits of distributed payment systems is one that we want to make sure we are aware of and that is fully integrated to the work we are currently doing to our own infrastructure.”
Etheridge also revealed that the Bank of England issues electronic liabilities at the central bank in the form of reserve accounts. This allows wholesale clients to make settlements of liabilities using its real time gross settlement service (RTGS).
This system is currently being overhauled and the bank is still working on the technology that will power the revamped RTGS.
“It won’t be based on DLT systems but we expect and hope that it will be capable of interoperation with DLT systems in development by the private sector.”
Etheridge was also confident that cryptocurrencies don’t pose a threat to the long-term existence of fiat currency.
“I don’t see much prospect in the current iteration of crypto assets replacing fiat currencies. Who knows what the future will hold, but the odds are stacked in favour of fiat, it would take a fundamental shift in public perception of existing monetary system for that to happen.”
“It’s a totally relevant question, what is the currency used in society and do people trust the existing authorities to provide functions of money that they need to operate daily lives? If they dont, they may look at alternatives. My view is that current system is not broken in a way that we would expect an alternative cryptocurrency to replace fiat currency in any major jurisdiction.”
Money20/20, “Cryptocurrency, the central (bank) question” panel, Amsterdam, Netherlands
Dr Marius Jurgilas – Bank of Lithuania
Dr Marius Jurgilas is a member of the board of the Bank of Lithuania. Jurgilas is considered an expert in Fintech in the country and is a thought leader when it comes to the future of the banking sector in Lithuania.
Jurgilas addressed the talking point of a central bank digital currency by unpacking how cryptocurrencies came into existence in the first place.
“The product we (banks) are selling is trust. If our product is good, there would be no need to talk about cryptocurrencies. It’s a matter of trust, if we trust the institution mandated and entrusted to keep oversight of our payment systems, ensure that money is not affected by excessive inflation then there is no need for payment instruments or other means of storing value.
“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. We as regulators have to react to that − we are not sitting entrenched in our positions, the work everyone is doing here shows that we are really paying attention.”
However, 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.”
Jurgilas used the emergence of initial coin offerings (ICOs) in Lithuania as an example of the concerns regulators have.
“Firstly, we’re not sure if those things are really disclosing the risks to their potential investors. Secondly, we think that is an opportunity to provide funding opportunities for really risky business activities. What is the ultimate venture capitalist, an investor that is willing to lose 90 percent of stake given that 10 percent will lead to some major increase in value?”
He believes that the number of ICOs proves that venture capitalists are willing to take considerable risks on Fintech ideas. That means a considerable amount of capital could be siphoned into projects that have a greater chance of being successful.
“If we as regulators could channel those funds into productive activity and not just produce PR campaigns for the next venture, this could increase the welfare of society.”
James Chapman – Bank of Canada
A self-proclaimed ‘nerd’ at the conference, James Chapman holds a PhD in Economics and a MSc in Statistics. He is the Bank of Canada’s Senior Research Director in the Funds Management and Banking Department.
Chapman has shifted his research focus to Fintech more recently and this has incorporated cryptocurrencies and blockchain technology.
He highlighted the fact that the future development of a central bank digital currency would be necessitated by the needs of the public. However, when asked if cryptocurrencies could potentially replace fiat currencies, Chapman was fairly pragmatic:
“I don’t see that happening as long as central banks continue to do a good job of maintaining monetary policy. But could a cryptocurrency really spell the end of fiat currency? I think so. In a situation of hyperinflation where a central bank has abdicated responsibility for stability then you could see a case for cryptocurrency.”
Thomas Moser – Swiss National Bank
With a broad spectrum of responsibilities at the Swiss National Bank, Thomas Moser is an alternate member of the board and the Deputy Head of Department. His department deals with Economic Affairs, International Affairs, Statistics, Legal Services, and Communications.
Moser’s insights are perhaps the most interesting, given the recent referendum in Switzerland that could see the end of fractional reserve banking in the country with a national vote in June.
As Moser explained, the referendum originated in the 2008 financial crisis and “people just lost trust in the banking system” and want to hand that back to the central bank.
In essence, normal banks would no longer be able to issue currency and people would have accounts at the central banks.
“There would be various ways to implement that. 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.”
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.
According to Moser, that was included to protect other private markets including cryptocurrencies like Bitcoin.
“Lawyers say this would give, for the first time, government the opportunity to rule out certain types of private money. You could potentially use that to forbid cryptocurrencies like Bitcoin.”
However, as the Swiss banker explains, the country has long been supportive of cryptocurrencies – with its mass transit train system becoming Bitcoin-friendly in 2016:
“Switzerland has been relatively enthusiast to crypto. We have national railway system that transformed ticket machines to bitcoin atm. At every train station in Switzerland, you can put cash into a ticket machine and load BTC wallet. Cryptocurrencies have been very well tolerated in Switzerland so far.”
As for the possibility of cryptocurrencies wiping fiat off the face of the earth, Moser says that depends entirely on the efficacy of a given central bank:
“In general no but I think it depends on the fiat currency of the central bank. 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. It depends on the central bank, as long as they do a good job there is no reason for fiat currency to disappear.”
Money20/20, Amsterdam, Netherlands
No more crypto-apathy
A major take away from this topic is that central banks are beginning to change their tune towards cryptocurrencies. There is far less apathy towards blockchain technology, to the extent that banks and financial service providers are actively look at ways to implement the technology to improve their systems.
They may not be recommending people to use Bitcoin and other cryptocurrencies, but it seems like a more harmonious environment could be fostered in the coming months and years.
[ad_2]
Source link
