Sweden’s Riksbank, the world’s oldest central bank, is exploring the possibility of a digital register-based e-krona; the Reserve Bank of New Zealand is researching whether its physical currency could be replaced by a digital alternative; the Bank of England is trialling blockchain-like systems; the Monetary Authority of Singapore is examining the use of distributed ledger technology for clearing and settlement of payments; and the PBoC said in October that it had completed tests on algorithms for a prototype of its own digital currency.
Now the Reserve Bank of Australia (RBA) has entered the fray with an all too familiar refrain.
We’re paraphrasing…Bitcoin is bad, the realm of criminals and little more than a speculative mania, but the technology underlying Bitcoin has great potential, which we can exploit in time with our own “superior” digital currency.
This is what Philip Lowe, the RBA’s Governor, actually said about Bitcoin at the Australian Payment Summit, which took place today at the Hyatt Sydney Regency in Sydney Harbour.
When thought of purely as a payment instrument, (Bitcoin) seems more likely to be attractive to those who want to make transactions in the black or illegal economy, rather than everyday transactions. So the current fascination with these currencies feels more like a speculative mania than it has to do with their use as an efficient and convenient form of electronic payment.
No surprise there, just more of the same from banking Mafiosi like Lowe, the ECB’s Constancio (“tulip”) and most notably, JPM’s Dimon. The Financial Times article outlining the RBA’s thinking sets out the case for blockchain/distributed ledger technology.
Central banks, commercial banks and other financial institutions are exploring how to use private distributed ledgers to make financial transactions cheaper, more transparent, and less vulnerable to fraud. Banks and settlement systems currently use central electronic ledgers to track money transfers. But these systems can be slow, often rely on manual input and are open to hacking. Distributed ledger records transactions through a network of computers rather than a single central party…The attractions of the technology include the ability to make fast digital money transfers that do not carry the cost of handling cash, tracked securely by the network.
But…there’s just one thing missing, which is where we “need” our central banking friends.
However, a potential drawback of bitcoin-style systems is the lack of a central entity standing behind the liability, Mr Lowe said.
Philip Lowe’s and his RBA colleagues are examining the potential for an eAUD, which would be issued alongside physical banknotes - although the FT article neglects to add the word “initially” (if you’ll excuse our cynicism).
Australia’s central bank is exploring creating electronic banknotes using the technology underpinning bitcoin, as major central banks around the world race to bring cash into the digital age. Philip Lowe, governor of the Reserve Bank of Australia, said in a speech on Wednesday that the bank was analysing the benefits and drawbacks of issuing an electronic form of the Australian dollar — the “eAUD” — alongside traditional banknotes.
Speaking at the Australian Payment Summit, Mr Lowe said: “It is possible that the RBA might, in time, issue a new form of digital money…perhaps using distributed ledger technology.” He added that although the RBA has “no immediate plans” to issue digital dollars, the central bank is “continuing to look at the pros and cons”. The central bank also is exploring a new digital dollar settlement system based on the use of distributed ledger technology, or blockchain, the technology behind bitcoin. Digital dollars could take the form of a “token” that is issued and stored in consumers’ digital wallets, which can then be used for payments in a similar way to physical bank notes.
Perhaps in a classic case of “problem, reaction, solution”, we’re speculating of course, the RBA will introduce an eAUD and phase out physical currency during the next financial crisis. In the case of Australia we may not have too long to wait as we discussed last month in “The Party’s Over For Australia’s $5.6 Trillion Housing Frenzy”. However, we noted the best analogy for the “Down Under” economy in “Why Australia’s Economy Is A House Of Cards” in which Matt Barrie and Craig Tindale argued that the three decades long expansion was mostly the result of “dumb-luck”.
As a whole, the Australian economy has grown through a property bubble inflating on top of a mining bubble, built on top of a commodities bubble, driven by a China bubble.
Browsing through the speaker biographies at the Australian Payment Summit, besides being RBA Governor, Philip Lowe is also (we can’t help but smile) a member of Australia’s Financial Stability Board and “spent two years at the Bank for International Settlements working on financial stability issues”. On a serious note, we know the direction which central banks want to lead us, as we argued a week ago with regard to the nomination of Marvin Goodfriend as Fed governor.
It’s clear from reading between the lines that although central bankers are not engaging in a public discussion, the architects of the boom-bust cycles are considering their policy options for the next crisis…the one where their latest credit/asset bubble bursts in horrendous fashion. It’s also clear that the preferred solution is negative interest rates and either abolishing paper currency or taxing it in line with a depreciating digital currency standard.
The RBA’s Philip Lowe is another minion seeking to control the narrative for the banking Mafiosi.